Cleo Nanni, Novus Capital
Red Fork Energy (RFE)
An oil and gas explorer and producer in the American state of Oklahoma. We first recommended this company a few months ago when the share price was well below 30 cents. In early morning trade on June 12, it was trading at 97 cents. The share price has risen on the back of several positive announcements and a recent placement of 20 million shares at 50 cents. We continue with our buy recommendation.
Deep Yellow (DYL)
A uranium explorer, offering extensive operations in Australia and Namibia. Exploration potential exists for new, additional uranium discoveries in both countries. When we first recommended this company, it was trading below 15 cents. On June 12, it was trading above 43 cents. Nuclear energy is rapidly gaining ground as an alternative source of electricity amid the greenhouse emissions debate. Deep Yellow is establishing itself as a supplier of this strategic metal through aggressive and successful exploration and project acquisition programs.
BHP Billiton (BHP)
BHP Billiton and rival Rio Tinto plan to establish a production joint venture regarding their iron ore assets. If approved, joint iron ore operations in the Pilbara may deliver synergies of more than US$10 billion by combining adjacent mines into a single operation. A joint venture would enable more efficient rail and an opportunity to maximise future growth. BHP will pay Rio Tinto US$5.8 billion to adjust for its current inequitable position.
Rio Tinto (RIO)
The mining giant has terminated a proposed transaction with Chinalco. It’s replacing the deal with a fully underwritten rights issue to raise US$15.2 billion from Australian and UK investors. The Rio proposal offers investors 21 new shares at $28.29 for every 40 shares owned. The issue price represents a substantial discount. The rights issue will enable Rio to meet Alcan debt repayments in 2009, and most debt due in 2010. This is a positive move for Rio shareholders.
National Australia Bank (NAB)
Net profit after tax was down 0.9 per cent to $2.66 billion for the half-year ending March 31, 2009. Diluted earnings per share was $1.36 compared to $1.58 last year. Cash earnings have been reduced by a higher bad and doubtful debts charge in response to a weaker credit environment.
Iress Market Technology (IRE)
Our recommendation is based purely on a valuation basis. This is a high quality company, with good management and strategies, but appears fully valued on current and forecast earnings. A significant fall in the share price to $6 or below would trigger a change in our call.
Andrew Inglis, Shadforths
ANZ Bank (ANZ)
ANZ is poised to buy select banking assets in Asia from the Royal Bank of Scotland. It will be funded by its current capital raising. This will add scale to existing banking operations in Asia and should assist chief executive Mike Smith in his plan to turn ANZ into a super regional bank within five years. The Asian strategy is higher risk, but provides long-term growth potential above its peers. ANZ (and its peers) will also benefit from increasing market share in Australia once the economy recovers. Take up maximum allocation in share purchase plan and accumulate on weakness.
BlueScope Steel (BSL)
BlueScope Steel is a classic cyclical business. Consensus profit forecast is $89 million, before abnormal items, for full-year 2009. It has the capacity to earn profits close to $1 billion a year in good times. The current capital raising and extension of debt facilities greatly strengthens its balance sheet. The global steel market is tough and volatile, but steel makers have de-stocked aggressively, and government infrastructure spending will aid a recovery.
Origin Energy (ORG)
Origin’s share price is weaker, but continue holding as a core portfolio stock. It has a super-strong balance sheet, huge coal seam gas reserves, long-term strategic growth options and current acquisition opportunities with NSW power assets and Woodside’s Bass Strait oil assets.
QBE Insurance (QBE)
The share price is softer due to low interest rates applying on its large cash reserves and a rising Australian dollar. QBE looks cheap on 10 times earnings and, with an excellent long-term track record, is worth holding.
As the global leader in explosives, Orica is a good quality defensive exposure to the mining sector. But its share price has rallied about 100 per cent per cent from its lows and this looks a bit over done. Recent acquisitions (Excel and Minova) in mining services haven’t impressed. Switch to BlueScope Steel, as it offers greater upside potential.
Foster’s Group (FGL)
The brewing giant’s share price continues to trade sideways and is currently around 1987 levels. While there are signs of operational improvements, better upside exists elsewhere.
Mike Bigwood, Patersons
CSL Limited (CSL)
CSL has walked away from its proposed acquisition of American company Talecris after the US Federal Trade Commission opposed the deal on anti-trust concerns. As a result, CSL has announced a share buy-back of up to $1.59 billion at an expected price of $29 a share, which will improve ratios, such as earnings per share and return on equity. Expect CSL to retain a prudent level of gearing after the buy-back. Steady growth should continue from its suite of products, including blood plasma therapeutics and treatments for influenza and cancer.
Australian Worldwide Exploration (AWE)
AWE has commenced a drilling program across 15 oil wells in five countries. Its existing portfolio includes five producing assets. In addition to a possible catalyst from successful drilling, AWE has a strong balance sheet with $300 million in cash. That could see it take advantage of any merger and acquisition opportunities.
United Group (UGL)
While earnings related to resources and construction are under pressure, United Group’s strong infrastructure focus should help shield the company from significant earnings downgrades. Recent long-term maintenance contract wins with government agencies across Australia have also cushioned the impact. With a strong balance sheet and a fully franked dividend yield of about 6 per cent, UGL offers both income and growth potential to investors.
Westpac Bank (WBC)
While earnings from major banks are under pressure from loan loss impairments, they have increased their market share during the financial crisis as non-bank lenders struggle to access finance. Even after the majors cut dividends, they still yield between 5.5 per cent and 6 per cent fully franked – not a bad alternative to cash management trusts.
Ten Network Holdings (TEN)
Limited transparency on earnings due to an uncertain outlook for the advertising market and the potential danger of breaching debt covenants makes it hard to like the Ten Network. After a recent strong run from 65 cents to more than a $1, the stock could find it difficult to continue its run as it moves into a congested level on the charts.
Leighton Holdings (LEI)
While Leighton has long been a favorite company of mine, continuing deterioration in its Middle East operations, loss of contracts as a result of the BHP Billiton/Rio Tinto joint venture and the possibility of further equity write-downs on investments cloud the short term picture.
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.