18 Share Tips – 20 May 2013

James Samson, Lincoln Indicators

BUY RECOMMENDATIONS

Roc Oil Company (ROC)

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

An Asian focused oil and gas business, ROC avoided a board spill after its annual general meeting on May 10, 2013, as shareholders voted in strong favour of all resolutions despite the risk of a second strike weighing on market sentiment. ROC’s oil and gas production in China remains promising, with peak production at Beibu Gulf expected later this year. Investors should be aware that its price can be volatile.

Woodside Petroleum (WPL)

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

Following a re-think on the James Price Point operations for the Browse project, WPL’s management has announced it will be returning value to shareholders through increasing dividends in the next two years. This has seen the company recently become one of our preferred income stocks. With a framework agreement signed with Shell regarding floating LNG technology, the company’s strategy – of waiting for Shell to test the floating system at its Prelude project – is viewed as prudent. In the meantime, shareholders can enjoy the increased dividend yield.

HOLD RECOMMENDATIONS

Mermaid Marine Australia (MRM)

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

Despite strong fundamentals, this WA-based vessel services business can be considered fairly priced. MRM appears to be a business that’s currently trading at a price that appreciates its quality outlook. The shares were trading at $3.68 on May 16.

Cromwell Property Group (CMW)

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

A Lincoln-preferred income stock, CMW is a property trust with a portfolio of commercial office real estate. While the stock currently appears to be fully priced, investors will continue to benefit from the quarterly unfranked dividend yield, which is forecast above 6 per cent this financial year.

SELL RECOMMENDATIONS

Orica (ORI)

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

ORI remains exposed to tightening market conditions attributed to weakening coal markets and general commodity price volatility. We rate its financial health as satisfactory, but are wary that the potential for explosives demand continues to wane and believe ORI is too risky at present.

Warrnambool Cheese and Butter Factory Company (WCB)

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

Food and drink companies failing to address the supermarket-driven tightening of supply chains face a loss in market share. This impact can be far greater for a small player, such as WCB, and it needs to address recent declines in operating cash flow.

Boe Campion, Ord Minnett

BUY RECOMMENDATIONS

Tabcorp (TAH)

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

We continue to believe that Tabcorp is now on an upward earnings revision cycle. Retaining its off course exclusive NSW wagering licence, which expires on June 30, is unlikely to prove too onerous, but it may require some form of payment to government. Then there’s scope to lift the payout ratio.

Seven Group Holdings  (SVW)

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

We remain confident about underlying demand conditions for SVW’s core operational asset, WesTrac Australia. Further, we believe the current discount to WesTrac’s pure play CAT dealer peers more than compensates investors for concerns surrounding Australian media and Chinese heavy equipment demand.

HOLD RECOMMENDATIONS

ASX (ASX)

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

Just recorded another strong month in futures trading with 9 million contracts traded, up 33 per cent on the previous corresponding period, while-year-to-date futures volume turnover is up 10 per cent. We retain our hold recommendation as the share price is trading close to our valuation.

Orica (ORI)

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

The result was disappointing with EBIT and NPAT missing our forecasts by 10 per cent. Of concern was the deterioration in Minova earnings and the weak underlying mining services result. Despite the weaker-than-expected result, we believe that ORI provides a relatively attractive risk/return proposition, with the stock trading at an 8 per cent discount to our valuation.

SELL RECOMMENDATIONS

Alumina (AWC)

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

I have previously expressed concerns given pressure on alumina prices and the adverse exposure of the refining industry to gas prices. AWC is likely to experience significant cash flow pressure in the June quarter as contracted prices are linked to the spot price on a 60-day lag. Lighten.

Leighton Holdings (LEI)

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

Work in hand for the three months to March 31 fell from $43.5 billion to $42.2 billion. An increase in gearing from 35 per cent to 48 per cent amid no progress on collecting Middle Eastern receivables is a worry given operating pressures in the contracting industry. Our lighten recommendation is consistent with the capital protection theme.

Michael Heffernan, Lonsec

BUY RECOMMENDATIONS

IOOF Holdings (IFL)

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

This financial services organisation has been a star performer since listing on the ASX in 2003. It offers attractive fundamentals and should benefit from improving sharemarket activity. Growth in super and wealth management is another plus for this business.

Amcom Telecommunications (AMM)

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

Amcom is highly successful at providing fibre-based communications to the public and private sectors. It offers a fully franked 4 per cent dividend yield. The company has benefited in recent times from an increasing focus on broadband and fibre optic communications. The outlook is bright.

HOLD RECOMMENDATIONS

Crown (CWN)

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

Refurbishing its Melbourne casino, expanding Perth’s casino and the continuing strong performance at Macau provides a healthy measure of financial robustness. The possibility of a new casino in Sydney helps underpin buoyant expectations.

TPG Telecom (TPM)

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

Provides a comprehensive range of internet and related multi-media services and has been a sound sharemarket performer. TPG’s recent spectrum purchase should help it retain its strong niche position in the ever-changing telecommunications arena.

SELL RECOMMENDATIONS

Newcrest Mining (NCM)

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

Under the influence of a sharp retraction in the gold price, this premier Australian gold company hasn’t escaped the downturn. In the current environment, gold’s hardly flavour of the month, but the sharp contraction in its share price could well be overdone. Nevertheless, conservative investors should look elsewhere until the gold price settles.

Incitec Pivot (IPL)

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

The slowing in explosives demand from the resources sector and, in particular, the easing in agricultural commodity prices impacts future profit growth. The recent uninspiring report from Orica – the other major listed chemical/explosive company – wasn’t a good sign for IPL.

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18 Share Tips – 20 May 2013: 18 Share Tips to BUY, SELL & HOLD from…

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