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John Rawicki, PhillipCapital

BUY RECOMMENDATIONS

BHP Billiton (BHP)

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

The company is actively studying ways to simplify its business. BHP may consider divesting non-core assets that would create tax benefits and reduce capital expenditure. Furthermore, a demerger via an in-specie dividend might be able to unlock US$11.3 billion in franking credits on BHP’s balance sheet. A recent recovery in the iron ore price is also starting to attract investors back to the stock.

Mineral Resources (MIN)

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

I expect the company to deliver fiscal year 2014 iron ore volumes ahead of expectations. MIN has raised target volumes to between 9.5 million tonnes and 10 million tonnes. I also expect prices received for its product have remained solid.

HOLD RECOMMENDATIONS

Funtastic (FUN)

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

Funtastic is a wholesaler and distributor of consumer products, including toys, apparel and sporting goods. I remain cautious given disappointing earnings in recent years. However, growth potential may come from a sales boost in “Chill Factor” frozen treat machines in the US.

Recall Holdings (REC)

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

Provides information management solutions. The company recently announced a new 10-year contract with HSBC to deliver services across 10 countries. While the contract win will strengthen Recall’s existing relationship with the customer and expand it into new geographies, I believe the value is already factored into the share price.

SELL RECOMMENDATIONS

Leighton Holdings (LEI)

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

In my view, Leighton’s share price appears inflated following the bid from Hochtief. I expect to see a sell off in coming months. The company faces headwinds from an ASIC investigation, potential credit downgrades and potential receivable write backs for up to $2 billion. The stock may also be removed from market indices if it’s taken over by Hochtief.

Fleetwood Corporation (FWD)

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

The company faces challenges amid what I consider unfavourable supply/demand dynamics for manufactured accommodation and the group’s high gearing. FWD’s $46 million net debt is at historically high levels.

 

Peter Moran, Wilson HTM

BUY RECOMMENDATIONS

Pact Group Holdings (PGH)

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

This packaging company offers defensive characteristics and strong cash flows. Expect earnings growth of about 10 per cent per annum for the next three years. Expect growth to be driven by additional acquisitions and continuing cost reduction initiatives. It was recently trading on a forecast 2015 price/earnings ratio of 11 times and a dividend yield of 6 per cent.

Strike Energy (STX)

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

STX offers significant potential upside assuming successful commercialisation of the company’s deep coal gas resource of a net prospective 4.5 trillion cubic feet. STX is an explorer offering high risk and potentially substantial returns. STX has entered into gas supply option agreements with Orica, Orora and Austral Bricks providing about $56 million in early stage funding for STX.

HOLD RECOMMENDATIONS

Telstra (TLS)

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

We believe TLS should enjoy another positive year amid earnings growth and a dividend yield of almost 6 per cent. However, over the medium term we see earnings growth moderating as margins decline.

Slater & Gordon (SGH)

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

We continue to like the SGH business, but much of the new revenue growth from here will be in lower margin practices. With no more acquisitions expected, SGH is shifting towards an operational focus to deliver incremental improvements. Accordingly, we have moved to a hold recommendation.

SELL RECOMMENDATIONS

Metcash (MTS)

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

Following a strategic review, Metcash has provided more clarity around additional costs required to transform its struggling business. Accordingly, we have further reduced our earnings and dividend yield estimates. The share price has fallen to around our valuation, but we retail a sell recommendation given the challenges of executing the strategy. There’s also a risk of further downgrades.

Treasury Wine Estates (TWE)

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

The environment for TWE continues to be a difficult one with challenges in all its major markets. In our view, TWE’s estimates for the second half are too optimistic. We retain our sell recommendation.

 

Andrew Arvanitopoulos, Alpha Securities

BUY RECOMMENDATIONS

Lamboo Resources (LMB)        

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

The company is focusing on two high quality, low cost flake graphite projects. The company’s initial focus is its McIntosh project in Australia, which it plans to bring into early production by November 2014, followed its Geumam project in South Korea in 2015.

Macquarie Group (MQG)                 

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

Macquarie has confirmed that fiscal year 2014 profit will be up between 40 per cent to 45 per cent. Macquarie’s focus on commodity trading is clearly an advantage. We suspect the investment bank has been a major beneficiary of severe cold weather in the US, given the spike in natural gas prices and the volatility this has caused.

HOLD RECOMMENDATIONS

TPG Telecom (TPM)      

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

TPM recently reported another good result with strong organic growth and an upgrade to full year guidance. The result and outlook are difficult to fault and the share price reflects strong investor optimism. Net profit after tax and earnings per share grew 15 per cent and the interim 4.5 cents dividend was up 63.6 per cent year-on-year.

Telstra (TLS)

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

We believe TLS is well positioned to deliver a total return of 15 per cent in fiscal year 2014, driven by EBITDA growth, earnings per share growth from lower funding costs and dividend yield. Total return could be further enhanced by a $2 billion buyback. TLS generates a significant level of free cash flow from strong profit growth and asset sales.

SELL RECOMMENDATIONS

Metcash (MTS)              

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

We believe the “fix it” part of the Metcash’s strategy is going to take at least a year to implement before the ‘invest for growth’ stage emerges. We expect that good news in the short term will be in short supply as the company continues to navigate a challenged landscape.

St Barbara (SBM)                         

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

In our view, the Simberi mine continues to underperform amid delays in ramping up capacity in the processing circuit. This gold company is conducting a strategic review of its Pacific operations.  It has a highly leveraged balance sheet.

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