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Charles Thomas, Bell Potter Securities

BUY RECOMMENDATIONS

Macquarie Group (MQG)

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

MQG’s 2013 results reflect improving fundamentals within the annuity-style businesses (Macquarie Funds, Corporate and Asset Finance and Banking and Financial Services). We have upgraded our price target from $43 to $51. We retain our buy rating as a result of increasing capital efficiency, surplus capital generation, strong earnings growth and attractive pricing that remains marginally above book value. The shares were trading at $45.59 on May 22.

AMP (AMP)

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

With the RBA recently lowering the cash rate to 2.75 per cent, investors are fleeing from the safety of cash and term deposits in search of higher returns. AMP is a beneficiary of a low interest rate environment and this was confirmed in AMP’s first quarter net flow update, with a $387 million turnaround on the previous corresponding period. With strong net flows and improving market conditions, we see AMP as highly attractive at this point in the cycle. 

HOLD RECOMMENDATIONS

Flight Centre (FLT)

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

We believe FLT will find it difficult to outperform in the short term given a substantial increase in its share price in the past six weeks. We remain comfortable with the earnings outlook, as our analysis suggests domestic GDP/household consumption remain the most important drivers of short term international departures from Australia. However, we believe it’s prudent to take some profits, particularly in periods of sharp currency corrections.

Seven Group Holdings (SVW)

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

Softer capital sales combined with weaker utilisation in rental fleets suggest a gap is emerging between the expected uplift in maintenance style revenues and the slowing capital business. Given mounting headwinds and the recent outperformance relative to other listed CAT dealers and equipment suppliers, we’re moving from a buy rating to a hold.

SELL RECOMMENDATIONS

Ausdrill (ASL)

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

Ausdrill has cut guidance for the third time in six months, with underlying NPAT now expected to range between  $106 million and $112 million. This appears to be due to continuing weakness in the exploration and equipment hire business and delays in the coal seam and water well drilling businesses. NPAT guidance has now been downgraded a cumulative 20 per cent since acquiring BTP.  It’s clear to us, risk remains to the downside with recent weakness in the gold price. We have cut our rating from a hold to a sell.

Emeco Holdings (EHL)

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

Revised NPAT guidance for this earthmoving equipment company is between $40 million and $44 million. It reflects ongoing difficult trading conditions in the Australian business and rapid deterioration in Indonesian utilisation rates, given the large exposure of the business to the coal segment. As such, we have downgraded our NPAT forecasts to reflect lower utilisation rates in the Australian and Indonesian businesses for the foreseeable future.

 

Richard Batt, Shadforth Financial Group

BUY RECOMMENDATIONS

QBE Insurance (QBE)

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

QBE has a solid business model and has outperformed most of its global peers over the long term. The company offers a strong operational management team and is well versed in assessing risk. The company has a solid balance sheet and will benefit from a softer Aussie dollar.

Coca-Cola Amatil (CCL)

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

The soft drink bottler has a strong track record and an extensive distribution network. Revenues grow as new products, including alcoholic beverages, are added to the chain, and the brand name supports price increases over time. The Indonesian business adds an additional growth stream and investors should take advantage of the recent drop in the share price to establish a holding. The shares were trading at $12.89 on May 23.

HOLD RECOMMENDATIONS

Orica (ORI)

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

ORI has competitive advantages in its Australian and global explosives businesses and offers proven capital management skills. This well managed company recently announced its half year result, which was in-line with expectations. We believe the company is still well positioned to benefit from explosives demand.

WorleyParsons (WOR)

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

Recently surprised the market with an earnings downgrade based on a slowdown in resource activity in WA and weaker than expected growth for one of its businesses in Canada. While disappointing, the company generates almost 70 per cent of its revenue in the oil and gas sector, where the outlook is brighter. We are happy for investors to retain their holdings.

SELL RECOMMENDATIONS

Perpetual (PPT)

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

PPT’s share price has rallied significantly in recent times on the back of improving funds under management and the recent strength in the ASX. Given PPT’s reliance on the direction of equity markets, particularly the Australian market, we suggest clients take advantage of the recent price increase and lock in some profits.

Fleetwood Corporation (FWD)

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

This mobile accommodation company recently provided an update to the market and, as a consequence of weaker trading conditions, profitability during the second half of the year hasn’t met expectations. We expect the softening resources sector and weak trading conditions for recreational vehicles to impact earnings, so we prefer alternative investments.

 

Chris McGrath, Alto Capital

BUY RECOMMENDATIONS

QBE Insurance (QBE)

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

QBE is one of the better managed insurance groups in the global reinsurance and insurance industry. It’s currently undervalued, particularly since it’s undergoing a restructure, which will improve the balance sheet and increase capital. The shares were trading at $15.16 on May 22.

Toll Group (TOL)

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

Toll is one of the dominant transport, logistics and freight forwarding companies in Australia, with port-to-door capabilities within the group. Despite challenging economic conditions, it’s been increasing profitability and undergoing cost management initiatives. This, along with a cyclical upturn in household expenditure, leaves Toll well positioned.

HOLD RECOMMENDATIONS

Sonic Healthcare (SHL)

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

An international health diagnostics company, Sonic has operations in Australia, Germany, the UK and the US. Our hold recommendation is based on slowing growth from 15 per cent a year to high single digits. This is a good company.

Orica (ORI)

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

A leading provider of explosives to the mining industry. Its services division impacts the short term, but mining expansion projects paint a brighter longer term outlook.  Stronger growth is forecast for 2014.

SELL RECOMMENDATIONS

Brambles (BXB)

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

Brambles’ largest division is CHEP, the world’s biggest pallet provider. But a soft European and US economic environment is affecting its future outlook. We consider the stock overvalued. The shares were trading at $9.18 on May 22.

CSL (CSL)

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

Develops and markets biopharmaceutical products. It incurs a considerable proportion of its costs in Australia, but generates most its revenue overseas, so exchange rates have a significant impact. CSL will benefit from a falling Australian dollar. But currencies are volatile, so consider taking some profits in what has been a strong performing company.

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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.