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Sean Conlan, Macquarie Private Wealth

BUY RECOMMENDATIONS

Incitec Pivot (IPL)

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

Financial year 2012 should be an earnings trough, with double-digit growth expected in financial year 2103. Expect growth to be driven by the Moranbah ammonium and nitrate project and the absence of first half fertiliser issues. Key catalysts are achieving Moranbah production targets (including the successful ramp-up of its ammonium plant), earnings delivery and guidance for growth expected in November.

Sirtex Medical (SRX)

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

Researches and develops liver cancer treatments. It offers many attractive features, including a unique and scientifically robust treatment that’s already gained regulatory approval; a fast-growing and under-penetrated market; rapidly growing revenues underpinned by operational leverage; and the potential for much upside if ongoing clinical trials bear similar results to the company’s earlier studies.

HOLD RECOMMENDATIONS

Premier Investments (PMV)

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

PMV remains leveraged to an improvement in the retail environment. Smiggle and Peter Alexander brands have good growth potential, but we remain cautious on the sales outlook for the mature apparel brands. There will be further benefits from cost efficiencies and gross margin initiatives, but, in our view, not on the same scale as financial year 2012.

Sigma Pharmaceuticals (SIP)

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

It delivered another solid result. It’s testament, we believe, in management’s ability to achieve cost savings and a reduction in its cash conversion cycle despite industry pressures. We do, however, continue to remain cautious as further reform of the Pharmaceutical Benefits Scheme continues to eat away industry profitability.

SELL RECOMMENDATIONS

Cabcharge Australia  (CAB)

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

Regulatory overhangs remain a risk, in our view, with negative news flow likely to persist in the next few months. With so much uncertainty surrounding the future of CAB’s business model, we believe the stock will struggle to perform over the medium term without clarification of the earnings impacts or otherwise.

Nufarm (NUF)

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

This crop protection products company expects profit growth in financial year 2013, assuming at least average seasonal conditions. But the divisional outlook commentary was weaker than we expected. Our underperform rating is based on valuation.

 

Mark Lennox, Halifax Investment Services

BUY RECOMMENDATIONS

National Australia Bank (NAB)

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

History shows the banks are good at keeping part of a Reserve Bank interest rate cut as a means of generating more profits. During the first six months of a rate cut cycle, bank share prices tend to outperform as margins are added. We remain very bullish about the major banks as they head into reporting season. The NAB paid a dividend of 88 cents in December last year followed by 90 cents in July this year. Expect the final dividend to be higher than last year’s one.

ANZ Bank (ANZ)

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

This bank is tech-savvy. It’s Banking on Australia program involves refurbishing branches by adding more video, trialing the ANZ mobile wallet among its staff and launching a mobile app to process same day credit and debit card transactions. We view this shift towards more online banking in a booming technology economy as a positive for the company.

HOLD RECOMMENDATIONS

Westpac Bank (WBC)

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

We include WBC as a hold due to its defensive nature, sustainable yield and upcoming dividend in December. The yield is far more attractive than term deposits in a falling interest rate environment.

Macquarie Convertible Preference Shares (MQCPA)

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

This fixed rate corporate bond offers an impressive yield. Leading into the next payment in December, we believe the security is well priced. Consider including it in a portfolio of longer-term assets given falling term deposit rates.

SELL RECOMMENDATIONS

Fortescue Metals Group (FMG)

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

Founder Andrew Forrest has cleared his name and the company has completed a debt restructure. We believe the supply and demand equation for iron ore in the next six months points to lower iron ore prices. If so, the company faces possibly lower margins, profits and rising costs.

Sundance Resources (SDL)

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

Late last week, this base metals explorer remained in a trading halt. It’s subject to a takeover from Chinese suitor Hanlong, which lowered its bid in August to $1.37 billion in response to falling iron ore prices. The non-delivery of a financier commitment letter under a Scheme Implementation Agreement had contributed to extending the trading halt. The market would have viewed this as negative.

 

Brendan Fogarty, Alto Capital

BUY RECOMMENDATIONS

Resolute Mining (RSG)

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

We favour greater exposure to the gold sector at the moment. A reliance on quantitative easing policy to bring global economies out of the current debt trap is likely to lead to a higher gold price. Resolute Mining, the second biggest producer on the ASX, is our preferred gold company. It’s unhedged and very well managed.

Strickland Resources (STK)

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

This junior gold explorer is aiming to acquire Orinoco Resources, a recently established Brazilian focused gold explorer. Orinoco’s Curral de Pedra Project represents a drill-ready advanced exploration project just 20 kilometres along the strike from the Sertao gold mine operated by Troy Resources at exceptional grades of 29 grams of gold a tonne. Buy for exciting exploration potential led by an experienced management team.

HOLD RECOMMENDATIONS

Billabong International (BBG)

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

As uncertainty continues over TPG’s bid for Billabong, BBG’s share price has fallen to a reasonable buy level. Hold for now pending more news regarding TPG’s bid and the prospect of other corporate activity, amid a continuing slow retail environment. BBG closed at $1.005 on October 11.

Gindalbie Metals (GBG)

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

This budding iron ore producer is progressing towards production at its Karara project in Western Australia. Gindalbie expects to produce by the end of the year, and ramp up to 5 million tonnes a year by financial year 2014. With strong Chinese backing and local government support, it’s well placed to do so. The key, however, will be keeping operating costs low given the recent downturn in iron ore prices.

SELL RECOMMENDATIONS

David Jones (DJS)

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

I continue to dislike the retail sector. While David Jones has a strong retail brand image, I believe it will continue to struggle in the current slow retail environment. This is a mature business under threat from the increasing trend towards online shopping. The expiry of the current contract with American Express would see a further dent in earnings in 2014.

CFS Retail Property Trust Group (CFX)

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

Given the downturn in the retail sector and increasing trend towards online shopping, the retail property sector is also likely to remain under pressure. Recent weak results from CFX underline this, with rents on new leases falling 1.7 per cent on average, including a fall of 10 per cent for new specialty tenants. Avoid the retail property sector in general.

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