John Rawicki, Ord Minnett
IMF (Australia) (IMF)
Trading at a substantial discount to our $2.02 valuation, IMF is the only listed company in Australia funding litigation. IMF boasts a highly prospective case portfolio that we expect to handsomely reward long-term investors who understand the nature of this business. Expanding to the US will propel the company into a very lucrative litigation market. On February 16, the shares were trading at $1.30.
FKP Property Group (FKP)
Looking forward, we’re expecting stronger results in the 2012 second half and a share price recovery. We have revised our earnings per share forecasts for full year 2012 in light of our softer outlook for residential sales. However, our valuation of FKP’s new and existing projects implies the stock is trading at an attractive 36 per cent discount to net present value.
Retail Food Group (RFG)
Despite suffering from weaker shopping traffic, we expect an 8.9 per cent increase in net profit and a 6 per cent increase in revenue for first half 2012 when the company reports on February 23. Although domestic conditions are tough, offshore expansion is being actively pursued, with the company operating 17 stores across China, PNG and Saudi Arabia. We retain a valuation of $3.40. The shares were priced at $2.62 on February 16.
While acknowledging FlexiGroup has several appealing qualities (management, funding/cash flow profile and growth options), we believe the current share price represents fair value. We believe FXL has the ability to further reduce its funding costs if needed, although the company is currently well funded. Our valuation is $2.32 a share. The shares were priced at $2.18 on February 16.
Atlas Iron (AGO)
The share price has remained firm in recent months, but we believe upside, at this point, will be limited. Softening iron ore prices has led to a slowdown in the company accumulating cash. Further, full-year 2012 earnings are now forecast to be markedly lower than 2011, so we expect a modest dividend. Better value at lower risk lies elsewhere.
Tishman Speyer Office Fund (TSO)
Private equity has launched a takeover bid for this office fund at 91.2 cents a unit. We don’t believe a superior bid will emerge. The offer is a staggering premium to the pre-takeover announcement price of 50 cents. Sell on market.
Darren Jackson, Calibre Investments
Saracen Mineral Holdings (SAR)
The share price of this gold company retreated 20 per cent on news that its executive chairman sold 40 per cent of his holdings. Meanwhile, the gold price has incrementally increased. In this instance, we view the sale as an over-reaction and is unlikely to have a material impact on the company’s future prospects. Buy on this weakness.
Lynas Corporation (LYC)
This rare earths company was recently awarded a temporary operating licence for its Malaysian processing plant despite the controversy. This helps to materially de-risk the company as it nears production. But before production starts and positive cash flow is generated, investors can expect a bumpy ride.
Qantas Airways (QAN)
Recent half-year results appear disappointing. But taking into account challenging conditions, such as increasing fuel costs and industrial disputes, Qantas has done well. Going forward, a high Australian dollar will help reduce overseas costs on expanding company operations. Qantas has a steadfast chief executive willing to make unpopular short-term decisions for long-term viability.
For investors and note holders who have endured a tumultuous and loss-making experience, some respite is near. Private equity interest and/or the sale of European assets will help to pay down high levels of debt. Additionally, any challenge or appointment to the board by paper entrepreneur Andrew Price will help to unlock any residual value and bring about a welcome change.
Domino’s Pizza (DMP)
In line with our view that equity markets will improve in 2012, premiums attributed to defensive stocks will diminish. Domino’s valuation on price-to-earnings metrics will come under scrutiny – relative to its growth. Low barriers to entry will be another major consideration.
Djerriwarrh Investments (DJW)
A listed investment company that’s trading at a sizeable premium to the value of assets it holds (mostly S&P/ASX 50 stocks). At January 31, DJW’s net tangible assets were valued at $3.16 a share verses a share price of $3.72. This is while most listed investment companies currently trade at a discount. On February 16, the shares were trading at $3.63.
James Cooper, Morningstar
Gindalbie Metals (GBG)
There should be positive news flow in 2012 as mine construction finishes and magnetite shipments start. The feasibility study for stage 2 expansion of Karara is expected mid year. Completion will provide more certainty regarding value accretion and could boost the share price.
Southern Cross Media Group (SXL)
Owns radio and television assets in regional Australia. It also owns radio stations in five mainland capital cities after acquiring Austereo. It’s trading on a modest forward price/earnings ratio and, with a high yield, SXL is a solid media investment given its strong radio and regional television franchise.
BKN is confident of achieving a strong second half result. Full year guidance is based on robust sales of high margin ground engaging tools, acquired foundries realising synergies, new foundries coming online and a historically high order book.
JB Hi-Fi (JBH)
The media sector suggests online shopping migration will occur a lot quicker than many people think. Market consolidation is likely, with the weaker business models to be consumed by the stronger. We continue to view JBH as a market consolidator.
Under chief executive Mark Selway, Boral has become an active acquirer. But, in our view, only moderate earnings growth can be expected over the longer-term, as earnings ebb and flow with cyclical forces. Trading opportunities are on offer, but characteristic share price volatility means this stock only suits above-average risk investors.
Auckland International Airport (AIA)
The company will continue to enjoy a monopolistic position because it’s unlikely Auckland will get another airport in the foreseeable future. It’s well positioned to grow from increasing passenger numbers given the country’s tourism orientated economy and its image as a clean, green place to visit. We think high spending Asian tourists will fuel this growth, but even the best of companies can be over priced.
Please note that TheBull.com.au simply publishes broker recommendations on this page. The publication of these recommendations does not in any way constitute a recommendation on the part of TheBull.com.au. You should seek professional advice before making any investment decisions.
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