Price target increased

Ausenco (AAX)

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


Share Price: $3.06

Price target: $3.65

Broker Calls: Buy – Deutsch

P/E: 16.6

Market Cap: $376 million

Ausenco’s most recent price spike warrants attention, on top of Deutsche Bank’s new target price on the stock, up from $2.70 to $3.65.

Ausenco employs around 2300 people in 20 countries, offering services to the energy, minerals and metals sectors. The company’s fortune rides on the continuation of the mining and resources boom.

Ausenco just acquired 100% of Canadian-based engineering services provider, Reaction Consulting, for $3.8 million – funded from the company’s cash reserves. Reaction Consulting is a player in the bitumen and oil sands sector in Calgary. The purchase, which is forecast to earn between $5 and $7 million, gives Ausenco exposure to the oil sands market in North America.

The group has also won a $125 million contact to expand the existing ore crushing and processing plant of Barrick Gold’s Lumwana copper project.

Due to its steady flow of contact wins, Deutsche has greater confidence in its forecasts. Around 75% of projected contract revenue has already been contracted for the year – giving the group some stability of income.

UBS, however, has its doubts. It argues that the recent share price run has overshot and that the stock is now looking pricey. Indeed, Ausenco’s P/E at 16.6 is signficantly higher than the market, at 12.5, and the sector average, at 11.5. Investors must decide whether Ausenco’s future earnings growth warrants a higher premium or not. According to Deutsche, it does, but UBS isn’t so sure.


Upgrades & Buys

News Corporation (NWS)

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


Share Price: $19.61

Broker Calls: Buy – RBS

P/E: 19.24

Market Cap: $49 billion

Long-term shareholders in News Corporation have been rewarded by share price growth of roughly 640% since the late 1980s. Over the last five years, however, the share price has retreated by 22% courtesy of the dislocation caused by the growth of online advertising (the likes of Google eating into revenue), as well as internal dramas such as the notorious phone backing scandal.

The tough times could be coming to an end as represented by News Corp’s six month price chart, up an impressive 22%. Most brokers are backing the stock with Buys, with price targets over $20 a share. RBS sees plenty of positives in 2012 that should support share price momentum. Further share buybacks would also support the share price.

The battle for internet TV is an area to watch with News Corp’s British Sky Broadcasting launching a new internet TV service this year. The service will allow anyone in the UK with broadband access to watch content on a monthly or pay as you go basis. The new service is expected to cover the slowdown in subscriber numbers to Sky’s traditional pay TV service. It means that users can watch Sky content, such as Sky Movies, without signing up to a contract. For example, customers can rent one-off films. Most analysts argue that this model will attract a market segment that have traditionally spurned Pay TV.

Sky is also launching a fibre broadband service in April this year. Deutche notes that fibre should provide better margins than existing broadband.


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