Peter Rudd, Balnave Capital
Heemskirk Consolidated (HSK)
A Melbourne-based “mini mining house”, the group produces gold from operations in Queensland, tungsten in Spain and barite, gypsum and zeolite in Canada. Increasing demand for barite, an integral part of heavy drilling mud, should lift profits as the North American oil and gas sector recovers.
SP Ausnet (SPN)
Owns and operates Victoria’s high voltage transmission power grid. It also operates a gas distribution network in western Victoria and a power distribution network in the state’s east, making it Victoria’s biggest energy infrastructure group. Although any negative outcome from the Bushfire Commission could be a concern, the stock’s projected eight cents distribution provides an attractive double-digit yield.
This predominant east coast grain handler/marketer has 284 country depots, 20 million tonnes of storage capacity, a three million tonne rail haulage facility and seven bulk shipping terminals for exporting. Extensive rains of late should produce a good winter crop, although its recent capital raising will dilute earnings per share.
The planned de-merger of its sugar and building materials businesses makes commercial and corporate sense, while good rainfall in the sugar growing regions has the season off to a flying start. However, a possible equity raising could dilute earnings per share.
Fortescue Metals (FMG)
Iron ore production levels for the June quarter rebounded strongly on the March quarter, which was impacted by heavy rain. The group’s high operating costs need cutting to lift profitability as mine output ramps up to full production.
Transpacific Industries Group (TPI)
Australia’s leading industrial waste management and integrated industrial cleaning company. Its had to restate fiscal 2008 accounts to lower earnings. While its $735 million capital raising should satisfy bankers, I expect the stock to underperform the market.
Andrew Inglis, Shadforths
Westpac Bank (WBC)
The big four banks have gained 10 per cent market share in mortgage lending due to reduced competition, and have made even bigger market share gains in business lending after the exodus of several foreign banks. While high bad debt levels will continue for 12-to-18 months, the market share gains will provide longer-term growth benefits. Westpac’s bad debt levels have been the lowest. Westpac will extract synergies from the St George Bank acquisition. Chief executive Gail Kelly is focused on ensuring that St George’s brand and revenue are not diminished.
White Energy Company (WEC)
WEC is a clean coal technology business using research stgeloped by a CSIRO-led consortium. WEC can process abundant cheap coal (selling for $8 a tonne) into high quality, low polluting coal briquettes, selling for $70 a tonne for an all up cost of $35 a tonne. WEC has done joint venture deals with major coal companies around the world (for example Peabody Energy, the largest coal company in the world) to build plants at their coal mining sites. A proposed merger with an American investment company will give it cash and a dual listing on the New York Stock Exchange. The first full-scale plant (1 million tonnes a year) is currently being commissioned in Indonesia and will start to generate revenue shortly. Profit potential is impressive if all goes to plan. This is a speculative buy.
Primary Health Care (PRY)
Primary Health Care runs medical centres, pathology laboratories and radiology centres in Australia. The takeover of larger rival Symbion Health in March 2008 loaded it up with debt. PRY has sold off non-core Symbion businesses, undertaken a recent capital raising at $5 a share and made good progress on its target for $100 million a year in Symbion synergies. PRY should now be able to roll over its debt on much more favourable terms. A continuing roll out of medical centres and an ageing population are longer-term growth drivers.
Tatts Group (TTS)
The company’s share price has tracked sideways for the past 15 months. Its balance sheet is strong and it can finance an acquisition to help replace the loss of Victorian gaming machines in 2012. The price/earnings multiple is modest due to longer term earnings uncertainty.
JB Hi-Fi (JBH)
JB Hi-Fi is an excellent business, with growth driven by its store roll-out program, product range expansion, low cost structure, entrepreneurial culture and booming home entertainment sector. Tougher competition can be expected from Woolworths/Dick Smith/Tandy and Harvey Norman. Also, government hand-outs are finished. Share price is approaching record highs, and now looks like the time to take some profits, but retain a holding.
Coca-Cola Amatil (CCL)
The soft drink giant’s share price has been resilient as a result of its defensive earnings, new product launches and corporate appeal. It’s now trading at a premium to the market. Single digit earnings growth is forecast for the next few years. Put your money to work in a stock with more rebound potential.
Michael Heffernan, Austock
IRESS Market Technology (IRE)
This sharemarket information provider has weathered turbulent economic and financial markets particularly well over the past year. The recent rapid tempo of market activity, including capital raisings, higher sharemarket prices and a marginal uptick in equity turnover paints a brighter outlook for future profitability.
Energy Resources of Australia (ERA)
ERA is one of the largest uranium producers in the world. Rio Tinto owns 68.4 per cent of the company. ERA is a well-credentialed sharemarket performer, and it’s attracting more attention amid the increasing focus on nuclear energy as a “clean” power source. Its recent production report was impressive and, given the substantial take-up of nuclear power in Europe, its future looks favourable.
Its June quarter sales result was most satisfactory in difficult economic circumstances. This quality retail company continually strives to extract costs from its business, while continuing to deliver top service. It’s well positioned in an uncertain economic environment, and the prospect of an uptick in the economy should do it no harm.
Metcash Limited (MTS)
This independent supermarket wholesaler and retailer is cushioned from the harsher effects of the economic slowdown and should benefit from a turn-around in the economy later this year. Its recent agreement with the IGA National Council to share the proceeds of growth and major expansion projects looks promising for its future profitability
Aristocrat Leisure (ALL)
This gaming machine maker has experienced continuing difficulties in local and overseas gaming markets. It’s pressured from competitive threats posed by US gaming machine makers, including Williams Gaming and IGT. Williams Gaming recently announced its intention to sell gaming machines in New South Wales. Until Aristocrat can regroup to face the competitive challenges, investors can usefully look elsewhere.
Boom Logistics (BOL)
This mobile crane provider, predominantly to the resources sector, has suffered from a profit downgrade, and a severe contraction in non-residential construction and capital equipment markets in Australia. Also, a series of acquisitions made in the past few years have caused some balance sheet indigestion. Investors should wait for a rebound in the mining sector.
Other articles in this week’s newsletter
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