18 Share Tips – 31 March 2014

Gavin Wendt, MineLife

BUY RECOMMENDATIONS

Kibaran Resources (KNL)

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

Possesses several key attributes that differentiate it from the graphite herd. These include an inferred JORC-compliant resource, completion of a scoping study, independent metallurgical test work, commencement of environmental and social impact studies, and, most importantly of all, a binding off-take agreement with a European graphite trader. We believe there’s strong share price upside.

Target Energy (TEX)

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

The company offers exposure to the Permian Basin in Texas, one of the most prolific oil producing basins in the world. Momentum is growing as the company reported that its most recent well, Sydney 2, is presently flowing at 520 BOEPD (barrels of oil equivalent per day) – which is almost 65 per cent more than the initial high?end production rate.

HOLD RECOMMENDATIONS

West African Resources (WAF)

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

It recently took over Channel Resources. A second hand heap-leach plant will accelerate development of its Mankarga 5 deposit, with first production targeted for 2015. The gold explorer’s shares have risen from 10 cents in late January to be trading at 17 cents on March 27.

Strike Energy (STX)

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

Strike has announced option agreements with Orora and Austral Bricks for a total of 42.5 petajoules of gas. This follows the July 2013 binding term sheet with Orica for the supply of up to 150 PJ of gas over a 20-year period, which has just been expanded to 250 PJ. The recent $12.7 million raising means a comprehensive Cooper Basin flow testing program will start during the second quarter of 2014.

SELL RECOMMENDATIONS

St Barbara (SBM)

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

The company continues to be plagued by its underperforming Pacific gold operations. A review of its Simberi operation in Papua New Guinea revealed that further work is needed for the plant to achieve its 3.5 million tonnes per annum nameplate capacity. Guidance suggests soft production for the March quarter. In the Solomon Islands, the company’s strategic operational review is continuing.

Gindalbie Metals (GBG)

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

The company’s primary iron ore asset is the Karara magnetite joint venture with Ansteel in Western Australia. Karara, however, needs significantly more funding or it faces the possibility of debt covenant breaches due to volatile iron ore prices and production issues. In our view, the stock is high risk and, with iron ore prices likely to ease over coming years, better opportunities exist elsewhere.

Carey Smith, Alto Capital

BUY RECOMMENDATIONS

Pacific Brands (PBG)

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

Makes iconic brands, such as Bonds and Hard Yakka. PBG is half through a restructuring process, with benefits starting to be realised. Strong reliable cash flows have enabled the company to pay fully franked dividends, while also paying down debt. Recently trading on a price/earnings ratio below 10 times and a fully franked yield above 6 per cent, we believe the stock is worth buying.

Mincor Resources (MCR)

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

This WA based producer is highly leveraged to the nickel price. Expect the 20 per cent nickel price increase since January to improve the group’s financial performance. With $57 million in cash and no debt, the group is in a very strong financial position.

HOLD RECOMMENDATIONS

National Australia Bank (NAB)

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

The group’s UK division is returning to profitability. A recent update confirmed good progress. Until the UK division turnaround has been completed, or is sold, we expect NAB will continue to trade at a significant discount to its peers.

Sonic Healthcare (SHL)

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

This international medical diagnostics company continues to report solid earnings growth in the high single digits, with 2014 earnings and dividends both forecast to continue the growth trend. SHL is generally considered a defensive play due to its constant and reliable strong cash flows.

SELL RECOMMENDATIONS

iiNet (IIN)

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

Australia’s third largest internet provider reported results broadly inline with market estimates for the December 2013 half, resulting in a 15 per cent share price gain. The stock is up 150 per cent since mid 2012 and we consider it overvalued. We suggest holders take profits. 

Leighton Holdings (LEI)

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

The group’s largest shareholder Hochtief announced it intends to increase its stake to 75 per cent through a selective buyback at $22.50 a share. We recommend investors sell their shares to Hochtief, as LEI will be removed from all S&P/ASX indices after the buyback. LEI could be almost considered a quasi-private company with a single 75 per cent shareholder. 

Patrick Trindade, PhillipCapital

BUY RECOMMENDATIONS

Cooper Energy (COE)

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

We have made upgrades to earnings and our valuation. We raise our fiscal year 2014 earnings by $700,000 to $22.7 million on better oil price realisations to date and lower writedowns. Fiscal year 2015 is more visible as Indonesian drilling has the capacity to triple production, albeit from a modest base. As such, we retain our buy recommendation and lift our price target to 71 cents. The shares closed at 55 cents on March 26.

Oil Search (OSH)

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

We see OSH as a core shareholding, with significant value upside. Expect cash flows from its Papua New Guinea LNG trains 1 and 2 to start kicking in from the 2014 September quarter. Expect better dividends on the back of this increased cash flow in 2015.

HOLD RECOMMENDATIONS

Alumina (AWC)

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

AWC’s underlying loss of $2.7 million in calendar year 2013 was better than our estimated $4.5 million loss. We have also been impressed by underlying cost controls. We have upgraded our target price from $1.18 to $1.41 a share. The shares closed at $1.16 on March 26.

Macquarie Group (MQG)

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

MQG has upgraded guidance for the March 2014 fiscal year and now expects net profit after tax to be up 40 per cent to 45 per cent, reflecting  improving conditions in fixed income, currency and commodities. While guidance was above consensus expectations, the stock is almost fully priced.

SELL RECOMMENDATIONS

Leighton Holdings (LEI) 

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

Notwithstanding Hochtief’s recent offer to increase its holding in LEI to about 74 per cent, LEI is still vulnerable to further deterioration in construction markets and further cancellation or delay of major infrastructure projects, which have characterised the sector in the past 12 months. As such, we would suggest investors avoid the stock until a clearer picture of its forward order book emerges.

Metcash (MTS)

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

MTS’s recent update raised as many questions as it answered. While long term investors may see the benefit of a $600 million plus capital injection during the next three to five years, yield investors will be less than impressed with the cut in the payout ratio to 60 per cent and the new strategy isn’t without risks. As such, we feel that while not a strong sell, there are better alternatives in the sector at this point in time.

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.