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Sean Conlan, Macquarie Private Wealth

BUY RECOMMENDATIONS

Computershare (CPU)

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

CPU is delivering on acquisitions while also benefiting from macro tailwinds given its sensitivity to corporate actions activity and interest rates. Expect acquisitions and synergies to continue supporting earnings per share growth in financial years 2013 and 2014 as the cyclical outlook gradually improves over the next 18 months.

Sirtex Medical (SRX)

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

Trading on a hefty price/earnings multiple for 2013, Sirtex isn’t cheap. But we still see it as undervalued given the growth outlook and potential for much upside if ongoing clinical trials bear similar results to the company’s earlier studies.

HOLD RECOMMENDATIONS

Qantas (QAN)

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

On February 21, the company reported a significant rise in statutory profit after tax of $111 million for the six months to December 31, 2012. We remain positive about the potential for QAN to turn around its loss-making international operations. But challenges remain in this industry.

Ansell (ANN)

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

We are believers in the strategic direction and its long-term growth prospects. But with the stock trading in line with our valuation and increasing risk hovering over earnings delivery, we don’t see large upside at these levels.

SELL RECOMMENDATIONS

Suncorp (SUN)

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

In our view, SUN is higher risk due to the interaction between hazard events, hazard allowance and reinsurance. It’s higher risk in non-core bank exposure amid negative life company experience.

Boart Longyear (BLY)

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

Despite two earnings downgrades last year, BLY’s share price has rallied in the past month on the back of expectations a bottom has been reached. However, US peer Major Drilling’s recent downgrade highlights the outlook remains tough.

 

Darren Jackson, Calibre Investments

BUY RECOMMENDATIONS

OZ Minerals (OZL)

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

Harshly treated by some analysts who hold concerns about declining ore grades and increasing cash costs at its flagship Prominent Hill mine. Future stgelopment of Carrapateena (the next Prominent Hill) and further successful exploration of Prominent Hill can address these concerns. For those who look beyond the short-term earnings decline and at the actual assets, we believe OZL is a deep value buy.  

Australian Bauxite (ABZ)

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

Interest in Alumina (AWC) by Chinese investment group CITIC has us searching for value in the alumina/bauxite space. Australian Bauxite has built up an impressive portfolio of bauxite assets along Australia’s east coast. The company recently announced there’s an open data room with interest from six internationals. Offers good risk/reward at current levels. The shares were trading at 27 cents on February 21.

HOLD RECOMMENDATIONS

Discovery Metals (DML)

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

Heavily oversold after Cathay Fortune didn’t proceed with its takeover of this company. This has created a short-term inefficiency in valuation. Once the overhang clears and Cathay Fortune ceases selling, DML should trade considerably higher. In the meantime, the stock could be range bound or continue its decline.   

Sydney Airport (SYD)

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

Sydney Airport represents a quality infrastructure asset operating in a monopoly market. The airport received record passenger numbers in December. Factoring in liquidity, market capitalisation and relative earnings stability, the 6.7 per cent dividend yield becomes very attractive, and provides resistance against any further downside moves. 

SELL RECOMMENDATIONS

Myer Holdings (MYR)

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

Discretionary retail stands to be a substantial beneficiary of low interest rates. However, there’s a structural shift away from physical to online retailing. In our view, Myer is currently trading on a generous earnings multiple. Sell some to reduce any downside risk.

Boart Longyear (BLY)

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

Demand for drilling rigs remains subdued. Margins are razor thin, but we expect them to improve at some point. The share price has enjoyed a strong run since November. In our view, the upward move doesn’t reflect any recovery in operations or earnings.

 

Charles Thomas, Bell Potter Securities

BUY RECOMMENDATIONS

BHP Billiton (BHP)

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

The mining giant recently reported earnings in line with market expectations. Underlying net profit after tax of US$5.683 billion was down 43 per cent year-on-year, but 1 per cent above our estimate. Andrew Mackenzie will replace Marius Kloppers as CEO in May. Our 12-month price target is $40. The shares were trading at $37.08 on February 22.

Suncorp (SUN)

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

The first half result exceeded expectations. The bank reported cash NPAT of $616 million, which was above our estimate of $544 million. The dividend was below consensus, but SUN traditionally pays a lower first half, reflecting potential bad weather between October and March. SUN management has reaffirmed the target dividend payout ratio of between 60 and 80 per cent for the full year.

HOLD RECOMMENDATIONS

Woodside Petroleum (WPL)

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

The oil and gas giant reported underlying NPAT growth of 25 per cent to US$2.061 billion for 2012. This is an excellent result. The share price is up about 15 per cent since the start of the year. Consequently, the upside to our target price is now only 10 per cent and a dividend yield of 3.4 per cent makes it a hold under our recommendation structure.

Toll Holdings (TOL)

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

First half results were mixed. Conditions remain subdued with only 2.6 per cent organic revenue growth. Overall EBIT performances were better than expected apart from Australian Express and Global Resources. Of most concern to us is the 8 per cent decline in Australian Express freight EBITA, continuing this division’s recent trend of margin decline, and we expect margins to continue falling as strategic challenges unfold.

SELL RECOMMENDATIONS

Cochlear (COH)

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

Cochlear lifted hearing implant volumes by 27 per cent in the first half, but only grew implant revenue by 6 per cent in reported currency and 10 per cent in constant currency. As such, we have lowered our earnings forecasts by about 3 per cent at the EBIT line for full years 2013 and 2014 and by 9 per cent for 2015. We are reducing our target price from $70 to $63, which sits just above the mid point of our valuation range. At current prices, we regard Cochlear as slightly overvalued, but down the track we expect this high quality company to become good buying at the right price.

Tatts Group (TTS)

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

TTS is a high quality, defensive business with strong underlying cash flows. It has long-term monopolistic licenses with stable earnings and low capital expenditure. While earnings are expected to be strong in the first half (largely driven by jackpot runs in lotteries), we still expect no earnings growth in full year 2014 given residual gaming earnings still impacting full year 2013. Despite investment positives, we have downgraded TTS to a sell from neutral due to it trading above our valuation.

Click on the links below to read other articles from this week’s newsletter

Earnings Season – 5 Energy Stocks in the Spotlight

Rising sharemarket will unleash IPOs

Divergence – Application and Hidden divergences

Explainer: what are safe haven investments?

Great Company Or Growing Industry?

How To Outperform The Market       

Top 10 shorted stocks

Stocks on a roll: ASX rolling 52-week highs

Stock on the slide: ASX rolling 52-week lows

 

Please note that TheBull.com.au simply publishes broker recommendations on this page. The publication of these recommendations does not in any way constitute a recommendation on the part of TheBull.com.au. You should seek professional advice before making any investment decisions.