Peter Addison, Intersuisse
QBE Insurance Group (QBE)
A leading provider of general insurance and reinsurance services in Australia, the Pacific, Asia, the Americas and Europe, with operations in 45 countries. The company has made more than 100 acquisitions in the past 25 years. Management is highly regarded and deserves its reputation as competent risk assessors. QBE is currently trading on a price /earnings ratio below 10 times, with a yield projected around 6.5 per cent.
Origin Energy (ORG)
This company is a vertically integrated energy group and operations include exploration, production, power generation, energy retailing and trading. It holds substantial coal seam gas reserves and recently agreed to a joint venture with ConocoPhillips. A steady increase in profitability, above $500 million a year, is projected from this substantial company during the next five years.
A diversified group with operations in hardware retailing, groceries, liquor, petrol, discount department stores, office supplies and stationery, coal mining, fertilisers, chemicals and insurance. Wesfarmers recently raised significant equity that’s reduced gearing to comfortable levels and enabled debt rollover arrangements with its bankers. With continuing strong cash flows, the company is expected to yield about 6 per cent fully franked.
Westpac Bank (WBC)
Operates in Australia and New Zealand, with balanced exposures to the retail, corporate and institutional sectors. Aggressive expansion into wealth management has complemented banking activities. The St George Bank acquisition makes Westpac Australia’s leading bank by market capitalisation. Management is considered sound and the group has a lower level of impaired loans compared to its peers. This year’s fully-franked dividend yield is projected to be about 6 per cent.
Count Financial (COU)
Count Financial is a licensed securities dealer, providing financial planning, investment reviews and insurance and superannuation advice to accounting firms. Loans and leasing facilities are also available. With a current price /earnings ratio of about 20 times, investors should lighten holdings.
Fairfax Media (FXJ)
A leading print and digital media company, it also owns nine radio licences. The company also has a significant presence in New Zealand, and publishing businesses in the US. Profitability has suffered during the global slowdown, resulting in a dividend cut and a projected yield to about 3 per cent this year.
Sean Conlan, Macquarie Private Wealth
Expect a recovery in Australian and global agriculture in 2009/2010 as de-stocking runs its course and farmer confidence improves alongside stronger grain prices. Easier credit and increasing demand for food products in line with population growth in China and India paints a brighter outlook for Nufarm.
Commonwealth Bank (CBA)
The bank’s large domestic franchise, healthy balance sheet and retail-oriented business model combine to produce a structurally high level of profitability. This suggests significant upside from current subnormal profitability.
Goodman Group (GMG)
In our view, this industrial property group would need to sell about $2.3 billion of assets to bring its gearing back to the lower end of its targeted range – post a 15 per cent fall in asset values. Absent meaningful asset sales, further equity issuance would probably be required and we continue to assume this through a fully underwritten dividend re-investment plan.
We believe Suncorp is open to selling its bank. But potential bidders are likely to remain on the sidelines, at least in the short-term, as they monitor a deteriorating non-core book. The bank outlook remains difficult, with substantial remedial work required and impairment pressure continuing to rise.
We have reduced our recommendation from outperform, with a target price of 49c. In early morning trade on June 5, the stock was trading at 56c. The underlying deterioration in earnings puts further pressure on key financial metrics in 2010 despite a reduction in debt, post the sale of Australian Paper.
Virgin Blue (VBA)
We believe the major risk to airlines is yield decline. A key reason behind our recommendation is the risk of significant and sustained losses in VBA’s Australian operations, which, in our view, will offset the improving profitability of the domestic network.
Simon Bond, ABN AMRO Morgans
Improving seasonal conditions, new and improving earnings streams from a deregulated market and a restructuring of the business have seen a substantial turnaround in Graincorp. The market has not recognised this and the share price is still trading at severe drought prices. We see significant upside to today’s price.
Makes crop protection products. We remain positive about the stock and recommend buying the company to gain exposure to short-term earnings per share growth, its broadly based growth strategy and a stronger balance sheet.
ABB Grain (ABB)
Initial feedback suggests that Viterra’s takeover offer is not enough to win the group. In our view, ABB Grain will generate more shareholder value by consolidating in the domestic market. This is far from a done deal and other bids can’t be ruled out. In the absence of corporate activity, the company is fairly valued.
Macquarie Group (MQG)
The recent Tristone acquisition makes strategic sense and is a good fit with previous deals. The price paid looks attractive. However, we remain cautious about the short-to-medium term outlook given continuing weakness in traditional investment banking revenues.
National Australia Bank (NAB)
With the purple patch of revenue growth fading fast and economic cycle headwinds continuing, we remain concerned about the potential for further increases in bad and doubtful debt charges, and we see further earnings risk associated with rising unemployment.
Commonwealth Bank (CBA)
The most recent quarter should have been better for the Commonwealth Bank considering its portfolio mix. Looking forward, lower trading revenue and CBA’s skew towards late-cycle bad and doubtful debts is likely to mean lower profits in future.
Other articles in this week’s newsletter
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.