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Darren Jackson, Calibre Investments

BUY RECOMMENDATIONS

TPG Telecom (TPM)

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

A recent material decision by the Australian Competition & Consumer Commission will allow TPM to compete directly with the NBN in supplying broadband to apartments. We believe this effectively means TPG can cherry pick the sweet spots (high density population areas) and offer cheaper and faster broadband relative to the NBN. Bad luck for the Government and onwards and upwards for TPG.

Veda Group (VED)

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

Veda Group is a relatively new listing that provides credit checks and analytics. When the company recently reported full year results it smashed prospectus forecasts. In part, Veda was assisted by the introduction of comprehensive credit reporting (CCR). Additionally, there’s been a private equity sell down, which introduced new institutions to the stock and story.

HOLD RECOMMENDATIONS

M2 Group (MTU)

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

Having recommended buying MTU in April 2014, the stock is up almost 40 per cent and we reduce to a hold. The company reported strong full year results, which seems to have addressed uncertainties held by some. MTU has a strong track record of making successful earnings accretive acquisitions. Should the company make a new one, we would upgrade to buy.

Karoon Gas Australia (KAR)

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

Generally, offshore energy explorers have been poor performers and Karoon is no exception. However, the fundamentals of KAR are now quite compelling. The company recently banked $US600 million from selling an asset in the Browse Basin and has the potential to receive another $US200 million should it come into production. Karoon is market capped at only $A900 million with no debt. This leaves its remaining asset portfolio undervalued.

SELL RECOMMENDATIONS

Mineral Resources (MIN)

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

We reiterate our sell recommendation in Mineral Resources from January 2014, even though the stock has since fallen almost 20 per cent. The company’s contract crushing services are highly susceptible to future margin compression given that iron ore producers would be looking to cut costs as a response to low prices.

Atlas Iron (AGO)

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

Since 2011, the iron ore price has been in decline. Atlas is a high cost producer at $US85 a tonne, while the current spot price on September 23 was less than $US80 a tonne. The company has a small amount of net debt. It needs a higher iron ore price, which is counter the trend and current market fundamentals.

 

Andrew Arvanitopoulos, Alpha Securities

BUY RECOMMENDATIONS

Lend Lease Corp (LLC)

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

The company’s 49 per cent earnings increase was in line and primarily driven by British shopping centre Bluewater, as expected. Fiscal year 2015 guidance is unchanged, and with apartment earnings set to boom in fiscal years 2016 and 2017, attention turns to the infrastructure pipeline as the next catalyst.

Macquarie Group (MQG)

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

A boost to first half earnings is expected from higher performance fees and Macquarie now guides to full year 2015 earnings being slightly higher than in 2014. We believe the increase in performance fees largely relates to Macquarie Infrastructure Funding 1, an unlisted fund, which is currently in the asset realisation phase.

HOLD RECOMMENDATIONS

OceanaGold Corporation (OGC)

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

Management continues to build on its recent track record of value creation with the release of an optimised plan for its flagship Didipio mine in the Philippines. Financial and operational advantages exist from accelerating the development of the underground mine and shortening the life of the open pit.

Premier Investments (PMV)

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

Full year 2014 results were strong.  All the Just Group brands showed like-for-like growth in the second half, which is the first time this occurred since Premier Investments acquired the business in 2008. We remain attracted to the Smiggle and Peter Alexander growth opportunities.

SELL RECOMMENDATIONS

Myer Holdings (MYR)

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

The recent 2014 second half was weaker than expected, with lower gross margins the major culprit. MYR expects sales and gross margins to grow in fiscal year 2015, but we expect the increasing costs of doing business will lead to lower profits. While new stores, refurbishments and online developments should drive growth, increasing costs and competition are pushing the other way.

Coca-Cola Amatil (CCL)

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

Recent first half results were in line with expectations but the outlook was weaker. The early detail from the strategic review suggests the proposed cost cutting won’t be realised quickly. We believe the stock is too expensive, given the risks of weaker demand and declining operational account sales.

 

Matthew Litchfield, PhillipCapital

BUY RECOMMENDATIONS

Oil Search (OSH)

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

We’ve recently moved from a hold to a buy after a strong 2014 first half result in response to a big ramp up of the PNG LNG project. Boosted cash flows from PNG underpin the stock. There’s potential upside from current drilling activities in its part owned Hides fields and reduced bottlenecks at LNG plants.

Crown Resorts (CWN)

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

This gaming and entertainment group enjoys good cash flow from its mature Australian operations. Its Melbourne and Perth casinos operate on long term licences. Recently, the stock retreated about 7 per cent on a month rolling basis. We believe the sell-off is somewhat unwarranted. Growth from Macau will be a key driver for the stock going forward.

HOLD RECOMMENDATIONS

CSL (CSL)

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

Delivered a better than expected profit result and impressive 10 per cent sales growth from CSL Behring. This reinforces that we’re happy to hold the stock. Demand for CSL’s blood products is underpinned by an ageing population and we see the stock benefiting from a lagging Australian dollar given its offshore earnings profile.

Wesfarmers (WES)

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

My preferred choice of the major consumer staples. WES management has achieved high returns from its Coles business and Bunnings remains a leader in the hardware sector. Wesfarmers’ full year result was in line, with a 6 per cent increase in net profit after tax to $2.398 billion. Happy to hold this diversified business and collect decent dividends as well.

SELL RECOMMENDATIONS

Qantas (QAN)

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

Qantas reported a larger than expected loss of $2.84 billion for the 2014 year. Competition between carriers is fierce. While passengers benefit, it doesn’t translate well into QAN earnings. Also, fuel prices are volatile and the stock is subject to economic conditions. The frequent flyer program is the jewel in QAN’s crown, but I see better opportunities elsewhere.

Mineral Resources (MIN)

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

Earnings are highly exposed to the volatile iron ore price – indirectly as a contractor and directly as a producer. Given the iron ore price has substantially fallen in the past 12 months, the short term environment looks tough. MIN has little to no competitive advantages.

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