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Scott Marshall, Shaw Stockbroking

BUY RECOMMENDATIONS

Bank of Queensland (BOQ)

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

BOQ reports on October 10. Management has already indicated that cash profits will be at the top end of market expectations and the dividend is likely to be increased. We are forecasting a dividend of 29 cents, putting the stock on a 6 per cent yield. We are lifting our 12-month price target by a $1 to $11.50. We see BOQ as an operational turnaround story and expect double-digit earnings growth for the next several years. The stock was trading at $10.49 on September 12.

Coca-Cola Amatil (CCL)

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

With EBIT interest cover of 6.1 times and pre-funding future debt maturities from excess cash flow leave CCL well positioned to pay ongoing special dividends. CCL is relatively low risk, with strong and increasing cash flow. Upside from Indonesia and alcohol offset flat Australian conditions.

HOLD RECOMMENDATIONS

Boral (BLD)

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

The Australian building sector is continuing to recover. Total dwelling approvals were up 28.3 per cent in July 2013 compared to a year ago. Weakness previously experienced in Victoria is now stabilising. In other Australian states, the underlying trend is for a solid recovery in approvals. Relatively low unemployment, historically low interest rates, the end of the election cycle and high immigration levels are supporting a recovery in housing demand. BLD has experienced import competition for some products due to the high Australian dollar, but these pressures should ease during 2014.

Qube Holdings (QUB)

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

Qube anticipates continuing its record of delivering revenue growth and increased earnings per share in 2014. QUB is positioning itself for ongoing growth through the expansion of Australia’s bulk commodity exports, container handling and agricultural product transport. The development of QUB’s Sydney and Melbourne intermodal capabilities will progressively contribute to revenue growth.

SELL RECOMMENDATIONS

David Jones (DJS)

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

Fourth quarter sales for 2013 were down 1.3 per cent and like-for-like sales were down 2.9 per cent. The outlook is weak and trading conditions look challenging in the next 12 months. Sales were impacted by weak consumer confidence, competition and continuing weakness in electronics. We remain concerned about the short-term outlook for the credit card business (20 per cent of group profit) as the group transitions to a new structure for this segment. Opportunities remain for re-developing major CBD stores in the medium term.

Metcash (MTS)

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

Its major food and grocery distribution business is experiencing a tough first quarter. The Franklins supermarkets acquisition hasn’t yet met expectations. Key customers are reducing inventory, so it’s pressuring sales. Finding meaningful acquisition opportunities in the grocery segment is challenging. Competition in hardware is also fierce.

 

Joshua Stega, JAS Wealth

BUY RECOMMENDATIONS

Tassal Group (TGR)

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

Produces and distributes Atlantic salmon and associated products in Australia. We like TGR because most of its capital investment program is now complete. As a result, we believe operational focus will shift towards efficiency improvements and generating greater profits for shareholders. We expect dividends to increase over coming years, making it a good reason to own this stock.

PanAust (PNA)

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

A gold and copper mining company, with operations in Laos, Chile and Thailand. In our view, copper will be one of the best supported commodities in the next few years, with supply struggling to keep up with robust demand growth. Many mining stocks have retreated recently so buying opportunities exist. PNA is our preferred mid-cap copper exposure. It’s recently been trading on a price/earnings ratio of 15 times and offers a yield of 3.5 per cent. 

HOLD RECOMMENDATIONS

National Australia Bank (NAB)

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

NAB had been the least favoured major bank stock due to legacy issues associated with its ailing overseas operations. Recent initiatives have addressed these issues and, accordingly, the valuation gap between NAB and its peers has now been closed. With a dividend yield of 5.5 per cent, but little near term share price catalysts, we rate NAB as a hold at current levels.

Tox Free Solutions (TOX)

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

An integrated waste management and industrial services company. In recent years, TOX has made several acquisitions, which we believe need more time to deliver in terms of earnings and profitability. There’s also some near term risks to the business resulting from a slowing mining sector.

SELL RECOMMENDATIONS

Transurban Group (TCL)

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

A toll road owner and operator with interests in Australia and North America. At current levels, TCL is trading at a premium to its peers and we believe more attractive investment opportunities exist elsewhere. TCL has recently been trading on a high price/earnings ratio of 21 times, with a dividend yield of 4.7 per cent. In our view, TCL is a highly leveraged infrastructure play, so increases in real bond yields present risk.

Goodman Fielder (GFF)

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

Distributes its products into the retail grocery and commercial food services markets. Goodman Fielder recently downgraded its full year profit guidance, which serves as a reminder that it’s a business that’s structurally challenged. It’s wedged uncomfortably between powerful supermarkets and input costs that are largely outside its control.

 

Peter Moran, Wilson HTM

BUY RECOMMENDATIONS

Acrux (ACR)

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

We have upgraded ACR to a buy following recent share price weakness. Cheaper injectable testosterone products have slowed the growth of gels, like those supplied by ACR. However, with a price/earnings ratio recently retreating to 16 times and a yield at 5.5 per cent, there’s more than enough growth in the company for us to buy once again.

Seek (SEK)

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

The recent profit confirmed its strength, with offshore results more than offsetting weaker earnings from the Australian business. While the stock trades above our 12-month price target, there’s a firm possibility of near-term earnings upgrades, so we retain our buy recommendation for this online employment classifieds and education company.

HOLD RECOMMENDATIONS

Woodside Petroleum (WPL)

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

The Woodside share price has risen in line with a stronger oil price. We like WPL’s strategy of focusing on project returns rather than growth and this should ensure the 80 per cent dividend payout is retained. However, in the absence of near term catalysts and the price around our valuation, we downgrade from a buy to a hold.

GPT Group (GPT)

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

The interim result left full year growth guidance at about 5 per cent. This reflects cost savings and lower interest costs. However, it also implies weakening underlying demand for office space as reflected in incentives being offered. Trading on a recent price/earnings ratio of 14 times with a yield of 5.5 per cent, we retain our hold recommendation.

SELL RECOMMENDATIONS

Webjet (WEB)

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

Webjet reported a disappointing underlying result for fiscal year 2013. While the company met guidance for underlying  EBITDA of $21.6 million, it lost momentum in both domestic and international flight bookings. We have downgraded earnings to reflect slower volume growth assumptions and cut our recommendation to a sell.

OrotonGroup (ORL)

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

A joint venture has been signed with American apparel icon Brooks Brothers to develop the brand in Australia and New Zealand. Oroton will own 51 per cent of the joint venture. Brooks Brothers has hundreds of stores across the world. Success in Asia is implied in the share price. This is yet to be proven and, accordingly, we believe the share price is overvalued.

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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.