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Peter Moran, Wilson HTM

BUY RECOMMENDATIONS

Santos (STO)

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

The energy giant reported a strong first half 2014 result with underlying profit of $258 million, 34 per cent higher than we had expected. Even more pleasing was an increase in the interim dividend to 20 cents for the half. With PNG LNG production now at full capacity and Gladstone LNG remaining on track for first LNG next year, we retain our buy recommendation.

Bellamy’s Australia (BAL)

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

Bellamy’s is an organic food company, with its existing product range focused on the baby category (particularly infant formula). We’re attracted to Bellamy’s strong brand and extensive experience in the organic supply chain. The business has significant growth potential, underpinned by an increasing consumer preference for organic food and supported by new product development and expansion into new markets, including China.

HOLD RECOMMENDATIONS

Patties Foods (PFL)

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

The balance sheet is in good condition. There’s some early signs the big supermarkets may be moving to a strategy of increasing the volume of premium savory products, which would benefit Patties. However, until we have more evidence of this shift, the shares look fully valued at current prices and we retain our hold recommendation.

National Australia Bank (NAB)

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

NAB has announced it will sell a minority stake in its US-based subsidiary Great Western Bank through an IPO in the US. The company is looking to reduce non-core and underperforming assets. While this is good news, we believe the sale of the UK business along with fixing MLC and the Business Bank are more important and will take more time. At current prices, we see the shares as fairly valued.

SELL RECOMMENDATIONS

Coca-Cola Amatil (CCL)

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

Results showing a 15.3 per cent decline in EBIT were inline with our expectations. However, the outlook was weaker than we had expected across all divisions. The structural issues of declining demand for its products amid a very competitive grocery environment remain. Early detail of a strategic review suggests there are no easy solutions to these problems. We retain our sell recommendation.

Cochlear (COH)

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

This hearing implant company recently reported solid results, which may signal the worst of falling profitability is over. However, the share price jump since the results looks to be overdone. There are still too many issues to justify the current forward price/earnings multiple (for 2015) above 27 times. We have downgraded to a sell.

 

Ken Bloomfield, Financial Clarity

BUY RECOMMENDATIONS

Asaleo Care (AHY)

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

A market leader in making and marketing hygiene and personal care brands across Australia and New Zealand. Company products are stable and generally mature, with some growth in its nappy and aged care range. Moreover, AHY has increased productivity through appropriate capital expenditure between 2012 and 2014. Free cash flow is dramatically improving now that capital expenditure is falling. Expect earnings growth of 7 per cent a year for the next three years. Financial Clarity clients participated in the recent float at $1.65. Closing at $2.07 on September 3, we believe there’s plenty of upside.

WDS Limited (WDS)

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

This smaller mining services company is bucking the trend of poor results in the sector this reporting season. This is due to coal seam gas exposure in Queensland, which is just starting to take off after years of planning. WDS has also won a major contract at Eagle Downs in its traditional mining division. This stock was recently trading on a P/E multiple of about 10 times and a fully franked dividend yield of 9 per cent. It’s well managed. Financial Clarity took the opportunity to buy the stock recently in the low 90-cent range. Up to $1.10, this stock is excellent value. The stock closed at $1.02 on September 3.

HOLD RECOMMENDATIONS

Lend Lease (LLC)

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

Last month we had Lend Lease as a core buy for Financial Clarity portfolios. After a surging share price and shedding a solid dividend, we have moved to a hold for now. As well as benefiting from a strong building sector, LLC is a leader in urban regeneration in Australia. Projects such as Barangaroo and Victoria Harbour are tapping into Australians’ changing living preferences.

Telstra (TLS)

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

Telstra’s share price has doubled in three years and the fully franked dividend yield remains attractive. The shares are worth holding for a steady, tax effective income and little downside. And the impending share buyback is a boon for self managed super fund investors.

SELL RECOMMENDATIONS

Fortescue Metals Group (FMG)

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

Chinese residential property and lending are in the early stages of an unwinding bubble. Residential building accounts for about a third of seaborne iron ore end usage. With four years of residential property demand already built (and empty), we think the building slowdown will be severe. Combine this with escalating iron ore supply causing plunging prices. Investors will be concerned about Fortescue’s debt.

Coca-Cola Amatil (CCL)

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

Another poor reporting season outlook statement from the beverage maker. Two major profit downgrades since the start of 2013 has resulted in the share price plummeting from about $15 to close at $9.12 on September 3. The company has acknowledged past mistakes and will undertake a full business review over the next 12 months.  We smell another downgrade or asset write-down. In our view, the stock isn’t cheap based on next year’s earnings, so CCL is one to avoid until the decks are cleared.

 

Carey Smith, Alto Capital

BUY RECOMMENDATIONS

Sonic Healthcare (SHL)

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

This international medical diagnostics company continues to report solid earnings growth in the high single digits, with 2014 earnings and dividends matching our forecasts. SHL is generally considered a defensive play due to its constant and reliable strong cash flows, with similar growth in the high single digits forecast for 2015.

Mermaid Marine Australia (MRM)

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

Australia’s largest provider of marine services appears to be successfully integrating the $550 million acquisition of Singapore based Jaya, with no nasty surprises reported in the 2014 financial results. The 2015 fiscal year is forecast to show a significant lift in revenue and earnings as the Jaya acquisition contributes for the full 12 months.

HOLD RECOMMENDATIONS

National Australia Bank (NAB)

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

The UK division lets the company down and hinders progress. Because it’s a major bank paying fully franked dividends, it remains a hold. But to become a buy, it needs positive news out of the UK. Otherwise, it will continue to trade at a significant discount to peers.

ASX Limited (ASX)

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

Australia’s primary operator of securities exchanges mostly relies on the number of trades and trading volumes to generate revenues. The increase in computerised trading (algorithmic trading), the pick up in merger and acquisition activity and more new IPO’s all helped the group report solid 2014 results.

SELL RECOMMENDATIONS

Domino’s Pizza Enterprises (DMP)

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

It closed at $25.92 on September 3. Five years ago, it was trading at $2.50. Great performance. But with the stock recently trading on a forward P/E ratio above 30 times, we feel it’s over valued in the current market and suggest holders take some money off the table.

Cabcharge Australia (CAB)

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

Australia’s largest taxi, bus and coach company has run from below $4 in May to close at the $5.41 on September 3. We expect profitability to suffer going forward with several State Governments reducing the margin the company can charge credit card users.

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