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Sean Conlan, Macquarie Private Wealth

BUY RECOMMENDATIONS

Computershare (CPU)

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

CPU is exposed to an improving macro environment of steepening yield curves and increased corporate activity. With a potential earnings upgrade at the 2014 first half result amid a modest price/earnings ratio valuation when compared to other market linked stocks, we continue to see share price risk to the upside despite recent outperformance.

Fortescue Metals Group (FMG)   

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

Our outperform rating reflects a $6.15 share price target. While FMG’s fortunes will ultimately be dictated by the iron ore price, we not only remain bullish, but also see a sufficient buffer in FMG’s operations to provide at least a degree of shelter from macro risks. The shares were trading at $5.31 on January 29.

HOLD RECOMMENDATIONS

The Reject Shop (TRS)

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

The 2015 financial year is shaping as the first period to get the full benefit of the accelerated store rollout undertaken in the past 18 months. Results should benefit by about $4 million, less incremental opening costs. But store productivity needs to improve if the group is to leverage the significant investment undertaken and get returns back to anywhere near where they once were.

Perpetual (PPT)

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

PPT has outperformed the market by almost 30 per cent since the 2013 financial result in August. PPT is now trading on 17 times 2015 earnings, a 30 per cent premium to the market. The share price is likely to be supported near these levels with positive market sentiment and net inflows. The shares were trading at $47.40 on January 30.

SELL RECOMMENDATIONS

Woodside Petroleum (WPL)

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

Given WPL’s declining production profile and shortening reserves life, we see WPL as a net acquirer over coming years. Against this backdrop, the asset market remains tight. Indeed, WPL is already seeing rising price pressures in Israel, but will also likely run into national oil corporations with deep pockets and low return thresholds, as it looks to grow internationally.

GUD Holdings (GUD)

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

The first half 2014 results highlight the considerable work required to turn Dexion and Sunbeam around. As expected, new management has announced major restructuring initiatives. We expect it will be well into 2015 before results demonstrate if they are successful in arresting the earnings decline.

 

John Rawicki, PhillipCapital

BUY RECOMMENDATIONS

Transurban Group (TCL)

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

TCL owns six toll roads in Australia and one in the US. Additionally, TCL have one other project currently under construction in the US. Widening projects on Sydney’s M2 and M5 roads are catalysts for near term growth. TCL’s 5 per cent yield and 10 per cent per annum dividend growth should underpin share price performance even in a volatile market.

Goodman Group (GMG)

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

An integrated property group, with operations in Australia, New Zealand, Asia, Europe, the UK, North America and Brazil. Goodman has a strong pipeline of property developments, and is set to benefit from any further depreciation in the Australian dollar, residential conversion opportunities and the company’s ability to raise equity from wholesale investors.

HOLD RECOMMENDATIONS

JB Hi-Fi (JBH)

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

Net profits and sales pre-released by this consumer electronics retailer for the 2014 first half were marginally ahead of estimates. The actual results are due on February 3. At $18 levels, we believe the stock is fairly valued and approaching attractive buy levels again. I have a 12-month price target of $20, and the upcoming results should act as a catalyst for the stock. The shares were trading at $17.82 on January 30.

Perseus Mining (PRU)

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

While I believe there’s value in the company’s assets given the large resource base, recent share price volatility and gold price uncertainty are likely to keep investors on the sidelines. In my view, the downside appears limited from current levels. Cash costs declined for the first time in five quarters to US$1038 an ounce and are expected to fall below US$800 an ounce in the June half.

SELL RECOMMENDATIONS

Boral (BLD)

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

Boral’s trading update provided guidance for a better-than-anticipated first half result. However, the building products maker has also flagged a drop-off in major project work that suggests to me a potential decrease in revenues well into 2015. I believe a potentially softer workload pipeline isn’t a temporary blip, but part of a longer term decline within the engineering and construction sectors.

UGL Limited (UGL)

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

Speculation continues about UGL selling its property services business to private equity interests. I see little upside for UGL from any de-merger, or disposal of property given the significant one-off costs and higher recurring corporate costs. I expect UGL’s engineering businesses to face a challenging outlook due to reductions in government infrastructure spending.

 

Peter Moran, Wilson HTM

BUY RECOMMENDATIONS

Sydney Airport (SYD)

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

Sydney Airport offers defensive characteristics with a good growth profile. We believe recent weakness has been accentuated by the distribution of SYD shares to Macquarie Bank shareholders. Macquarie Bank shareholders now have small holdings in SYD and many of these parcels are now being sold. SYD is on a forecast dividend yield of 6 per cent and trading at a discount to our $4.30 price target. The shares were trading at $3.89 on January 29.

Orora (ORA)

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

ORA is the former Australasian and packaging distribution division of Amcor. It was listed as a separate entity in December last year. While we expect underlying sales to be subdued, we see strong profit growth during the next few years driven by the benefits of recent cost reduction programs and a new container board mill.

HOLD RECOMMENDATIONS

Skilled Group (SKE)

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

Provides contract labour services. Skilled is well placed to benefit from a recovery in economic activity and labour demand in future. However, current labour market conditions remain subdued and we expect a weak first half 2014 result. Historically, the share price has a tendency to overshoot on bad news so we retain a hold recommendation.

Macquarie Group (MQG)

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

Macquarie’s fiscal year 2014 earnings will benefit from solid trends in the US investment banking reporting season and the Sydney Airport transaction. However, recently trading on a price/earnings multiple of 17 times for financial year 2014, we believe the positive news is already in the share price and, therefore, retain a hold recommendation.

SELL RECOMMENDATIONS

GWA Group (GWA)

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

Supplies building fixtures and fittings to households and commercial premises. GWA’s businesses have been struggling and, in our view, will continue to find the going tough due to cheaper products being offered by competitors. GWA now imports 70 per cent of its products and a falling Australian dollar is a negative, as GWA will need to push through pricing increases to maintain margins. We believe the dividend will be cut for this half and retain our sell recommendation.

Newcrest Mining (NCM)

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

Newcrest’s recent quarterly production showed an improvement in cost performance, with costs down on the previous quarter. However, in our view, cash generation remains a problem. If gold prices remain at these levels or below, next year’s debt repayments may become a problem. For those looking for gold exposure, we would look elsewhere.

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.