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Gavin Wendt, MineLife

BUY RECOMMENDATIONS

Kimberley Diamonds  (KDL)

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

The company earlier this year successfully acquired the Ellendale diamond operation in Western Australia from UK-listed Gem Diamonds plc. Kimberley has revamped what has historically been a solid, cash-flow producing asset by enhancing the mine’s profitability. It’s achieved this through improved operational efficiency, cost minimisation and enhancement of the resource base and mine life. It’s also just announced a maiden dividend. Most small companies lack a clearly defined growth strategy – importantly this isn’t the case with Kimberley Diamonds.

Southern Cross Goldfields (SXG)

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

This emerging gold producer has just completed a successful merger with fellow ASX-listed junior, Polymetals. The merger’s aim is to create a significant junior gold producing company, which boasts a strong project pipeline, experienced management team and, most importantly, access to funding. The enlarged company hosts a combined mineral resource gold inventory of 1.63 million ounces, gold reserves of 254,000 ounces, a market capitalisation of $17 million and net cash of $7 million. It also boasts a highly qualified management team.

HOLD RECOMMENDATIONS

Sheffield Resources (SFX)

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

Assets comprise a diverse mix of advanced bulk commodity projects in Western Australia. Bulk commodities typically present a challenge for most junior companies. However Sheffield’s board and management team have managed to consistently demonstrate they have the necessary skills and experience to extract full value from these types of assets. The company’s key asset is its world-class Dampier mineral sands project.

Northern Minerals (NTU)

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

The company’s massive 10,500 square kilometre acreage package within the Gardiner-Tanami province on the Western Australia and Northern Territory border has strong potential to develop into a low-risk, reliable supplier of high quality rare earths minerals close to a growing market in south east Asia. Market awareness is beginning to grow and the results of a scoping study will soon be released.

SELL RECOMMENDATIONS

Woodside Petroleum (WPL)

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

Earlier this year, the oil and gas giant announced it would increase its dividend payout ratio to 80 per cent of underlying NPAT for several years. As a result, the company has become attractive from a yield perspective, like the major banks have for the past two years. Woodside is estimated to pay a 5.5 per cent yield during 2014 and 5.6 per cent during 2015. The problem is Woodside’s earnings are more difficult to forecast than other high yield stocks.

Beadell Resources (BDR)

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

The company is one of the sector’s newest gold producers and has successfully commissioned its Tucano mine in Brazil. BDR had enjoyed a strong share price run. However, uncertainty over the near-term gold price outlook means gold producers like Beadell aren’t as sought after as they were a few years ago. The company is generating strong earnings, but, in our view, is probably fully valued, with near-term upside somewhat limited.

 

James Samson, Lincoln Indicators

BUY RECOMMENDATIONS

Aurora Oil and Gas (AUT)

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

AUT announced recently it had negotiated additional debt funding headroom in order to finance its aggressive production growth strategy in the prized Eagle Ford oil and gas region of Texas. With upgraded reserves and significant growth investment this year, the company is expected to lift earnings with a potential boost from higher oil and gas prices. Its financial health is strong.

FlexiGroup (FXL)

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

Provides retail-focused leasing and vendor financing through partner retailers and merchants across Australia. FXL management issued guidance for strong growth in fiscal year 2014, expecting net profit to increase between 17 per cent and 19 per cent to about $85 million. The company has added personal lending to its portfolio and appears set to deliver promising growth in the near future.

HOLD RECOMMENDATIONS

Sandfire Resources NL (SFR) 

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

Despite a lack of quality copper miners, SFR has been impressive. Although company exploration hasn’t lived up to previously hyped expectations, the business is producing solid and growing returns. We believe that SFR is fairly priced and exploration upside justifies a hold.

RCG Corporation (RCG)

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

Shoe retailer RCG Corporation has performed well in recent years, with the company bucking the trend to deliver increased earnings in a challenging environment. With continuing vertical integration of the business into a growing suite of wholesale brands, this business is poised to continue a steady growth path despite industry trends.

SELL RECOMMENDATIONS

Virgin Australia Holdings (VAH)

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

Despite Air New Zealand buying an additional 6 per cent of the airline, and the potential for SkyWest and Tiger to contribute positively in fiscal year 2014, we believe headwinds are mounting for the airline. We believe VAH has downside risk at current price levels, with strong competition and adverse pricing conditions the key threats. 

Patties Foods (PFL)

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

PFL is facing tough challenges. The pie maker and baked goods supplier is likely to see continued margin pressure, as supermarkets look to increase sales and shelf space for house brands. While PFL has been an impressive business in the past, these challenges are likely to squeeze profit. 

 

John Rawicki, PhillipCapital

BUY RECOMMENDATIONS

Federation Centres (FDC)

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

Federation Centres (formerly Centro Retail) is a vertically integrated real estate trust that owns and manages Australian shopping centres. Offering investors an attractive dividend yield above 6.6 per cent (unfranked) for fiscal year 2014, the stock potentially offers low-risk capital growth. I expect to see the stock trading closer to $2.50 in coming months.

Macquarie Group (MQG)

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

Highly leveraged to a recovery in capital market activity, the company’s revenues are yet to see a material rebound. Rising stockmarkets traditionally lead to an upgrade in Macquarie’s earnings. I expect the share price starting to reflect the stronger financial environment through 2014, and have a price target of $55.

HOLD RECOMMENDATIONS

News Corporation (NWS)

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

New News Corp is a conglomerate of dominant Australian media assets and leading global print brands. Despite its strong brand portfolio, the newspaper business (representing about 60 per cent of the company’s earnings) is currently transitioning from print to digital. This can be risky to revenues, but is a much needed change in strategy.

Treasury Wine Estates (TWE)

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

In the past four months, TWE has replaced its CEO, CFO and taken major provisioning regarding its US commercial wine business. The new CEO has the opportunity to rethink the company’s US operations and improve profitability. The stock will improve on the back of a US economic recovery. My target is $5 levels.

SELL RECOMMENDATIONS

Boart Longyear (BLY)

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

Provides drilling services and products to the global mining industry. The outlook for the sector remains challenging and it’s still difficult to predict the timing of a cyclical rebound in mining. The company recently raised US$300 million in debt to pay back some older debt.  A scary ride for investors, and a sell in my view.

Evolution Mining (EVN)

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

A gold company with mining and exploration operations in Australia. The outlook for the gold price is very clouded right now. Evolution’s Cracow mine has a relatively short mine life, while its Mount Rawdon mine suffers from low grade. Consequently, Evolution’s fate is very closely aligned to the gold price.

Click on the links below to read other articles from this week’s newsletter

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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.