Gavin Wendt, MineLife

BUY RECOMMENDATIONS

Rox Resources (RXL)

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

Rox is enjoying growing market recognition with respect to its Fisher East nickel sulphide project in Western Australia. Ongoing drilling activity has generated consistently strong results in the form of significant widths of mineralisation and robust nickel grades, along with an initial JORC-compliant resource. If Fisher East was situated within the Fraser Range province, we have no doubt the Rox share price would be significantly higher. The shares closed at 5 cents on May 21.

Carbine Tungsten (CNQ)

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

The re-commissioned Mt Carbine project in Queensland has a solid production history as one of Australia’s leading tungsten producers, generating 40 per cent of Australia’s production from the mid-1970s to mid-1980s. The project offers several growth options from its existing tailings base at a time when tungsten prices are buoyant. The company also has a strong partnership with Mitsubishi.

HOLD RECOMMENDATIONS

Sheffield Resources (SFX)

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

The company has methodically explored and appraised its Thunderbird mineral sands project in Western Australia over the past three years, defining an initial resource and then substantially adding to it with step-out drilling. The company has just released the results of a scoping study that show Thunderbird to be a long-life and profitable future mining operation. It’s targeting production in 2017.

Ochre Group (OGH)

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

We like the stock based on the company maintaining a strategic Pilbara iron ore resource that would more than likely flicker on predators’ radar screens. Our view has been justified with the recent announcement by Ascot Resources (ASX: AZQ) that it wants to acquire Ochre’s Wonmunna iron ore project. Our only disappointment is that it’s taken this long.

SELL RECOMMENDATIONS

Gindalbie Metals (GBG)

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

The company has secured a US$300 million debt facility that will cover recent funding shortfalls. The funding provides a much-needed lifeline for the company and should slow any potential further equity ownership dilution. However, we believe further ownership dilution is almost inevitable beyond the assumed 38 per cent level while the Karara Mining joint venture continues to operate below capacity and remains cash flow negative.

Paladin Energy (PDN)

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

One of the most persistent players in the uranium space and one of the few independent players to develop new uranium mines over the past decade. Unfortunately for PDN, ongoing uranium price weakness has had a huge impact on the share price and, in the near term, could pressure the company’s ability to cover late 2015 maturing debt. One to revisit later when uranium prices improve.

 

Peter Day, Macquarie Private Wealth

BUY RECOMMENDATIONS

IOOF Holdings (IFL)

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

The acquisition of Shadforth Financial Group increases IOOF’s group funds under management by 25 per cent and makes it the third biggest financial advice business in Australia – in front of two of the major banks. There will be $20 million per annum of synergies from full year 2016. The transaction provides IFL scale in advice and is complementary to the group. Expect significant revenue and profit upgrades in future.

DuluxGroup (DLX)

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

This paint company lifted first half underlying profit by 33 per cent to $56.1 million. Earnings in the heritage business were up 12.5 per cent on the previous corresponding period, while Alesco businesses increased earnings by 7.4 per cent. It declared a fully franked interim dividend of 10 cents a share. We expect the company to come in ahead of full year guidance and pay a special dividend going forward.

HOLD RECOMMENDATIONS

Sydney Airport (SYD)

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

Sydney Airport released its April traffic statistics. International traffic growth was up 6.6 per cent. Across a two-month period, traffic was up 3.3 per cent versus 7.2 per cent for January and February. In our view, Sydney Airport, like most companies in the infrastructure/utilities sector, is fully valued.

SP AusNet (SPN)

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

This energy company recently reported a full year net profit fall of 34.8 per cent to $178.3 million. Our earnings expectations change by minus 2.5 per cent in 2015 and plus 4.2 per cent in 2016, reflecting no performance fee and benefit of higher capital expenditure in transmission. We have lowered our recommendation to a hold.

SELL RECOMMENDATIONS

Goodman Fielder (GFF)

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

GFF’s board has accepted Wilmar and First Pacific’s revised takeover offer of 70 cents a share. However, there remains an ongoing, albeit low risk, of not gaining regulatory approvals.

Boart Longyear (BLY)

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

Guidance remains muted for this drilling group. First quarter 2014 performance was pressured by seasonal patterns, but fundamental market pressures remain inherent. Balance sheet pressures are acute and BLY’s strategic review remains key to determining value outcomes. We retain our sell recommendation.

 

Boe Campion, Ord Minnett

BUY RECOMMENDATIONS

Platinum Asset Management (PTM) 

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

Funds under management in April was impacted by negative investment performance and a small outflow, but we only see this implying earnings downside of between 5 per cent to 8 per cent compared to a 17 per cent share price fall in the past month. PTM remains a well-established retail investor focused manager, with a stellar long-term track record and market presence. While short-term performance has been patchy, we continue to see value in the business.

Santos (STO) 

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

Following a marked seven-month underperformance by Santos – relative to its peers – we now believe the risk/reward equation for this energy company looks compelling. Papua New Guinea LNG will soon be exported. A clearer picture should also emerge regarding third-party gas for the Gladstone LNG project. The outlook is a lot brighter.

HOLD RECOMMENDATIONS

BHP Billiton (BHP) 

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

The mining giant confirmed long-running speculation by announcing it was reviewing the Nickel West business. Expect BHP to perform well leading to results in August, where we expect a modest capital return announcement.

Telstra (TLS)

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

First half 2014 operating metrics were solid in almost every aspect. Additionally, the dividend rose for the first time since 2005 (albeit only half a cent higher than expectations). Fixed line revenue showed the smallest rate of decline since 2009, offset by broadband revenue growth.

SELL RECOMMENDATIONS

GrainCorp (GNC) 

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

We’re concerned increasing competition from new port capacity is forcing GrainCorp to buy grain earlier and at lower margins to maintain its volume flow. This could increase GrainCorp’s capital investment, grow the balance sheet and reduce surplus capital generation, which, in turn, could reduce group returns, threaten the payout ratio and long-term earnings growth. We retain our lighten recommendation and trim our target price to $7.75. The shares closed at $8.80 on May 21.

Metcash (MTS)  

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

Operating expenditure ($40 million to $45 million in fiscal year 2015) and capital expenditure ($575 million to $675 million for the next five years), will be funded by working capital reductions and a cut in its dividend payout ratio. Its strategy is a credible approach to addressing issues in the food and grocery business. However, execution risk remains and debt refinancing risk for fiscal year 2016 is emerging.

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