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Scott Marshall, Shaw Stockbroking

BUY RECOMMENDATIONS

Aurizon Holdings (AZJ)

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

AZJ has announced it could achieve EBIT margins of 30 per cent in the long term. In the short term, profit margin improvement will come from $230 million in centralised cost savings and productivity improvements. While we have downgraded our coal volume forecasts from the Queensland basins, we note recent volumes have been strong. AZJ is a well-managed company with many opportunities to cut costs amid new rail investments in Queensland and Western Australia. Our target price is $5.38. The shares closed at $4.54 on July 31.

Nanosonics (NAN)

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

NAN is beginning to make significant commercial progress with its probe sterilisation technology in hospital and related public health sites. After achieving 30 per cent market penetration in Australia, it has reported a 75 per cent increase in third quarter cash receipts, which lowered operating cash burn for the quarter to $500,000. NAN announced a new non-exclusive distributor for the UK, and its distribution agreement with GE in the US is now delivering significant orders. NAN’s trophon unit offers solid technology and few competitors.

HOLD RECOMMENDATIONS

Amcor (AMC)

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

The company recently announced it intended to demerge the Australasia and Packaging Distribution business by December 2013 subject to approvals. AMC is dominant in most industry sectors it operates in and generates solid cash flow (forecast full year 2013 of $869 million from operations before capital expenditure of $611 million). It can sustain profit margins.

Wesfarmers (WES)

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

Shaw estimates that Coles has lifted profit margins in its supermarket segment from around 3.3 per cent in 2008 to 5.1 per cent in 2013. Part of Woolworths’ success has been the historic poor management of Coles. However, the profit margin gap between Coles and Woolworths is narrowing.

SELL RECOMMENDATIONS

Bradken (BKN)

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

We believe the company will continue to underperform the market in the next 12 months. Statutory results for the year ending June 30, 2013 will be adversely affected by a one-off charge of $29 million. The mining cycle downturn is now fully in train. In our view, its order book lacks visibility and is a concern.

Fleetwood (FWD)

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

Guidance in February was for an improving result in the second half of the financial year. Now it’s anticipated that second half earnings will be marginally below those reported for the first half. Lower demand for accommodation at its Searipple Village has put considerable downward pressure on revenues and margins. The caravan business remains soft. We don’t see any compelling positive catalysts over the coming months.

 

Joshua Stega, JAS Wealth

BUY RECOMMENDATIONS

Coca-Cola Amatil (CCL)

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

The beverage maker has a strong competitive advantage in brand power, distribution, product innovation and financial management. The upside to CCL’s business is Indonesia, which, in our view, presents a far greater market opportunity than its current Australian operations. With a dividend yield around 4.5 per cent, consider accumulating at these levels for income and the possibility of capital growth.

NIB Holdings (NHF)

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

NHF provides a range of private health insurance products and solutions to the Australian market, and is our top small cap pick in this sector. NHF continues to demonstrate above market growth in the health insurance sector and we believe the potential for rising premiums, continuing capital management initiatives and further acquisitions means strong growth prospects. The dividend yield was recently above 4 per cent.

HOLD RECOMMENDATIONS

Blackmores (BKL)

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

Develops, makes and distributes health care products in Australia, New Zealand and Asia. BKL retains a strong position in the Australian market, with significant growth opportunities in the Asian region. We believe future business growth lies in Asia and we expect slower domestic sales growth. This is a good long-term growth story.

DUET Group (DUE)

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

Owns energy utility assets in Australia and the US. The vast majority of DUE’s revenues are regulated or under long-term contracts, providing predictable and stable earnings. Growth is driven by rising populations, energy intensity and industrial activity. We believe this stock will be supported by its strong dividend yield, but considering there are limited growth opportunities in the short term, we rate this stock a hold.

SELL RECOMMENDATIONS

Bendigo and Adelaide Bank (BEN)

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

While the banking sector is likely to be underpinned by investors chasing yield, we believe BEN’s funding and business mix may limit growth. We’re concerned with BEN’s core tier 1 ratio, subdued organic capital generation and a reliance on net interest income as a driver of revenue. For these reasons, we would be taking profits and looking for better opportunities elsewhere.

iiNet (IIN)

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

A Perth based business providing broadband and dial-up services. IIN is a well-managed business and offers a significant opportunity for growth from new customers as well as increasing the product per customer among its existing subscriber base. Our worry with this story – in the shorter term – is the uncertainty caused by the introduction of the NBN. While the NBN gives IIN greater scope to grow its subscriber base, we believe it might come at the expense of profit margins. Based on our research, we value this stock well below the current share price.

 

James Georges, PhillipCapital

BUY RECOMMENDATIONS

Rio Tinto (RIO)

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

With recent turbulence in commodity markets, Rio Tinto has experienced share price volatility. But as a major bulk exporter of minerals, we expect Rio to benefit from a softer Australian dollar. Accumulate on weakness.

Metcash (MTS)

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

This diversified stock has been recently offering an attractive fully franked dividend yield of about 8 per cent. Scale advantages appeal, particularly when leveraging off the liquor and hardware businesses.

HOLD RECOMMENDATIONS

Commonwealth Bank (CBA)

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

The RBA’s easing bias still makes this stock an attractive portfolio holding, with a 5 per cent fully franked dividend yield and the prospect of a special dividend payment.

SP AusNet  (SPN)

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

A diversified energy business, SP AusNet is our preferred pick in this sector due to its healthy financial position. It has a cost of debt advantage that comes from its strong parent Singapore Power International and the higher margin unregulated services business.

SELL RECOMMENDATIONS

Harvey Norman (HVN)

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

Harvey Norman has been wrestling with structural issues, being the online landscape that’s escaped tax impositions and cyclical issues around weaker consumer demand. There doesn’t seem to be a short-term catalyst for improvement. Sell on rallies.

Perpetual (PPT)

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

The main drivers of Perpetual’s revenue and earnings are the level and direction of equity markets, particularly the Australian market. Rising markets lead to higher management fees and greater net inflows to managed funds.
Investor sentiment on equity funds has been subdued as retail investors remain avert to equities and will remain so until we get a sustained rally.

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.