Andrew Inglis, Shadforths
Singapore Telecommunications (SGT)
This company has a very strong balance sheet courtesy of strong cash flows from its established telco businesses in Singapore and Australia (Optus). Forty-five per cent of its profits are now coming from its minority holdings in mobile phone companies with strong market shares in India, Indonesia, Thailand, Philippines and Pakistan. These are the fastest growing mobile phone markets in the world. The Australian Government’s decision on rolling out broadband is also a long term positive for Optus.
Transfield Services (TSE)
Transfield has long term contracts with blue chip companies and government authorities to maintain, operate, build and upgrade their manufacturing plants, buildings and facilities in Australasia, North America and the Persian Gulf. Transfield currently has an $11 billion order book. It offers a solid balance sheet, and is well positioned to take advantage of government infrastructure spending programs.
The supermarket giant’s share price has been in the doldrums as investors take profits and re-allocate funds to cyclical stocks. Concerns exist over a possible overseas acquisition. Woolworths’ track record in recent years has been excellent, and it’s an ideal stock to hold during recessionary times.
Incitec Pivot (IPL)
A fertiliser and explosives company, its share price has been under pressure due to low international fertiliser prices and lack of demand by farmers. Expect the fertiliser market to stabilise in this year’s second half, and for more synergies to be extracted from the explosives business.
This building materials group is trading close to the top of its range of the past seven months and its price/earnings ratio of 22 times is expensive on full-year 2009 earnings. With a US housing recovery still some time off, Boral looks expensive at these levels.
Take advantage of the recent rally to sell Amcor. Packaging is a commodity business and Amcor’s major customers are multi-national food and beverage companies who drive a hard bargain on price. This is a major reason behind an under-performing share price since 1991.
Michael Heffernan, Austock
ASX Limited (ASX)
Its virtual monopoly position hasn’t prevented a disappointing 12 months. While the value of trading has fallen sharply in the past year, the huge number of capital raisings by listed companies will help moderate the effect of revenue shortfalls due to subdued turnover. Accordingly, the market will probably “look through” its next report, which is expected to be uninspiring. Should improve from here.
This Australian insurance and wealth management icon has been a very poor sharemarket performer in the past few years. Its wealth management business has suffered in response to the global financial crisis. AMP is closely aligned to market activity, which has improved dramatically from very low levels in the past two months. As the market is always looking forward, AMP’s medium term future is now brighter.
The company’s recent March quarter sales report was particularly satisfying in difficult economic circumstances. A quality retailer that continues to perform well despite a challenging economic environment. It should benefit from the Federal Government’s $900 cash bonus.
An industrial conglomerate that’s also weathering the economic storm reasonably well, and the Coles transformation appears to be on track. Its recent investor update was well received by the market. The company’s Bunnings hardware business will benefit from any upsurge in activity in the first homebuyers market.
BlueScope Steel (BSL)
Demand for steel is a lagging indicator of economic activity and it will be some time before global economies start to improve. Its capital raising at an attractive price doesn’t remove these obstacles, and far better opportunities exist elsewhere.
This company faces similar problems to BlueScope, and its recent capital raising underlines the difficulties it faces in the current climate. Subdued economic activity paints a bleak outlook for the steel industry, at least in the short term. This is a global economic recovery stock.
Mark Goulopoulos, Patersons Securities
Westfield Group (WDC)
Westfield’s recent update highlights the resilience of its shopping centres during the global economic recession. Occupancy rates remain very high, and the balance sheet is strong, allowing the group to consider potential opportunities. The current share price, offering a strong dividend yield, has no built-in premium to reflect the company’s strong stgelopment pipeline in future.
Australian Worldwide Exploration (AWE)
AWE is a mid-cap oil and gas company with strong cash flow. It has more than $350 million in cash, no debt and strong exploration upside. A major exploration drilling program has just begun, and this will continue to early 2010. Success in this drilling campaign would drive the share price up, as would a stronger oil price over time.
Westpac Bank (WBC)
Westpac’s recent result was the strongest of the major banks. This justifies the bank’s premium rating, highlights its solid balance sheet and the advantage of a predominantly domestic focus. Notwithstanding the positives, credit quality on commercial exposures continues to deteriorate and this will be a major headwind over the remainder of 2009 and 2010.
Alesco Corporation (ALS)
The company’s recent announcement that it’s sold its Biolab division for a relatively strong price has been well received by investors. The sale proceeds will reduce debt and strengthen the company’s balance sheet. The upward share price move reflects this risk reduction, and the shares now look fair value.
Big debt is due for refinancing later this year. Leveraged to volatile zinc and copper prices, Kagara is currently a high-risk investment proposition. The huge share price rally in the past few months provides an opportunity to exit the stock and seek safer alternatives in the base metals sector.
ASX Limited (ASX)
Despite an attractive monopoly position, we believe the company is now over valued as a result of recent share price strength. Notwithstanding the large number of capital raisings by listed companies, share trading volumes remain historically low, putting pressure on earnings. This is unlikely to improve in the short-term, so the share price will probably fall. Traders may look to sell then buy at lower prices.
Other articles in this week’s newsletter
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