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Michael Heffernan, Lonsec

BUY RECOMMENDATIONS

National Australia Bank (NAB)

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

The bank has been a solid share price performer in the past year. If the UK economy continues to improve, NAB should consolidate further. Reasonable expectations of a satisfactory report next month are a positive share price catalyst. The proposed CEO change later this year is unlikely to diminish its prospects.

Perpetual Trustees (PPT)

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

Amid more sharemarket activity and continuing growth in funds under management and advisory services, this stock looks sound on a fundamental basis. Its last report was most impressive.

HOLD RECOMMENDATIONS

CSR (CSR)

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

An improving residential construction sector should be a major benefit to associated supply businesses. CSR’s latest market update was positive and its share price responded accordingly. The proposed joint venture with Boral also looks attractive.

ResMed (RMD)

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

This Australian company specialising in breathing disorder products has performed particularly well in recent times. Exposure to the US means it’s likely to benefit from a weaker Australian dollar in the next year or two.

SELL RECOMMENDATIONS

Metcash (MTS)

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

MTS is being squeezed by the two major supermarkets and its business is suffering – as reflected in its recent profit downgrade. The sluggish pace of economic activity doesn’t help. Other sectors offer much more appeal.

Myer Holdings (MYR)

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

Its recent report disappointed expectations in an unfriendly retail environment for department stores. It’s soon to face a reinvigorated David Jones following a takeover proposal. Myer faces immense challenges in an economy lacking exuberance.

 

James Samson, Lincoln Indicators

BUY RECOMMENDATIONS

FlexiGroup (FXL)

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

FlexiGroup provides leasing and finance solutions to consumers and businesses. It recently acquired the Australian business of Thinksmart and this should contribute to second half earnings, with management reiterating full year guidance of between 17 per cent to 19 per cent growth in underlying net profit. Having seen its share price weaken, we believe that FXL offers an opportunity for value investors.

Ainsworth Game Technology (AGI)

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

Supplies poker machines to the global gaming sector. While it may not meet everyone’s ethical investment profile, the company has delivered impressive earnings growth as it expands its geographical footprint. It posted a good report in February, and should continue to build market share in Australia and the Americas. Recently, AGI’s share price fell after management sold some stock – justified as a move to increase market liquidity. As such, a price opportunity may be developing.

HOLD RECOMMENDATIONS

iiNet (IIN) 

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

iiNet is Australia’s second biggest broadband provider and the share price has risen significantly in recent months. While the company is growing at an impressive rate and offers appealing fundamentals, takeover rumours have driven the share price above our valuation.

Sirtex Medical (SRX)

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

Produces treatments for liver cancer and is in the process of conducting clinical studies aimed at increasing sales in the years to come. The company has a bright future and recently released quarterly dosage sales growth of 18.2 per cent for SIR-Spheres. While potential remains strong, prices are beginning to reflect high expectations.

SELL RECOMMENDATIONS

Xero (XRO)

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

Xero has a strong product offer in its cloud-based accounting software and services, but the company is yet to report a profit. On the contrary, XRO reported a higher than expected loss of $35 million for the year ending March 31, 2014, up from $14.4 million in 2013. While the business is growing revenue, we believe expectations factored into the share price outweigh any near term upside indicated by the fundamentals.

McAleese (MCS)

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

McAleese listed recently and is a logistics business largely servicing the energy and resources sectors. Funds from the listing were partially used to pay costs relating to a truck accident in Mona Vale, NSW, and the company has since lost some of its hydrocarbons transport contracts. While the business is in strong financial health, significant reputational damage and safety concerns mean investment risks are considerable for this business.

 

Darren Jackson, Calibre Investments

BUY RECOMMENDATIONS

M2 Group (MTU)

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

Having digested the acquisitions of Dodo and Primus, the company has signaled that more acquisitions are on this year’s agenda. Diligent acquisitions within the telco space can be hugely earnings accretive and highly synergistic. Irrespective of this, MTU is trading on a low price/earnings multiple with good quality earnings and growth prospects.

Affinity Education Group (AFJ)

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

With the Sterling Education IPO cancelled, we believe Affinity Education will be a natural beneficiary of a less crowded childcare space. AFJ, relative to its larger peer G8 Education, is considerably cheaper on a price/earnings multiple and offers more leverage through acquisitions (which it’s currently delivering on). An opportunity to get in on the ground floor.

HOLD RECOMMENDATIONS

ERM Power (EPW)

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

EPW was significantly discounted by the market after bidding for Macquarie Generation’s assets. Had it been successful, it would have required a large capital raising. There’s nothing ostensibly wrong with what EPW is doing, and robust fundamentals will always weigh out in the longer term. EPW offers growing defensive earnings with a solid dividend yield.

OzForex (OFX)

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

The company is on track to deliver near term growth in response to continuing take-up of its white label product. Subsequently, there’s been strong institutional appetite for this stock. However, longer term we are more cautious and are closely watching the rise of peer-to-peer foreign exchange providers.

SELL RECOMMENDATIONS

Stonewall Resources (SWJ) 

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

Stonewall last year entered into a conditional agreement to sell a subsidiary company to Shandong Qixing Iron Tower. The deal is yet to be completed. Given the high number of Chinese takeovers that fail (notable examples include Sundance Resources, Western Desert Resources, Elemental Minerals) and a transaction priced in, we believe it it would be judicious to sell now.

Leighton Holdings (LEI)

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

The proportional takeover from Hochtief  (for 3 out of every 8 shares) and subsequent short covering has left Leighton’s trading above our valuation. Post completion of the proportional takeover, LEI will have reduced weighting in the major index and less liquidity. Take the opportunity to sell into recent strength.

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.

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