18 Share Tips – 18 August 2014

Gavin Wendt, MineLife

BUY RECOMMENDATIONS

Minotaur Exploration (MEP)

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

Minotaur’s share price has doubled recently on the back of high grade copper/gold results from its maiden drilling program at its Eloise prospect in Queensland. Minotaur has gone about things in a very methodical manner, with drilling based on extensive initial heli-borne VTEM (versatile, time, electromagnetic) survey work from late 2013. We’re pleased with the company’s initial results and anticipate further strong results.

Rox Resources (RXL)

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

Rox is generating strong market recognition with respect to its Fisher East nickel sulphide project in WA, which boasts wide intercepts, robust nickel grades and a JORC-compliant resource that’s set to grow strongly. All at a time of stronger nickel prices. Additionally, drilling programs are set to start this month on the Bonya copper and Reward zinc projects in the Northern Territory.

HOLD RECOMMENDATIONS

Alligator Energy (AGE)

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

Alligator represents one of the most prospective emerging uranium plays due to the quality of its acreage within the vast and highly prospective Alligator River Uranium Province in the NT. The company’s 2014 field season is underway and we anticipate solid drilling results. The successful Macallum Group (formerly Extract Resources) is a major shareholder in the company.

Gold Road Resources (GOR)

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

The company has been persistent in its gold exploration endeavours in the Yamarna belt of WA and its patience is paying off. The company has enjoyed a 700 per cent share price rise in the past year on the back of enormously significant drilling results from its Gruyere prospect, where a 3.8 million ounce JORC resource has just been announced.

SELL RECOMMENDATIONS

Atlas Iron (AGO)

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

The falling iron ore price and simultaneous expansion of discounts relating to ore quality are putting significant pressure on independent producers like Atlas Iron, whose margins aren’t as robust as the ultra low cost producers like RIO, BHP and Vale. The company’s near-term profitability is in question and, in our view, things are likely to get worse before they get better.

Iluka Resources (ILU)

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

We believe Iluka is poorly positioned in the face of a rapidly changing market, with an over reliance on zircon and chloride route feedstock. The stock was recently trading at 18 times 2015 consensus earnings, which suggests there’s earnings risk in the current environment. Zircon markets remain challenging with ongoing volatility in demand across countries and sectors.

Michael Heffernan, Lonsec

BUY RECOMMENDATIONS

Slater & Gordon (SGH)

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

Australia’s first listed legal firm, and one of the best mid-capitalisation share price performers in the past 12 months. Recent acquisitions in the UK continue to build on its past successes there, while its domestic operations are also progressing well.

Aristocrat Leisure (ALL)

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

This designer and producer of gaming machines and online operator recently delivered an impressive half year report. Furthermore, the acquisition of American gaming machine business, Video Gaming Technology (VGT), looks to be a good deal, particularly as the US economy continues to improve.

HOLD RECOMMENDATIONS

Rio Tinto (RIO)

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

The global miner’s recent full year result was particularly impressive. Its re-focus on core activities, reductions in capital expenditure programs and significant cost-cutting should benefit its future revenue and cash position. It has the ability to provide increasing returns to shareholders.

Perpetual Trustees (PPT)

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

With an expected improvement in sharemarket activity amid continuing growth in funds under management and advisory services, this stock looks sound on a fundamental basis. We expect the stock to benefit from an Australian economy gathering pace during the next 12 months.

SELL RECOMMENDATIONS

Coca-Cola Amatil (CCL)

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

One of the worst performers in the S&P/ASX 200 last financial year after a disappointing interim result and subsequent profit downgrade.  Stronger competition from other beverage makers, combined with shrinking margins in the Australian grocery arena, makes a strong profit rebound unlikely in the near future.

NRW Holdings (NWH)

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

This mining services company operating in civil construction, drilling and fabrication is finding the going tough. Blue chip resource companies cutting back on capital expenditure is likely to continue making life difficult for stocks such as NRW.

John Rawicki, PhillipCapital

BUY RECOMMENDATIONS

JB Hi-Fi (JBH)

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

Full year 2014 earnings were at the upper end of guidance and the final dividend was 7 cents higher than last year. The company reported a 10.3 per cent increase in net profit after tax to $128.4 million. I expect fiscal year 2015 sales numbers to firm due to an improving product pipeline, a recovery in consumer sentiment and the opening of more home stores. The consumer electronics giant boasts a strong balance sheet.

Oroton Group (ORL)

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

A fashion apparel and leather goods retailer. Stronger retail trade data in June and July is expected to be positive for company earnings. Oroton has also opened its first high tech, new style store, released a range of new high quality products and announced Australian actress Rose Byrne as the new face of the brand.

HOLD RECOMMENDATIONS

Domino’s Pizza Enterprises (DMP)

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

Operating across Australia and Europe, the growth outlook remains strong given its robust business model, innovation and major new store roll out. However, the stock has been recently trading on a relatively high price/earnings multiple (a fiscal year 2015 P/E of 36 times versus the sector average of 14.7 times). This price seems to have factored in all upside potential, but doesn’t reflect sufficient earnings risks.

Woolworths (WOW)

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

The retail giant has downgraded expectations for its Masters hardware division. Masters is expected to lose $176 million in fiscal year 2014 and a breakeven date is uncertain. Woolies is also expected to open fewer stores going forward than in the past year. The stock appears fully valued at this stage and I don’t expect any significant share price rise in the near term.

SELL RECOMMENDATIONS

BWP Trust (BWP)

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

BWP has a passive strategy and defensive property portfolio that produces a steady stream of largely predictable earnings. More than 90 per cent of its properties are leased to Bunnings Warehouse. With a lack of growth catalysts, the yield alone doesn’t offer enough incentive to own this stock. With the valuation at a premium to industry peers, I see better value elsewhere.

Tabcorp (TAH)

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

Despite Tabcorp reporting stronger than expected fiscal year 2014 results, I believe the company faces significant risk around future earnings growth, which I expect to surface in fiscal year 2015 earnings. Proliferation in online wagering is eating away at Tabcorp’s retail shop front agencies. With the more sophisticated online bookmakers offering better products at a lower price, I expect Tabcorp to lose considerable market share.

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18 Share Tips – 18 August: 18 Share Tips to BUY, SELL & HOLD from…

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