18 Share Tips – 27 January 2012

Sean Conlan, Macquarie Private Wealth

BUY RECOMMENDATIONS

ANZ Bank (ANZ)

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

We believe the bank’s Asian growth strategy will continue to be a positive tailwind as it takes another leg up amid European banks leaving the region. We recently conducted a detailed review of earnings and upgraded them by 3-to-4 per cent on the back of stronger margin outcomes, continuing Asian growth and a normalisation of trading profits.

Newcrest Mining (NCM)

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

Company production for 2012 has tested the resolve of many NCM shareholders. But we see this quarter as the low tide mark before production begins to improve during the next 12 months, with the ramp up of the Cadia East project and completion of Lihir’s million ounce plant upgrade.

HOLD RECOMMENDATIONS

QBE Insurance (QBE)

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

QBE’s profit downgrade for the second half of 2011 sent conflicting signals about capital sufficiency. QBE appears to be managing its tight capital position. In the medium term, QBE has flexibility in its existing capital – that is it could release capital from its agency businesses.

Iress Market Technology (IRE)

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

We retain our longer term view that IRE deserves to trade at a price/equity ratio premium to the market. This is due to its dominant domestic market share, global growth opportunities and strong balance sheet to fund acquisitions. But we expect the stock will struggle to outperform in the near term amid financial market uncertainty, and in the absence of any short term earnings growth.

SELL RECOMMENDATIONS

Specialty Fashion Group (SFH)

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

SFH is facing structural challenges like others in the sector. Generating sales growth has been a key issue for the company amid a retail downturn in recent years. Labour and leasing costs are increasing by at least 3-to-4 per cent a year.

PMP Limited (PMP)

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

The operating environment is difficult and volatile. Retailers in particular are reducing frequency and pagination of catalogues. Magazines have also been impacted, with lower pagination reflecting a cut in advertising spending. We believe this print and distribution company will continue to underperform the market until there’s clear signs volumes are recovering.

Peter Rae, Morningstar

BUY RECOMMENDATIONS

Incitec Pivot (IPL)

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

IPL produces and distributes fertilisers and explosives. Recent falls in international fertiliser prices have contributed to the shares underperforming in the past 12 months. While fertiliser earnings can be volatile, earnings from explosives are growing strongly due to booming demand from the mining sector. The shares look good value trading on a price/earnings ratio below 10 times.

NRW Holdings (NWH)

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

This mining and civil contractor is also benefiting from a strong resources sector. In addition to strong growth in iron ore and coal volumes, its strategy to expand outside its traditional iron ore business in Western Australia is paying dividends. Earnings are set to double in the 2012 first half, with similar growth expected for the full year.

HOLD RECOMMENDATIONS

GrainCorp (GNC)

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

GNC reported record earnings in full year 2011 following a bumper 2010/11 winter crop. With another above average harvest just completed and a six million tonne grain carry-in, full year 2012 is set to be another strong year. But earnings are highly cyclical and can fall significantly in drought years. The shares are fairly priced. 

Blackmores (BKL) 

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

Full year 2011 was the ninth successive year of earnings growth for this vitamin and supplement distributor. Further growth is expected in full year 2012 and 2013. Growth is being driven by Asia, new product launches and expansion into other categories, such as pain relief cream, pet care and functional foods.

SELL RECOMMENDATIONS

Hastie Group (HST)

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

HST provides essential building services in Australasia, the UK and the Middle East. An ongoing review of international operations identified cost over-runs and bad debts. We like the new management and believe it has the expertise to improve many aspects of the business. But a turnaround will take years, and is made more difficult by structural weakness in the core air conditioning business.

Challenger Infrastructure Fund (CIF)

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

CIF has interests in Inexus, a “last mile” distributor of gas and other utilities in the UK. It also has interests in LBC Tank Terminals, a bulk liquid storage business with operations in Europe and the US. Its assets aren’t as defensive as other infrastructure types, with Inexus exposed to the UK housing market and LBC to global demand for consumer goods. Both businesses are weakly positioned, with high gearing and soft operating conditions.

Cleo Nanni, Alpha Broking

BUY RECOMMENDATIONS

Commonwealth Bank of Australia (CBA)

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

Price action indicates a strong rally as we move towards the reporting season. CBA will announce its interim profit on February 15. A dividend increase is widely anticipated, possibly as high as $1.43 a share, up from last year’s $1.32. We expect the bank to benefit from a flight to safety, and consider it a strong buy.

Bendigo and Adelaide Bank (BEN)

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

This bank is also a defensive play and paying consistent fully franked dividends. We expect the share price to improve in the lead up to reporting on February 20. Another strong buy in our view, supported by uncertain global economic times. I’m expecting an interim dividend of 30 cents to be declared in February.

HOLD RECOMMENDATIONS

Woodside Petroleum (WPL)

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

The share price has fallen from a 12-month high of about $50 to close at $33.97 on January 25. But I believe the patient investor will be rewarded as this company is well managed and offers a strong balance sheet. WPL is suitable for conservative investors seeking oil and gas exposure and solid long-term growth. It represents a cornerstone energy exposure in a balanced portfolio.

Newcrest Mining (NCM)

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

The gold and copper giant is well off its 12-month high of $42. On January 25, the shares closed at $33.15. But NCM is a quality, low cost gold producer with substantial growth and exploration upside. Hold for the long term.

SELL RECOMMENDATIONS

Commissioners Gold (CGU)

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

The company’s price history chart reveals a sorry tale since listing in September last year. On January 25, the shares closed at 8.5 cents. Sell and look to others in the same space with better liquidity. 

Altius Mining (AYM)

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

Shares in this gold explorer were issued at 20 cents in last September’s initial public offering. The shares closed at 11 cents on January 25. Its primary assets are in far north Queensland and New South Wales. I expect a higher gold price, but there are better alternatives than Altius available to investors.

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