Peter Russell, Russell Research
BUY RECOMMENDATIONS
McMillan Shakespeare (MMS)
Chart: Share price over the year to versus ASX200 (XJO)
This substantial salary packaging and vehicle-leasing group has averaged 30 per cent earnings per share growth in the past five years. New contract wins and ongoing business growth should retain it in double digits – with a franked yield above 4 per cent. Already a leader in salary packaging, complementary acquisitions of leasing businesses in 2010 have contributed to boosting net profit after tax growth.
iiNet (IIN)
Chart: Share price over the year to versus ASX200 (XJO)
Australia’s number two telco in DSL broadband supports more than 1.6 million broadband, telephony and IP TV services nationwide. Fast-growing and well placed for NBN roll-out opportunities after several acquisitions, always integrated well, the news of a $330 million credit facility inched its share price to a new high. Expect a franked yield above 4 per cent and EPS growth of about 20 per cent in each of the next two years.
HOLD RECOMMENDATIONS
Mermaid Marine (MRM)
Chart: Share price over the year to versus ASX200 (XJO)
MRM is Australia’s largest marine logistics services provider to the offshore oil and gas industry. In the past five years, MRM invested $350 million in its vessel fleet and supply bases at Dampier and Broome near the North West Shelf. With strong finances reflecting steady mid-teens or higher earnings growth, it’s well placed to service multi-billion dollar offshore projects in the years ahead. Expect a franked yield of almost 4 per cent and earnings per share growth of 15 per cent this year.
Ramsay Health Care (RHC)
Chart: Share price over the year to versus ASX200 (XJO)
RHC is Australia’s largest private hospital group with industry-leading margins and strong cash flows. It has 117 well-located quality hospitals and surgical facilities generating $3.9 billion in revenue. It leverages its skills into France, the UK and Indonesia. Its building programs will continue to add growth as new projects come on line. On a price/earnings ratio of about 17 times and a franked yield of 2.9 per cent, its 16 per cent annual growth in the past decade justifies the investment.
SELL RECOMMENDATIONS
Goodman Fielder (GFF)
Chart: Share price over the year to versus ASX200 (XJO)
This major food manufacturer is doing it tough in these testing times. It generated $2.5 billion in revenue last year, yet management is fighting hard to cut costs and re-build margins. Earnings have fallen 20 per cent a year for five years. The shares, at $2.50 in 2007, were trading at 56 cents on November 1, 2012. Investors shouldn’t “set and forget”, but seek good companies “sailing with the wind”.
Ten Network Holdings (TEN)
Chart: Share price over the year to versus ASX200 (XJO)
The share price of this TV broadcaster has fallen steadily (with a GFC dip and part recovery) from around $4.40 in January 2005 through to $1.85 in April 2010 to 28 cents on November 1, 2012. Adverse advertising income, weak ratings and cash flow are just some of the challenges. Another case where investors need to observe, think and move on.
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Richard Batt, Shadforth Financial Group
BUY RECOMMENDATIONS
Woodside Petroleum (WPL)
Chart: Share price over the year to versus ASX200 (XJO)
WPL should be the major energy exposure for any direct equity portfolio. The company’s operations cover LNG, natural gas, condensate, crude oil and LPG. Production is forecast to grow strongly as the Pluto project continues to perform well. Offering a strong balance sheet, the company is undervalued and investors should take advantage. The shares were trading at $34 on November 1.
Computershare (CPU)
Chart: Share price over the year to versus ASX200 (XJO)
CPU is a global share registrar that leverages off its IT expertise and financial strength to capture more share of an increasing number of markets in existing and new geographies. The company generates consistently high returns on capital amid a strong conversion of profit to cash. The company is a leverage play on a market recovery, with its primary revenue generated from volumes, capital raisings and mergers and acquisitions.
HOLD RECOMMENDATIONS
AGL Energy (AGK)
Chart: Share price over the year to versus ASX200 (XJO)
AGK is one of Australia’s largest integrated energy companies. This highly defensive company enjoys stable profits and gearing is modest. Hold for income as dividends are fully franked.
Atlas Iron (AGO)
Chart: Share price over the year to versus ASX200 (XJO)
AGO recently announced it had increased iron ore production by 7 per cent to a record 1.6 million tonnes in the September quarter. The cash balance fell 14 per cent during the quarter to $325 million, but AGO remains well funded and debt free. Cash and operating cash flow should mostly fund production growth from 6 million to 12 million tonnes a year. A US$350 million loan secured a fortnight ago provides expansion funding certainty should operating cash flow fall short.
SELL RECOMMENDATIONS
Echo Entertainment (EGP)
Chart: Share price over the year to versus ASX200 (XJO)
EGP is the second largest casino operator in Australia, with complexes in Brisbane, Townsville and the Gold Coast. The NSW Government confirmed Crown’s plan for a second Sydney casino had been assessed and advanced to the next stage. We view this as a negative for EGP.
Platinum Asset Management (PTM)
Chart: Share price over the year to versus ASX200 (XJO)
One of the main issues for PTM is its disappointing fund performance. Up until 2010, most of PTM’s fund had been an excellent performer, generating returns well in excess of respective benchmarks. The importance of performance relative to benchmarks cannot be overstated. Underperforming the benchmarks is a precursor to further outflows and lower profits. We believe other companies in the financial sector offer the potential for higher returns.
Darren Jackson, Calibre Investments
BUY RECOMMENDATIONS
Billabong International (BBG)
Chart: Share price over the year to versus ASX200 (XJO)
The failed takeover of Billabong has created a unique opportunity to buy this iconic firm trading near all time lows. Recent earnings guidance for financial year 2013 is on track to be met and an ambitious growth and transformation strategy is underway. As a further confidence boost, three directors have been recently buying on market. The shares were trading at 85 cents on November 1.
Beach Energy (BPT)
Chart: Share price over the year to versus ASX200 (XJO)
BPT is one of the most advanced unconventional gas explorers in Australia. Expect it to be the first to try commercialising shale gas. It offers an attractive asset mix of producing wells amid significant exploration and development upside. The Cooper Basin is strategically important, with joint venture partner Drillsearch bidding for Acer Energy.
HOLD RECOMMENDATIONS
Pharmaxis (PXS)
Chart: Share price over the year to versus ASX200 (XJO)
This speculative biotech company is at an exciting stage in the development of its niche drug Bronchitol to treat cystic fibrosis. There is only one other competitor. European marketing of the drug has been granted, while US Food and Drug Administration approval will be sought. One to watch closely.
Transurban Group (TCL)
Chart: Share price over the year to versus ASX200 (XJO)
TCL is defensive company that holds a quality portfolio of toll roads in Australia and the US. With Australian interest rates approaching GFC lows amid an investor flight to yield, TCL’s share price has been rising. This makes TCL an appropriate portfolio inclusion.
SELL RECOMMENDATIONS
Whitehaven Coal (WHC)
Chart: Share price over the year to versus ASX200 (XJO)
We expect Whitehaven earnings to remain under pressure unless coal prices start rising or its flagship Maules Creek project starts producing. Simply put, the cost of Whitehaven digging up coal is almost as much as what it can get for selling it. Furthermore, the actions of the Tinkler Group appear to be creating board instability and share price volatility.
Fortescue Metals Group (FMG)
Chart: Share price over the year to versus ASX200 (XJO)
Speculation exists that the iron ore price will fall from a spot price of about $US120 a tonne. The reasoning is Chinese steel mills would have capitalised on the recent low prices and stockpiled iron ore. Fortescue Metals is a pure iron ore producer highly leveraged to price.
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