18 Share Tips – 4 November 2013

Gavin Wendt, MineLife

BUY RECOMMENDATIONS

Alligator Energy (AGE)

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

The company represents one of the most prospective emerging uranium plays available. AGE has managed to maintain successful exploration programs aimed at advancing its resource position at its Alligator River uranium project in the Northern Territory, despite poor market sentiment. The company recently announced a strategic investment partnership, incorporating key members of previously successful ASX-listed uranium company Extract Resources. The partnership underwrites my confidence in Alligator.

YTC Resources (YTC)

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

The company boasts one of Australia’s most prospective emerging resource projects in the form of its Hera-Nymagee gold base metals deposit near Cobar in NSW. Strong progress has been made as it moves towards project commissioning, including $158 million of project funding from Glencore International. First production is expected during the 2014 fourth quarter. Operating costs (after base metal credits) are anticipated to be as low as $395 an ounce due to the high-grade nature of the ore body.

HOLD RECOMMENDATIONS

Kimberley Diamonds (KDL)

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

A top performing stock in 2013. It successfully acquired the Ellendale diamond operation in WA earlier this year. The company has revamped what was an underperforming asset and restored it to profitability. Kimberley also recently paid a maiden dividend of 2 cents a share.

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 aim is to create a significant junior gold producing company that boasts a strong project pipeline, experienced management team and, most importantly, greater access to project 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 $14 million and net cash of $7 million. 

SELL RECOMMENDATIONS

Fortescue Metals Group (FMG)

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

Retains significant iron ore assets in the Pilbara region of Western Australia. The company is one of the biggest stand-alone iron ore players in the world and has built its own integrated mine rail and port system. It’s in the process of ramping up capacity to 155 million tonnes a year by the end of 2013. We expect iron ore prices to fall due to seasonal factors in coming months.

Whitehaven Coal (WHC)

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

The company operates five producing coal mines in the Gunnedah Basin of NSW. Following the acquisition of Aston Resources in mid 2012, the company is looking to develop the Maules Creek mine and its own Vickery mine. The company is aiming to lift saleable coal production from 5 million tonnes to 25 million tonnes by 2016. While Whitehaven is a strong growth play, its high debt levels and high thermal coal exposure are significant negatives at the present time in my view.

Please note: Whitehaven Coal is a buy and a sell this week as brokers take different views about its prospects. 

Patrick Trindade, PhillipCapital

BUY RECOMMENDATIONS

ANZ Bank (ANZ)

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

While Australian banks are now starting to look expensive – with cash rates remaining at record lows – yield hungry investors will continue to support them, particularly as term deposit rates continue to fall. ANZ’s recent full year record $6.5 billion profit goes a long way to allaying fears that its Asian expansion strategy was negatively impacting profit margins.

Whitehaven Coal  (WHC)

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

New management is demonstrating an ability to fix operational issues and its Narrabri mine is now showing promise. Coal prices currently remain subdued, however, we remain bullish on the long term prospects for WHC with a $3.93 share price target. Key risks to our valuation include weaker coal prices and a higher Australian dollar. The shares closed at $1.695 on October 29.

HOLD RECOMMENDATIONS

Oil Search (OSH)

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

September quarter production was 8 per cent ahead of our expectations. OSH says barring outages, 2013 full year production is expected to be towards the upper end of guidance of between 6.2 million and 6.7 million barrels of oil equivalent. We regard OSH as a high quality core portfolio growth stock. While we retain our hold recommendation, price retreats are viewed as accumulation opportunities.

Pacific Brands (PBG)

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

Positive sales momentum in the underwear business appears to have slowed significantly in the 2014 first quarter. The environment for work wear continues to be challenging. However, we retain our hold recommendation.

SELL RECOMMENDATIONS

SMS Management & Technology (SMX)

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

While there’s signs market conditions may have bottomed, we believe earnings risk remains to the downside given the weak performance in the underlying businesses. First half 2014 net profit after tax for this IT company is pointing towards a significant reduction on the 2013 second half.  We retain our sell recommendation.

David Jones (DJS)

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

As the stock was recently trading on a forecast multiple of about 18 times fiscal year 2014 earnings, we continue to retain our sell recommendation. The retailing environment remains difficult given continued discounting by competitors and general price deflation.

James Samson, Lincoln Indicators

BUY RECOMMENDATIONS

Infomedia (IFM)

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

An IT solutions business focusing on the auto sector. IFM reported a promising first quarter trading update at its recent AGM. It appears well placed to achieve its full year net profit after tax guidance of between $11.1 million to $12 million. Given recent investment in new products and an improving currency situation, IFM offers some upside for investors willing to take on a little more risk.

Mineral Resources (MIN)

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

Given relatively stable iron ore prices amid sustained production at many major mines, MIN’s prospects have improved. The company operates a contract crushing services business in Western Australia and its own iron ore mining operations. It’s one of our preferred income stocks. Financial health is strong.

HOLD RECOMMENDATIONS

Super Retail Group (SUL) 

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

Having provided a positive trading update in late October, SUL’s integration of retailer Rebel Sports appears on track. This acquisition is likely to enhance the company’s growth outlook, as it looks to build on a stronger retail sector. However, in our view, expectations for growth appear well priced into the stock at levels above $13. The shares closed at $13.38 on October 31.

Sky Network Television (SKT)

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

With growth somewhat limited, New Zealand’s major subscription TV provider continues to offer investors stability and a reasonable dividend yield. However, after recent guidance was confirmed at the company’s AGM, we believe the market has fully priced the business, which otherwise lacks a near term growth catalyst. We note the potential for an increased dividend payout is enhanced by very low capital expenditure requirements this year.

SELL RECOMMENDATIONS

Tabcorp (TAH)

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

After a strong share price run of late, TAH appears overvalued by the market. The wagering sector is experiencing high levels of domestic competition, which could potentially hinder the company’s earnings outlook. In our view, TAH lacks a positive catalyst, and our preference in the sector remains with the lotteries exposed Tatts Group (TTS).

Cardno (CDD)

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

With continuing pressure on the global engineering and construction sector, CDD appears fully priced at present. The company has continued to ramp up the balance sheet and issue additional capital in pursuit of accretive growth. However, with industry pressures at high levels, we believe the company will struggle to perform.

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.