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Campbell Brothers (CPB)

 

Chart: Share price over the year to versus ASX200 (XJO)

 

Share Price: $50.25

Price target: $53.63 (Macquarie)

Broker Calls: Macquarie – Outperform, Russell Research – Buy, City Index – Sell

P/E: 19.54

Market Cap: $3,392 million

There are two distinct camps with regard to this laboratory and analytical services company – some think it’s the best thing since sliced bread, others aren’t buying into the hype think the stock is fully valued. Whichever way you look at it, this company has certainly performed recently. Campbell Brothers (CPB) has been the market darling with its share price increasing a healthy 31.65% over the year to date, one of the few large caps to have made such gains in what has been a tough year on the Australian sharemarket. 

CPB has three revenue generating business divisions – ALS Group, Campbell Chemicals, and Rewards Distribution.  It is international in scope with operations in Australia, Asia, the Pacific region, North and South America, Europe, and Africa. The ALS Group generates about 95% of the company’s revenue through its laboratory and testing offerings. We featured the company in a recent article – ‘This stock should weather tougher times ahead‘.

Peter Russell from Russell Research is firmly in the sliced bread camp and has a buy on this global leader in analytical services for the mining, environmental and industrial sectors. ‘Debt is low and complementary acquisitions are contributing to its exemplary track record of growth, which in the past decade has been 32 per cent a year,’ he says.

Peter Escho, City Index isn’t buying into the hype and has a sell on CPB. ‘Loved by the market, but we think the $3 billion market capitalisation is over stretched for a laboratory services business, leveraged to resources and energy volumes and generating peak profits below $200 million,’ he says. While CPB is a great business, Esho thinks that the multiple being paid by the market is too high given global uncertainties. ‘Now is a great opportunity to sell into price strength,’ he says. 

The recent share price run that has seen the stock jump 25% in the past two months has seen Deutsche take the unusual step of increasing the price target from $50.00 to $51.50, but at the same time downgrading the stock from a buy to a hold. Deutsche sees  solid growth for CPB, but just can’t see the stock moving much higher right now.

 

Upgrades

REA Group (REA)

 

Chart: Share price over the year versus ASX200 (XJO)

 

Share Price: $12.20

Broker Calls: Deutsche – Buy

P/E: 21.44

Market Cap: $1,607 million

REA Group, which owns and operates real estate and commercial development sites in Australia including the ubiquitous realestate.com.au, has enjoyed strong organic growth from establishing a dominant position in Australia’s real estate advertising market. Monthly traffic to REA’s Australian website is a whopping 7.6 million visits from 6.3 million visitors (almost 30% of the population), topping the traffic to news.com.au, theaustralian.com.au and domain.com.au. 

In terms of the number of unique visitors to media sites it is second only to smh.com.au – no small feat by any stretch of the imagination. REA is also expanding overseas and is enjoying solid growth via its Italian website casa.it.

Deutsche is keen on the stock, reiterating a buy on the online real estate company several times over the past few months. James Samson of Lincoln Indicators also had a buy on REA earlier this year. Samson said the number of real estate agents paying for advertising on casa.it had risen from 2391 to 11,531 during the six months to December 31, 2010. “With the site becoming one of the dominant players in Italy’s online real estate market, it’s clear that European expansion is an opportunity for the company to explore in the future,” he says.

Rob Hopkins, Managing director of Smallco Investment Manager is also positive about the stock’s future. ‘Encouraging within the online real estate advertising group’s 35 per cent EPS growth at half year were revelations that losses within its Italy-base operation had finally stabilised,’ he says. ‘The company is actively seeking new acquisitions and has been eyeballing French real estate site SeLoger.com.’

 

Buys

Newscorp (NWS)

 

Chart: Share price over the year versus ASX200 (XJO)

 

Share Price: $17.47

Price target: $22.00 (Merrill Lynch)

Broker Calls: Merrill Lynch – Buy

P/E: 13.4

Market Cap: $13,950 million

Considering the headwinds facing the industry and the internal turmoil experienced by the goliath of the Australian media industry News Corp, its share price has held up remarkably well. Sure the current $5 billion dollar share buyback isn’t hurting the share price but News has outperformed the ASX200 and even boasts a gain for the year. Brokers think that there’s plenty left in the tank. Morningstar has upgraded News to ‘Accumulate’ with a price target $18.45, while Deutsche has placed a price target $20.50 on Murdoch’s Australian arm. Meanwhile Merrill Lynch has a $22.00 target, a 25% premium to the current share price.

Andrew Inglis, Shadforth Financial Group has a hold on News saying that although recent international investigations into News Corp have reflected poorly on the company’s image, there may be a silver lining. ‘NWS is under intense political scrutiny and, in our view, it’s unlikely that regulators will allow NWS to make any significant – often overpriced – acquisitions in the near future,’ he says. ‘NWS has an excellent mix of media businesses producing very strong cash flows and debt is negligible.’ Inglis believes that shareholders will start to reap the benefits from increasing dividends, the current $US5 billion share buyback and a rising share price.

Meanwhile Peter Russell of Russell Research has a sell on the stock, stating that despite the company’s global footprint its performance in new media has been modest. ‘Move on while a $US5 billion buy-back helps the share price,’ he advises.

 

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