18 Share Tips – 7 October 2014

John Rawicki, PhillipCapital

BUY RECOMMENDATIONS

Macquarie Group (MQG)

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

While the stock has enjoyed a great run in the past two years, the bank’s restructured cost base provides leverage to benefit from a sustained recovery in capital markets. Boasting a strong surplus capital position gives it the flexibility to pursue accretive and strategically attractive growth opportunities. The management team is strong and supported by a robust risk management culture.

Flight Centre (FLT)

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

Flight Centre is a leading travel agency with more than 2000 outlets in 11 countries and employing 8000 staff. Trading conditions in Australia, the US and the UK have stabilised and the company is maintaining market share. FLT has significant bargaining power with suppliers and a relatively flexible cost structure. New store openings should fuel further growth.

HOLD RECOMMENDATIONS

Breville Group (BRG)

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

Designs, develops, markets and distributes small electrical kitchen appliances. Short term prospects for the company are difficult to gauge due to increasing competition in the Australian market, a downturn in the US appliances market, the sudden departure of chief executive Jack Lord and a relatively high valuation. However, Breville can drive long term growth from product innovation and design.

Qantas Airways (QAN)

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

Operates domestic and international airlines with a fleet of more than 200 aircraft. Qantas also has a 49 per cent stake in low cost airline Jetstar Asia. Short term, the airline faces some risk to earnings as a result of lower domestic and international margins. Cost cutting is on track and so is the proposed split out of its international arm.

SELL RECOMMENDATIONS

TPG Telecom (TPM)

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

While TPG Telecom is Australia’s fastest growing internet service provider, I believe it’s highly overvalued at current levels and expect the stock to trade lower in coming months. In my view, TPG’s growth in the mobile segment has also been lacklustre, meaning the company will have to sacrifice profit margins to maintain market share. The shares were trading at $6.96 on October 2.

Premier Investments (PMV)

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

A vertically integrated retailer, the company’s operations are mostly in apparel across seven well known brands. These are Just Jeans, JayJays, Portmans, Peter Alexander, Jacqui E, Dotti and Smiggle. The current stock price is difficult for me to justify on valuation grounds. A sustained rebound in sales across its brands needs to be seen before I have confidence in buying PMV. The shares were trading at $10.18 on October 2.

Peter Day, Macquarie Private Wealth

BUY RECOMMENDATIONS

CSL (CSL)

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

Operations for major manufacturers are stable and robust market growth continues. Accordingly, we believe the outlook for the industry remains very positive. We attribute CSL’s continuing share price and margin outperformance to its fractionation cost advantage, something we believe will continue. Shares in this blood product company were trading at $73.72 on October 2.

Cochlear (COH)

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

We believe upgraded sales will support double digit earnings growth. Recently on a price/earnings multiple of 21 times, COH is now trading in line with healthcare peers. With a return on equity of 43 per cent and three year  earnings per share growth of 20 per cent, the stock looks increasingly attractive. Shares in this hearing implant maker were trading at $68.78 on October 2.

HOLD RECOMMENDATIONS

Iluka Resources (ILU )

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

We upgrade our recommendation to a hold as several near term events are likely to positively impact product pricing. Typhoon Rammasun has impacted zircon production in Wenchang  (Hainan province), where about 20 per cent of Chinese supply is sourced. The ebola outbreak continues to impact mineral sand producing regions, including Sierra Leone and Senegal.

Whitehaven Coal (WHC)

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

We have reduced our medium term thermal coal price forecasts between 8.5 per cent  and 9.5 per cent. Consequently, we have decreased our earnings estimates for full year 2015 and 2016 by $42 million and $88 million respectively. However, WHC’s assets provide valuation support and remain strategically attractive with high quality, low cost and long life expandable assets located within a concentrated geographical footprint.

SELL RECOMMENDATIONS

Wesfarmers (WES)

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

Our commodities team has cut its forecast for Australian thermal coal by an average 6.4 per cent to 2019 and for hard and semi soft coking coal by an average of 5.6 per cent Our revised coal price forecasts further reduce the near term earnings outlook. The stock continues to trade around our price target.

Fletcher Building (FBU)

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

FBU has announced the closure of its Australian copper pipes business. The business has been loss-making since it was acquired as part of Crane in 2011. Closing the business is expeted to cost up to $NZ19 million, which will be reflected in the financial year ending June 30, 2015. Prefer others.

Les Szancer, Paradigm Securities

BUY RECOMMENDATIONS

St George Mining (SGQ)

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

A recent capital raising of $1.75 million will enable some heavy duty drilling for this nickel exploration company. I’m expecting work to start this month. It also received a cash payment of about $800,000 pursuant to the Federal Government’s R&D tax incentive scheme. It won’t need to raise capital from the market anytime soon, which is always a good sign for investors.

Axiom Mining (AVQ)

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

As I expected, Axiom has won its court case against Sumitomo over nickel and exploration rights in the Solomon Islands. Axiom updated the ASX on October 1. It informed while a new interim injunction temporarily halted exploration activities on Isabel Island, it was confident of resolving the matter quickly. The promising project is one of the largest nickel laterite deposits in the Pacific region.

HOLD RECOMMENDATIONS

Lamboo Resources (LMB)

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

The price was recently hammered after a recent scoping study announcement had to be retracted. Even a subsequent good announcement failed to rally the stock. Apart from the share price, this exploration company, with a focus on flake graphite, hasn’t changed. It remains a hold as it offers potential.

Prima BioMed (PRR)

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

After four years, PRR was granted a US patent for its ovarian cancer treatment drug CVac. The patent extends to 2022. Prima is at various stages of development in different parts of the world. This is a long-winded process, but I think we can now see light at the end of that long tunnel.

SELL RECOMMENDATIONS

Virgin Australia (VAH)

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

I don’t like investing in airlines as they are hostage to many external factors often beyond their control. Virgin reported an underlying loss before tax of $211.7 million for full year 2014. To compound its difficulties, it also owns a 60 per cent stake in loss making Tiger Airways.

ASX Limited (ASX)

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

The company has been trading between $34 and $37. Several times after briefly breaching $37.50 in the past year, the stock has retreated. The yield is ordinary – nothing special, in my view. I believe investors can do better elsewhere. The shares were trading at $35.93 on October 2.

Please note that TheBull.com.au simply publishes broker recommendations on this page. The publication of these recommendations does not in any way constitute a recommendation on the part of TheBull.com.au. You should seek professional advice before making any investment decisions.