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James Samson, Lincoln Indicators

BUY RECOMMENDATIONS

Credit Corp Group (CCP)

 

Chart: Share price over the year to 18/11/2011 versus ASX200 (XJO)

A receivables management company, specialising in debt buying and debt collection. After an upgrade to profit guidance, CCP shares have risen. But following a strong start to this financial year, there’s an opportunity to expand its Philippines based collection operations. CCP is a healthy company that may present investors with further upside opportunities.

Corporate Travel Management (CTD)

 

Chart: Share price over the year to 18/11/2011 versus ASX200 (XJO)

CTD provides travel administration to the corporate market. The company recently reiterated guidance, and demonstrated exemplary client service in the face of Qantas flight difficulties. We believe expected EBITDA (earnings before interest, tax, depreciation and amortisation) growth of between 30 per cent and 40 per cent and its sound financials may have gone unnoticed by the broader market.

HOLD RECOMMENDATIONS

Sky Network Television (SKT)

 

Chart: Share price over the year to 18/11/2011 versus ASX200 (XJO)

After recently presenting an update to the market, it’s become apparent that television advertising revenue and subscription growth rates may be slower than initially expected in financial year 2012.  We believe the shares are fully valued for now.

Silver Lake Resources (SLR)

 

Chart: Share price over the year to 18/11/2011 versus ASX200 (XJO)

Management is raising capital to fund the company’s ambitious expansion plans. In our view, this gold producer has a promising future, but we believe most of the upside is factored in at current prices.

SELL RECOMMENDATIONS

CSR Limited (CSR)

 

Chart: Share price over the year to 18/11/2011 versus ASX200 (XJO)

This building products company has provided a cautious outlook for the rest of the financial year. The company indicated it’s aiming at the lower end of profit guidance provided there’s no further deterioration in the building products market. We feel the risks are too high at the moment.

QR National (QRN)

 

Chart: Share price over the year to 18/11/2011 versus ASX200 (XJO)

Competitor Asciano warned coal haulage volumes were lower in recent times. QR National has ruled out cutting jobs despite a softer market outlook. Given a potential future fall in coal haulage volumes, we’re cautious about the company’s outlook as it trades on an expensive price/earnings ratio.

 

Sean Conlan, Macquarie Private Wealth

BUY RECOMMENDATIONS

BlueScope Steel (BSL)

 

Chart: Share price over the year to 18/11/2011 versus ASX200 (XJO)

With the company in transition, we believe the stock will re-rate as confidence improves relating to proposed cost outs, earnings and cash flows. Our analysis suggests the turning point in the company’s cash flows is between full year 2013 and 2014. We expect confidence to return towards the back end of full year 2012 amid greater clarity about its restructure.

DuluxGroup (DLX)

 

Chart: Share price over the year to 18/11/2011 versus ASX200 (XJO)

In a year hit hard by the Queensland floods and higher input costs, its ability to grow underlying group EBIT (earnings before interest and tax) margins from 12.8 per cent to 13.5 per cent year on year was an outstanding outcome. The company’s defensive qualities and resilient earnings will leave it well placed in an environment of shorter, sharper cycles.

HOLD RECOMMENDATIONS

Peet (PPC)

 

Chart: Share price over the year to 18/11/2011 versus ASX200 (XJO)

PPC announced a retreat in development spending on new projects due to poor market conditions. This decision will halve full-year 2012 NPAT (net profit after tax) to between $15 million and $20 million and result in a near breakeven first half. Importantly, it will defer substantial expenditure and preserve the balance sheet of this residential land developer. We expect full year 2012 net debt to remain in accordance with our previous $205 million assumption.

Extract Resources (EXT)

 

Chart: Share price over the year to 18/11/2011 versus ASX200 (XJO)

We retain a neutral rating for this emerging uranium company. Our revised price target is $8.90 a share. It’s in line with our estimate of look-through value from a possible bid. This is significantly above our fundamental valuation, and any share price increase provides an opportunity to lock in profits. Risks to our call include further corporate interest on the upside, or no offer materialising on the downside. The stock was trading at $7.65 on November 17.

SELL RECOMMENDATIONS

Mesoblast (MSB)

 

Chart: Share price over the year to 18/11/2011 versus ASX200 (XJO)

MSB recently presented data from its phase II trial into mesenchymal precursor cells for treating heart failure. In our view the data was disappointing and we now see a risk that a full phase III trial may not proceed. This data, in our view, highlights the many challenges MSB faces in getting its products to market.

Photon Group (PGA)

 

Chart: Share price over the year to 18/11/2011 versus ASX200 (XJO)

From our point of view, the lack of earnings visibility and a complex structure means it’s far too early to change our recommendation for this marketing and communications company. Indeed, if the company is unable to arrest the rate of earnings decline, it may need to seek further relief from its debt covenants in 12 months time.

 

Shawn Uldridge, William Shaw Securities

BUY RECOMMENDATIONS

BHP Billiton (BHP)

 

Chart: Share price over the year to 18/11/2011 versus ASX200 (XJO)

Driven by a weak broader market, BHP is trading well below what most analysts see as its true value above $50 a share. Around $37, BHP is trading on a price/earnings ratio of 9.5 times and a dividend yield of 2.6 per cent. For a long term portfolio hold, the opportunity to buy BHP cheaply won’t last long. On November 17, BHP was trading at $36.67.

Westpac Bank (WBC)

 

Chart: Share price over the year to 18/11/2011 versus ASX200 (XJO)

Banks are being sold on contagion fears emanating from the European debt crisis. This will keep interest rates low for the foreseeable future. You can get about 6 per cent on a Westpac long-term deposit, but buying the stock returns a 7.2 per cent annual dividend yield (almost 9.5 per cent including franking credits). For a self-managed super fund, this seems like a no-brainer.

HOLD RECOMMENDATIONS

AMP (AMP)

 

Chart: Share price over the year to 18/11/2011 versus ASX200 (XJO) 

The stock is extremely market sensitive, and has risen from lows of $3.75 to $4.40 as the market recovered. AMP is trading on a price/earnings ratio of about 11.5 times and is also paying a partly franked dividend yield of 6.9 per cent. We perceive value here, with potential for solid medium-term upside gains. The stock was trading at $4.31 on November 17.

Woodside Petroleum (WPL)

 

Chart: Share price over the year to 18/11/2011 versus ASX200 (XJO)

Restrictions on Royal Dutch Shell selling its remaining 24.27 per cent holding in Woodside Petroleum have expired. And all eyes are now on potential corporate action in this space. BHP has shown interest in fuels after its $12.1 billion purchase of Petrohawk Energy earlier this year. Other than Shell, WPL’s share register is wide open.

SELL RECOMMENDATIONS

Telstra (TLS)

 

Chart: Share price over the year to 18/11/2011 versus ASX200 (XJO)

We are long-term Telstra sellers, and the share price is now 25 per cent higher than its lows on safe haven buying. Although the company pays a dividend yield of 8.89 per cent, we perceive this as being “as good as it gets”. On November 17, the shares were trading at $3.19.

Qantas Airways (QAN)

 

Chart: Share price over the year to 18/11/2011 versus ASX200 (XJO)

We watched with dismay as the unions went on strike. We believe Qantas pilots, engineers and most other staff are paid a premium compared to their Jetstar and Virgin counterparts. If wage negotiations drag on, it will continue to hurt the brand and Qantas profits. Avoid for the time being.

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