Richard Batt, Shadforth Financial Group
Primary Health Care (PRY)
PRY provides exposure to a portfolio of medical businesses with reliable earnings streams. It’s expected these business will continue to grow solidly over the longer term, as the company benefits from an ageing population lifting demand. Earnings should be relatively insulated from cuts to public health care budgets, as services involve early treatment of diseases. Technological innovation will help underpin earnings.
Suncorp Group (SUN)
A diversified financial services company with a loyal customer base enabling strong cross-selling opportunities. The sale of its non-core loan book is positive. The firm is awash with capital and it has the ability to pass a portion to shareholders, as we saw with the recent special dividend. An earnings recovery in the insurance business and core bank is underway, and we expect attractive long term growth going forward.
Origin Energy (ORG)
ORG recently announced its net profit fell by 61 per cent for the year ending June 30. In conjunction with the result, the company announced it had secured a $7.4 billion bank loan facility to help fund its massive $24.7 billion Australia Pacific LNG (APLNG) project. This loan facility reduces liquidity risk for the company, which has been a key investor concern in the past year. We are comfortable for investors to retain their exposure.
Seven Group Holdings (SVW)
SVW recently announced it had almost tripled its net profit following a strong first half performance from its heavy equipment business, WesTrac. The result was also boosted by a gain from the sale of the company’s stake in Consolidated Media. However, the company did indicate the result had been affected by a mining sector slowdown in the second half. Cutting costs were implemented to remedy this and will continue in 2013/2014.
Boart Longyear (BLY)
BLY’s first-half 2013 result was well below expectations. The result reflected a weak operating environment with significantly reduced demand for drill rigs and related drilling products. Demand and supply factors in the drilling services and drilling equipment markets will always be very volatile and cyclical, with rapid changes having a considerable impact on BLY’s earnings. As such, we recommend that investors consider alternative investments.
Goodman Fielder (GFF)
Makes and distributes a range of food products, including bread, milk, margarine and flour. The industry is mature and prone to price wars, with the big supermarkets having more bargaining power than the manufacturers. Margins are vulnerable to increases in commodity and fuel prices, with consumers able to move away from the higher-margin branded products when household budgets are under pressure. Prefer others.
Andrew Arvanitopoulos, Alpha Securities
This financial services provider represents value based on current prices. The company achieved a 20 per cent return on equity in fiscal year 2013 and significant earnings per share growth. While Challenger has a broad range of competitors, the company continues to grow in a tough market. Statutory net profit after tax rose to $417 million for fiscal year 2013, which was better than expected. The full year dividend rose to 20 cents.
Slater & Gordon (SGH)
This law firm represents a solid opportunity. The company has forecast earnings per share and profit growth for the next two years. The company has a low debt structure, recently financing acquisitions through equity finance. Growth in UK earnings, an increasing return on equity and strong domestic performance paints a bright outlook.
BHP Billiton (BHP)
Full year underlying earnings of US$11.8 billion were overshadowed by approving US$2.6 billion for its Jansen potash project. The investment metrics imply that BHP is very positive on potash in the longer term.
Full year 2013 earnings were robust. Mobile income drove Telstra’s performance in the second half, with service revenues rebounding to grow by 7.5 per cent. We expect a dividend increase of about 2 cents a share in the 2014 financial year. This should be supported by current gearing levels, cash generation and franking levels.
Alumina and aluminium markets remain challenged and we expect continuing pressure on prices as surpluses persist. A falling Australian dollar and reducing costs are providing an offset, but not enough to prevent our expectation of tough times ahead.
Leighton Holdings (LEI)
The construction and project environment remains very difficult. We don’t believe reduced resources spending or government-related spending will reverse to any great extent in the next 12 months.
Darren Jackson, Calibre Investments
iCar Asia (ICQ)
The automotive portal is in the early stages of building its revenue base, but shows considerable potential as the next Carsales.com (CRZ) of Asia. ICQ’s current number of listings actually exceeds CRZ. However, ICQ is essentially an emerging market play, whose earnings will be tied partially to the prosperity of the economies that it operates in. A speculative buy.
Inca Minerals (ICG)
Maiden drilling results at the Chanape project excited the market in February. Since then, the company has completed geo-chemical sampling and is onto the next round of drilling. The company is fully financed in the near term, so risk of dilution is low. We believe there’s a good chance of a re-rating from its drilling campaign.
Endeavour Mining (EVR)
This West African gold producer seeks to increase production from 300,000 ounces to 400,000 ounces a year and cut production costs. Its share price has been trading below Papillon Resources (PIR), which is still an explorer in West Africa.
McMillan Shakespeare (MMS)
This salary packaging company has been in the wars since the Rudd Government proposed changes to the fringe benefits tax on novation car leasing. Its outlook has essentially become a bet on the election outcome. A coalition victory would be better for this stock.
Ramsay Health Care (RHC)
It may be a good time to take a profit on a stock that has been a stellar performer. Contract negotiations with Medibank Private bring some downside risk. Margins may be cut under a new contract. Without a contract, revenues may drop. Neither is desirable.
Linc Energy (LNC)
The company has enjoyed a great run since its July low. We believe Middle East tensions rather than any recovery in global economic growth seem to behind the premium. We consider its projects speculative and difficult to value. We would look to reduce.
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