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Cameron Bell, Intersuisse

BUY RECOMMENDATIONS

QBE Insurance Group (QBE)

 

Chart: Share price over the year to 28/10/2011 versus ASX200 (XJO)

QBE offers strong management and an excellent business model based on conservatism. Volatile and weak global markets have restricted the share price recently, but it’s trading on a very cheap multiple and is paying a dividend yield above 9 per cent. The company has a sound balance sheet and generates very strong cash flow.

Grange Resources (GRR)

 

Chart: Share price over the year to 28/10/2011 versus ASX200 (XJO)

Recent falls in spot iron ore prices have created an opportunity in the mid cap players. GRR is profitable and is generating huge amounts of cash from selling magnetite pellets. Additionally, the company has a major growth project in Western Australia, which is technically and financially very manageable.

HOLD RECOMMENDATIONS

Telstra (TLS)

 

Chart: Share price over the year to 28/10/2011 versus ASX200 (XJO)

Shareholders have overwhelmingly voted in favour of co-operating with NBN Co. But there remains some uncertainty as to how the Australian Competition and Consumer Commission will view the agreement. We believe there will be some changes, but they won’t have a big impact. Telstra will still be able to retain its dividend yield of almost 9 per cent for several years.

National Australia Bank (NAB)

 

Chart: Share price over the year to 28/10/2011 versus ASX200 (XJO)

Australia’s big four banks are still cheap and we think NAB represents a sound investment opportunity. NAB reported a record cash profit of $5.5 billion on October 27. It also increased its final dividend by 4 cents to 88 cents, fully franked.  The bank is in a strong financial position and is performing well.

SELL RECOMMENDATIONS

Challenger (CGF)

 

Chart: Share price over the year to 28/10/2011 versus ASX200 (XJO)

We take a contrarian stance with Challenger. It’s recently been a tough time for funds management stocks, but Challenger has withstood most of it. Although Challenger’s annuity offerings are attractive in times like these, we still view weak markets and fund redemptions as an increasing threat.

Ansell (ANN)

 

Chart: Share price over the year to 28/10/2011 versus ASX200 (XJO)

Industrial activity hasn’t been strong and we believe there’s a risk that sales of industrial gloves will flatten. Additionally, the surging Aussie dollar will hamper earnings so we see no reason to retain this company.

 

James Georges, Patersons Securities

BUY RECOMMENDATIONS

Avanco Resources (AVB)

 

Chart: Share price over the year to 28/10/2011 versus ASX200 (XJO)

Among other projects, its Rio Verde prospect in Brazil stretches along a 14 kilometre copper trend. Investors and traders reacted positively to drilling results, which included a bumper 5.96 per cent copper at a depth of 27.70 metres. The company will assess the feasibility of extracting direct shipping copper ore, which has the advantages of short revenue lead times with low pre-production costs. The company has about $19 million in the bank. A speculative buy.

Fletcher Building (FBU)

 

Chart: Share price over the year to 28/10/2011 versus ASX200 (XJO)

In what has been a difficult sector, Fletcher indicated there’s a clear risk that residential and commercial construction activity will remain at current low levels for the remainder of full year 2012. But operations exposed to the infrastructure sector in Australia continue to perform solidly. Taking a medium-term view, Fletcher provides attractive exposure to the rebuilding effort in New Zealand and eventual recovery in Australian construction activity.

HOLD RECOMMENDATIONS

OZ Minerals (OZL)

 

Chart: Share price over the year to 28/10/2011 versus ASX200 (XJO)

Copper production was steady, but gold production was slightly down. Our main concern is whether the company’s Ankata deposit can become a successful copper producer. If it does, the company will be able to retain production of between 100,000 and 110,000 tonnes of copper a year for the longer term.

Mesoblast  (MSB)

 

Chart: Share price over the year to 28/10/2011 versus ASX200 (XJO)

An adult stem cell company stgeloping biological products in the broader field of regenerative medicine. The company and its strategic alliance partner Cephalon recently won an overseas award for the most compelling licensing and intellectual property-related deal in the life sciences sector. The deal was mostly driven by impressive phase II trial results for treating congestive heart failure. The recent price spike has led us to downgrade our rating from a buy to a hold.

SELL RECOMMENDATIONS

Murchison Metals (MMX)

 

Chart: Share price over the year to 28/10/2011 versus ASX200 (XJO)

The $16.6 million net loss for full-year 2011 reflects pre-production status. Meaningful future profits depend on mine stgelopment. The cash balance at June 30 was just $12 million. A further US$25 million was drawn from a US$100 million bridging loan facility. We expect net debt to increase between $5 million and $10 million a quarter.

Kagara (KZL)

 

Chart: Share price over the year to 28/10/2011 versus ASX200 (XJO)

Kagara is in transition.  Managing director Geoff Day was appointed earlier this year with a brief to undertake a wide-ranging review and make necessary changes. KZL has given detailed guidance for full-year 2012 and broader guidance for the next five years, including required expenditure. A further two years is needed to meet largely unchanged long- term growth targets. Copper output is now forecast to fall from 22,500 tonnes in full year 2011 to 18,000 tonnes in 2014 before rising to 30,000 tonnes in 2016. Sell on rallies.

 

John Rawicki, Ord Minnett

BUY RECOMMENDATIONS

Alacer Gold Corporation (AQG)

 

Chart: Share price over the year to 28/10/2011 versus ASX200 (XJO)

With quality assets in Australia and Turkey, this mid cap gold producer is on track to exceed its 2011 production forecast of 400,000 ounces. Cash operating costs were down 10 per cent to $602 an ounce in the 2011 second quarter. Extensive drilling and pit mapping should result in a substantial resource upgrade later this year.

CSL (CSL)

 

Chart: Share price over the year to 28/10/2011 versus ASX200 (XJO)

This blood products and vaccines maker is a defensive stock that will continue to benefit from earnings stability. CSL will boast a strong balance sheet after completing its $US750 million private placement and proposed $900 million buyback over the coming year. We expect underlying earnings will deliver double-digit growth via additional market share, emerging market demand, stable margins and increasing albumin prices.

HOLD RECOMMENDATIONS

BHP Billiton (BHP)

 

Chart: Share price over the year to 28/10/2011 versus ASX200 (XJO)

The global miner posted record iron ore shipments in the September quarter. Total iron ore production of 39.6 million tonnes was up 11 per cent on the previous quarter. Although iron ore prices have softened in the past few months, BHP is well positioned to meet strong global demand for its diverse commodities.

MAP Group (MAP)

 

Chart: Share price over the year to 28/10/2011 versus ASX200 (XJO)

International passenger numbers rose 3.4 per cent in September, which was stronger than expected. Additional flights from Qantas, Emirates and Virgin in the next few months will lift traffic flow at Sydney Airport and support MAP’s business. Challenging global conditions are the key risk.

SELL RECOMMENDATIONS

Platinum Asset Management (PTM)

 

Chart: Share price over the year to 28/10/2011 versus ASX200 (XJO)

Funds under management are the key profitability driver for any fund manager. Platinum’s average fund balance for the 2012 first quarter was $16.8 billion, which was significantly lower than expected. Although Platinum tends to perform well in tough market conditions, the stock’s lack of earnings growth in 2011 and a relatively high price/earnings ratio of about 15.5 times means better value lies elsewhere for now.

Oz Minerals (OZL)

 

Chart: Share price over the year to 28/10/2011 versus ASX200 (XJO)

Third quarter copper production was in line with our forecasts, but gold fell short of estimates due to lower milled grades. Consequently, OZL has downgraded gold production guidance between 10 per cent and 20 per cent for the 2011 calendar year, which we expect to flow into calendar 2012 and beyond. In our view, this will drive downgrades to earnings forecasts and net present value.

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