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James Samson, Lincoln Indicators

BUY RECOMMENDATIONS

JB Hi-Fi (JBH)

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

The consumer electronics giant endured a few tough years, but has re-emerged as a strong growth prospect. The value-add of store conversions to the new JB Home model will enhance margins going forward and provides the business with an additional growth outlet. While the retail sector has recently struggled, JBH has reiterated net profit guidance and appears to be offering investors value at current prices.

TPG Telecom (TPM)

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

TPM is a growing provider of telecommunication services that’s focused on expanding its infrastructure as the rollout of the NBN drags on. TPM is building a controversial fibre to the basement network that may compete with the NBN. We believe these assets are undervalued, regardless of whether they may be statutorily acquired in the future.

HOLD RECOMMENDATIONS

Computershare (CPU) 

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

Computershare is an Australian success story and a business that’s produced significant growth through global acquisitions in recent years. However, despite the strong market position and growing earnings, CPU has recently written down some acquired assets. Further, we believe CPU shares are fairly valued.

Ramsay Health Care (RHC)

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

This private hospital operator conquered the domestic market before expanding overseas. While it continues to grow earnings amid offering growth-focused investors an attractive option, the impending Healthscope IPO may provide a drag on sentiment. For now, we believe RHC is a hold, but investors may consider any price weakness as an opportunity.

SELL RECOMMENDATIONS

Boart Longyear (BLY)

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

It once boasted a market capitalisation north of $3.5 billion and was the globe’s largest drilling services business. Times have certainly changed, with the company now worth less than $100 million. Yes, it might seem a little late to call BLY a sell, but with the company still making significant losses, any holders may like to preserve what capital is left in a stock that’s enduring critical times.

Toll Holdings (TOL)

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

It’s no secret the Australian economy is growing at below average rates and this is impacting Toll. This transport logistics giant company has responded with a restructure and is trying to keep on top of a difficult environment. Nevertheless, we believe that growth will be modest at best in terms of earnings this financial year, and believe there’s better prospects elsewhere.

 

Joshua Stega, JAS Wealth

BUY RECOMMENDATIONS

SP AusNet (SPN)

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

SP AusNet consists of two regulated companies involved in supplying energy in Victoria. SPN recently delivered a strong set of operating results with revenue and earnings growing at 10 per cent. There was some contention around the board’s decision to hold distributions flat, but we applaud its decision to retain cash flow for the significant internal growth opportunities available. Also offers a dividend yield above 6 per cent.

IOOF Holdings (IFL)

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

A diverse provider of financial services in Australia, IFL has a history of successfully integrating businesses and realising synergies – a core part of its strategy. IFL is merging with SFW to become the third largest financial advice group after Commonwealth Bank and AMP. IFL is conservatively funded with no net debt and will benefit from secular growth in compulsory superannuation and the wealth management industry.

HOLD RECOMMENDATIONS

Amcor (AMC)

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

A diverse global packaging business with more than 300 sites in 43 countries. AMC is well managed with strong operating cash flows. We are encouraged by recent acquisitions into the AMC network and the strong performance of AMC’s legacy operations. But considering the size of the business, we believe the scope for meaningful earnings growth is limited.

Orora (ORA)

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

We like this packaging company for its ability to generate free cash flow and its strong dividend yield. But challenges include fierce competitors in low growth markets. But we are happy to hold at these levels.

SELL RECOMMENDATIONS

APA Group (APA)

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

APA Group is a gas transportation business with interests in gas infrastructure across Australia. The quality of APA’s asset base coupled with APA’s internally managed structure has seen the company trade at a consistent premium to its peer group. While a premium is justified, considering the limited opportunities for growth, we feel the extent of the current gap remains difficult to defend. Recently trading on a price/earnings ratio of 29 times, we are rolling our profits on APA into SPN.

Leighton Holdings (LEI)

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

A project development and contracting services business with a range of operational entities spread globally. While LEI recently re-iterated its 2014 earnings guidance, we’re concerned LEI’s work in hand continues to fall and business gearing remains elevated. The contraction in Australian engineering construction activity is putting pressure on mining services providers and, in this environment, we see increasing pressures on profit margins. After a bounce in the share price to more than $20 in March, we are sellers of this stock on any opportunity.

 

Andrew Arvanitopoulos, Alpha Securities

BUY RECOMMENDATIONS

Asciano (AIO)          

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

This freight logistics company has flagged cost cutting at its recent investor briefing, with management bringing forward the targeted $300 million in savings by two years. As a result, earnings growth is expected to be in the 10 per cent to 15 per cent range over the original five-year target to fiscal year 2016.        

Carsales.com (CRZ)     

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

The 50.1 per cent acquisition of Stratton Finance is a significant step in moving beyond online classifieds, as the company attempts to capture more of the value chain in finance and insurance. The private vehicle market isn’t particularly well served in finance, leaving carsales well positioned to leverage its market position.                                

HOLD RECOMMENDATIONS

Woodside Petroleum (WPL)              

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

Woodside will purchase 0.85 million tonnes of LNG per annum over 20 years from the Corpus Christi facility in Texas. Generally speaking, we think this is less about potential profits and more about supplementing Browse oil linked LNG with US hub linked gas and it represents a good offset to the traditional capital intensive business.

Tatts Group (TTS)                

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

The new Queensland licence terms were better than we expected and wagering earnings forecasts for fiscal year 2015 are raised by 10 per cent. We expect Tatts to step up investment in re-branding and self-service terminals. But the company faces stiff competition from increasingly innovative competitors.

SELL RECOMMENDATIONS

James Hardie Industries (JHX)           

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

The company’s asbestos liabilities are growing in response to rising mesothelioma claims. This category is significant as the claims are substantially more expensive. This adds to the risks around the trajectory of the US housing recovery and the stock’s overall valuation.

Cochlear (COH)                    

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

The Nucleus 5 implant has been re-launched across Europe. We believe this is a positive step and provides a foundation for continuing product releases. Despite this view, we don’t expect the new profile product to drive strong growth in underlying unit sales, given the lingering legacy issues.                           

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