18 Share Tips – 16 July 2012

Scott Marshall, Shaw Stockbroking

BUY RECOMMENDATIONS

Boart Longyear (BLY)

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

There isn’t many global rig operators with the scale, depth and reputation of this company. The company has de-risked and de-geared its once overburdened balance sheet. BLY’s business is far more defensive, flexible and risk-averse than prior to the global financial crisis. Profit margins and drill rig utilisation rates are improving. Our target price is $4.50. The shares closed at $2.81 on July 11.

Qube Logistics (QUB)

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

QUB now controls 28 bulk shipping ports around Australia, owns or manages 80 rail locomotives and 800 wagons. It provides extensive land based facilities for road transport, including intermodal (road-to-rail) hubs. Management is well known and experienced. The company’s focus remains the bulk transported goods sectors. Our target price is $2.21. On July 11, the shares closed at $1.50.

HOLD RECOMMENDATIONS

Webjet (WEB)

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

The share price has been a good performer in the past 12 months after launching its accommodation service. Management, branding and market positions are all strong, as is the underlying travel market. The company continues to generate excess cash flow and we expect share buybacks.

Wesfarmers (WES)

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

Growth opportunities include continuing to improve Coles Supermarkets, expanding the Bunnings hardware chain and lifting coal production. Target and Kmart continue to improve operationally in a very difficult sector. The resources division is exposed to commodity prices (coal) and the Australian dollar, but is offset by investment to increase production rates.

SELL RECOMMENDATIONS

Mirabela Nickel (MBN)

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

The company’s total cost of production is US$9.50 a pound compared to a recent nickel price of US$7.70 a pound. To break even is a challenge, requiring higher grades, increasing mining and processing rates and lower development costs. We expect higher grades, but this won’t be sufficient to break even.

Carsales.com (CRZ)

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

The market anticipates strong revenue growth from expanding its online auto offering and other web sites. But apparent strong underlying demand for cars and components is coming off a low base after the Thailand floods and Japanese earthquake previously interrupted the supply of vehicles and components. There may be revenue growth in percentage terms, but it will be amplified by coming off a low base. Prefer others. 

Warwick Grigor, Canaccord BGF

BUY RECOMMENDATIONS

ABM Resources (ABU)

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

ABU continues to find high grade gold in the Tanami Desert, announcing 427,400 ounces at 7.95 grams per tonnes at Old Pirate. This can quickly be turned into a strong cash flow if it can cut a deal to treat the ore at the Tanami Gold Coyote plant, only 10 kilometres away. The large tonnage/low grade Buccaneer deposit continues to grow, with 2.67 million ounces announced at 0.2 grams per tonne cut-off. ABU offers high grade for early cash flow, and large low grade for leverage to a higher gold price – the best of both worlds.

Venture Minerals (VMS)

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

VMS is advancing a bankable feasibility study at the $162 million Mt Lindsay tin/tungsten project in north-west Tasmania, one of the largest undeveloped tin projects in the world. Interestingly, the Chinese have gradually been buying all available tin projects in the region in the past few years. In the meantime, Venture is pursuing a 1 million tonne a year direct shipping iron ore project in Tasmania, with a capital cost of only $7 million amid a net present value of $123 million.

HOLD RECOMMENDATIONS

Blackthorn Resources (BTR)

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

 BTR enjoyed a mighty share price run after announcing an intersection of 223 metres at 4.67 per cent copper at its Mumbwa project in Zambia. The share price has come back a little, along with the rest of the market, but shareholders should stick with it in anticipation of scoping study results in August. The latest Mumbwa resource is 187 million tonnes at 1.14 per cent copper. Mumbwa offers enormous exploration potential. A 39.9 per cent interest in the Perkoa zinc project provides long-term cash flow with limited downside.

Saracen Mineral Holdings (SAR)

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

This gold producer was punished earlier this year over problems with grade reconciliation in a new pit. Production has been recovering strongly in recent months, and the Red October development looks like over-delivering on grade and profits. Planning for expansion to between 200,000 and 250,000 ounces a year is well advanced. Stick with this as it’s a credible growth story.

SELL RECOMMENDATIONS

Arafura Resources (ARU)

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

The heat has definitely gone out of the rare earths market for now. ARU has a significant project, but it’s proving too difficult to finance in these times amid questions about how viable the selected process route will be. The company is spending a lot of money. Best to move on to more promising situations.

Medusa Mining (MML)

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

This gold producer is beginning to look like a fallen star. We have questions about its ability to deliver and concerns about reporting of recurring cash operating costs. In our view, the share price has seen its best times and is likely to remain under pressure for the foreseeable future. There’s better value elsewhere.

Alan Marrs, Alpha Broking

BUY RECOMMENDATIONS

Reed Resources (RDR)

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

Based in Western Australia, its Meekatharra Gold Project should start production later this year. This project currently has 3.59 million ounces of gold in JORC (Joint Ore Reserves Committee) resources. Reed is initially targeting production of about 95,000 ounces in its first year. A speculative buy. The share price closed at 19.5 cents on July 11.

AusTex Oil (AOK)

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

An oil explorer and producer, with interests in 26,000 acres in the US. The company is planning to ramp up production in the highly prospective Mississippi Lime play in northern Oklahoma and Kansas. It’s on schedule to drill two new wells each month for the rest of 2012. If it continues to discover oil at current rates, we expect the company to be producing 500 barrels a day before the end of the year.

HOLD RECOMMENDATIONS

Cash Converters International (CCV)

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

Buys and sells second hand goods and supplies financial products. The company has experienced small losses on its loan book, but manages to keep growing its profits.

Mirvac Group (MGR)

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

This well managed diversified property group retains a portfolio of high occupancy rates and pays a regular distribution to shareholders. It’s further de-risking via property sales and leases.

SELL RECOMMENDATIONS

Wotif.com Holdings (WTF)

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

An online booking provider of accommodation, flights and other services. It appears the opposition is gaining market share. Weak consumer confidence and a struggling economy may impact prospects.

Energy Resources of Australia (ERA)

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

Future growth is limited as this uranium company examines how to keep the Ranger mine going. A decision on whether to develop the Ranger 3 Deeps mine is expected in late 2014. The company faces several legacy costs related to mining at Kakadu National Park.

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