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Clive Briggs, RBS Morgans

BUY RECOMMENDATIONS

BHP Billiton (BHP)

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

BHP is a complex beast, with the market’s schizophrenic appetite for risk and politics often as important drivers as global growth and commodity prices. Our conclusion: BHP deserves its place as a cornerstone in any balanced portfolio; secondly, BHP’s high quality earnings means it’s well placed to weather economic volatility and thirdly the company is showing signs of focusing more on shareholder returns.

NRW Holdings (NWH)

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

This mining services provider is well positioned to continue benefiting from strong capital expenditure in the resources sector. The company should deliver strong growth based on an order book of $900 million contracted for full year 2013.
It has a strong track record of execution, framework agreements with miners and a solid balance sheet. 

HOLD RECOMMENDATIONS

GrainCorp (GNC)

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

The grain handler appears committed to improving earnings and shareholder returns. It remains comfortable with its target to deliver substantial EBITDA (earnings before interest, tax, depreciation and amortisation) growth by financial year 2014. However, following recent strong share price gains, we have moved to a hold.

Seek (SEK)

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

Seek announced an investment of US$101 million to raise its stake in Brazil Online and Online Career Centre Mexico. While Seek has retained full year earnings guidance, the company has also announced plans to issue subordinated notes to raise $125 million to repay debt and fund its investment.

SELL RECOMMENDATIONS

Echo Entertainment Group (EGP)

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

The company requested a trading halt on June 12. Anaemic revenue growth is the key takeaway from a recent trading update. The Star casino complex is a problem. Its rate of revenue growth is about half our current expectation. The $870 million redevelopment doesn’t appear to have had any major impact on revenue after operating for a full eight months. It will be tough to turnaround as the novelty factor of seeing the redevelopment only lasts a certain time. Our forward estimates are under review, with risks to the downside.

Wesfarmers (WES)

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

Wesfarmers demonstrated at a recent strategy day that key businesses have significant capacity for organic growth. The outlooks for the Bunnings hardware chain and the resource businesses are strong. But offsetting this are Coles Liquor and Target. On balance, we believe the stock continues to trade at a notable price/earnings premium, which doesn’t reflect the inherent risks of execution and earnings cycles.

 

James Samson, Lincoln Indicators

BUY RECOMMENDATIONS

Grange Resources (GRR)

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

An iron ore pellet producer based in Tasmania, with operations at the Savage River mine. Despite perceptions of potential weakness, we feel that GRR is oversold at current levels. There may be an upside catalyst should the company sell part of its Southdown magnetite project in Western Australia. The shares closed at 46.5 cents on June 13.

Boart Longyear (BLY)

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

One of the world’s largest drilling services business. It recently reaffirmed revenue and EBITDA (earnings before interest, tax, depreciation and amortisation) guidance of $US2.3 billion (up 14 per cent on 2011) and $US460 million (up 27 per cent) respectively for full year 2012. The company offers significant value trading on a forward price/earnings ratio of about six times.

HOLD RECOMMENDATIONS

Little World Beverages (LWB)

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

An Australian beer and cider brewer that’s recently expanded to the east coast. With an expected substantial investment to build a new brewery and hospitality centre at Geelong in the next 18 months, LWB is in a consolidation phase by reinvesting for future growth.

Seek Limited (SEK)

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

Despite increasing its stake in online classifieds in Brazil and Mexico, Seek remains fully priced at current levels. With Australian unemployment remaining at low levels, Seek is well placed to grow earnings via volume growth and price increases.

SELL RECOMMENDATIONS

Aquila Resources  (AQA)

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

Due to difficult iron ore conditions, we believe the company’s planned Pilbara project may not proceed. With Fortescue Metals Group (FMG) unlikely to develop the Anketell port, it leaves AQA in a precarious position, as we don’t believe it’s  able to fund the port’s development on its own.

Newcrest Mining (NCM)

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

The gold producer continues to encounter operational difficulties. Production at Cadia, Telfer and Lihir has been disappointing in recent times, and we believe downside risks are mounting on this front.

 

Darren Jackson, Calibre Investments

BUY RECOMMENDATIONS

SP AusNet (SPN)

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

SPN represents a defensive high yield utilities play – well suited in a macro economic environment where uncertainty is the norm. Closing at $1.04 on June 13, SPN’s gross dividend yield is about 9 per cent, without factoring in future earnings growth. Dilution risk is minimal given it’s just completed a capital raising.

Stratum Metals (SXT)

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

We see value in this newly listed mineral explorer. SXT will be seeking to define a thermal coal resource in the Canning Basin, with drilling to start in about five weeks. Further underpinning a $5 million enterprise value is a gold asset in the Gidgee region, which is showing strong assay results while diversifying company exposure to another commodity.  

HOLD RECOMMENDATIONS

Thakral Holdings (THG)

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

The company is trading around a 27 per cent discount to net tangible assets. These assets mostly include owning hotels and resorts on Australia’s east coast and some commercial property. Potential downside is curtailed by Brookfield Asset Management’s takeover offer at 70 cents a share. The shares closed at 76 cents on June 13.

Telstra Corporation (TLS)

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

Telstra has proven to be highly resilient in 2011 and so far in 2012. In a low interest rate environment, it’s hard to look past Telstra’s 7 per cent dividend yield (conditional upon consistent earnings). Additionally, for a self managed super fund running a covered call strategy, Telstra is an excellent portfolio inclusion.

SELL RECOMMENDATIONS

Billabong International (BBG)

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

Management has rejected any private equity interest below $4 a share. But, in our view, it’s also failed to offer an alternative that creates short-term value for shareholders. We expect operating conditions to remain difficult for this iconic surf wear brand. The shares closed at $1.89 on June 13.

James Hardie Industries SE (JHX)

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

The share price of this building materials company has run up hard this year, mostly in line with the US construction index. Arguably, this price action can be viewed as over-exuberance, or a front-runner to a US housing recovery. Full year 2012 earnings are expected to range between $US130 million and $US140 million, equating to a price/earnings multiple above 21 times. In our view, it’s expensive by any measure. 

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