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John Rawicki, PhillipCapital

BUY RECOMMENDATIONS

Amcor (AMC)

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

Amcor shareholders have overwhelmingly voted in favour of separating its packaging distribution business into a new company, Orora. Orora provides an attractive bottom up growth story for the next two years. I would expect to see Amcor trading closer to $12 a share in the coming year. The shares were trading at $11.19 on December 12.

PanAust (PNA)

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

PanAust is a copper and gold producer in Laos. PNA is our preferred copper exposure as it has more production certainty compared to OZ Minerals, which is struggling with high costs and strip ratios. PNA also generates stronger free cash flow than Sandfire (SFR) and is trading on a lower multiple than its peers. Despite higher costs, PNA has fewer operational issues than its peers. As such, we have more confidence in it achieving production guidance.

HOLD RECOMMENDATIONS

Sedgman (SDM)

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

SDM is an engineering company that operates in the global coal and metals sector. Despite delays in domestic coal project approvals and a weak outlook for mining services, my view is the market has factored in a worst case scenario and downside from this point will be limited. Although I expect Sedgman’s earnings in the near term to remain subdued, I expect a swing to profitability in the second half of 2014.

Atlas Iron (AGO)

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

AGO’s latest round of drilling at Corunna Downs has returned several impressive intersections, which the company says are “within trucking distance of Port Hedland”. This discovery of further mineralisation is a positive for Atlas and may underpin a project development on a similar scale to Mt Webber (3 million to 6 million tonnes per annum) if drilling successfully defines a mineable reserve of between 50 million and 60 million tonnes a year.

SELL RECOMMENDATIONS

Woodside Petroleum (WPL)

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

In my view, the growth outlook for this oil and gas giant is more challenging than most of its competitors. It also trades at a premium to its international peers. The Shell overhang adds to my concerns at this point and I see better value elsewhere.

Echo Entertainment (EGP)

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

I believe there are several headwinds creating an uncertain outlook. These include an uneven ramp up in earnings at The Star (casino), uncertainty around exclusivity at Treasury Brisbane (casino) and uncertainty surrounding future returns from expansion projects. With this in mind, I prefer to exit EGP here, with the view of perhaps buying back at a lower price down the track. The shares were trading at $2.30 on December 12.

 

Peter Russell, Russell Research

BUY RECOMMENDATIONS

REA Group (REA)

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

REA is Australia’s dominant online real estate website, handling listings from nine out of 10 agents. REA is building its brand across commercial property and overseas. News Corporation holds 65 per cent of issued shares. While now priced at some 36 times profits to June 2014, return on equity is around 49 per cent. Earnings per share growth above 20 per cent is expected to continue with deep market prospects.      

TPG Telecom (TPM)

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

With good infrastructure acquisitions in recent years amid first rate execution of a focused strategy, TPG now has one of the best fibre networks in Australia. Its latest coup in buying AAPT for $450 million adds to TPG’s very strong cash flow. AAPT brings 11,000 km of fibre, access to more than 1500 premises and coverage to almost 1 million businesses and most NBN connection points.

HOLD RECOMMENDATIONS

Breville Group (BRG)

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

Breville develops small kitchen appliances to sell in Australia, New Zealand, North America and the UK. Innovation and global brand management support a premium market position and steady revenue and profit growth. EBITDA has grown at 16.2 per cent compound over five years, with earnings per share at 18.3 per cent. 

Envestra (ENV)

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

ENV is Australia’s largest natural gas distributor. Its networks provide secure but mostly regulated revenue streams offering long term growth. APA Group holds 34 per cent of issued shares and operates the networks. Cheung Kong holds another 19 per cent. An unfranked yield of more than 6 per cent could slowly rise. APA is a possible suitor.              

SELL RECOMMENDATIONS

Leighton Holdings (LEI)

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

Share prices and earnings in Australia’s dominant mining and construction contractor topped out in 2007. The group’s diversity, including Asian and other activities, aided an earnings peak and partial price recovery in 2009. But subsequent revenue growth has been offset by project problems, write-downs and deteriorating conditions. More is still being done on its debt and culture.      

UGL Limited (UGL)

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

An engineer, UGL diversified across rail, transport, power, water, maintenance and facilities management. After acquiring DTZ in December 2011, UGL became a global real estate services group. UGL plans to demerge DTZ in 2015. Meanwhile, 2012 and 2013 brought tough conditions and downgrades. Much is to be done before 2015 – will you wait?

 

Patrick Trindade, PhillipCapital

BUY RECOMMENDATIONS

Nufarm (NUF)

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

We see ROI (return on investment) lifting to a modest 12 per cent (13 per cent per annum EBIT growth for four years) with improving diversity and margin management mitigating seasonal and competition risks. We believe NUF has an internal ROI target of 15 per cent, which implies 19 per cent per annum EBIT growth. We retain our buy rating and price target of $5.90 a share. The shares were trading at $4.11 on December 12.

Silex Systems (SLX)

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

Its fiscal year 2013 breakeven NPAT result was achieved through a key uranium enrichment milestone payment of US$15 million offsetting solar development costs. We rate SLX a buy now because of a diverse late stage development, a strong cash position and partnerships with GE and others.

HOLD RECOMMENDATIONS

Myer Holdings (MYR)

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

While a mildly positive sales performance in both total and like-for-like terms appears a step in the right direction, the real test will be the second quarter where sales are typically 50 per cent higher than in the first. With the stock close to our $2.85 share price target, we retain our hold recommendation. The shares were trading at $2.49 on December 12.

Kathmandu (KMD)

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

The retailer has significantly outperformed in recent months, so we view KMD as approaching fair value. We downgrade our recommendation from a buy to a hold.

SELL RECOMMENDATIONS

GrainCorp (GNC)

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

Our 12-month price target is $7.74 a share. This 10 per cent discount will stay until GNC rebuilds its leadership team and confirms strategy and growth during a more competitive year for Australian east coast grain. On December 12, the shares were trading at $8.20. 

David Jones (DJS)

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

While the market has reacted positively to the first quarter sales result, the company appears to be tracking a little behind the run rate implied by our 2014 first half sales forecasts. Consequently, we think investors should view current share price strength as a selling opportunity.

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.