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Peter Moran, Wilson HTM

BUY RECOMMENDATIONS

BHP Billiton (BHP)

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

The global miner had fallen by more than 15 per cent in the past month on investor concerns over the pace of Chinese growth and excess supply in the iron ore market. We believe these concerns are overdone. Although Chinese growth has slowed, it appears to be stabilising. While we expect the iron ore market will continue to be over supplied, BHP’s cost of production is well below the current iron ore price, meaning it will continue to increase output even at lower prices. Recently on a forecast yield of 4 per cent and well below our valuation supports our recommendation.

ANZ Bank (ANZ)

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

Banks have materially underperformed the Australian market and international peers in the past three months as investors sold out of the yield trade. ANZ was recently trading on a fully franked yield of about 6 per cent, which is in line with the 10-year average. We believe the earnings outlook remains reasonable and asset quality is still sound. Buy.

HOLD RECOMMENDATIONS

ALS Limited (ALQ)

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

We have upgraded this laboratory testing company to a hold given it’s now trading broadly in line with our target price following a fall of more than 40 per cent since July. On our forecasts, the stock was recently trading on a 12-month forward price/earnings multiple of 14.2 times. The shares closed at $5.20 on October 8.

Telstra (TLS)

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

Offers an attractive yield of about 5.7 per cent. But earnings momentum, impacted by a flat mobile phone market and more aggressive competition, is slowing. The share price is trading around our valuation. Telstra closed at $5.36 on October 8.

SELL RECOMMENDATIONS

Crowe Horwath (CRH)

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

This accounting and financial planning group has announced it proposes to enter into a scheme of arrangement to be acquired by Findex. Under the terms of the proposed transaction, Findex will offer 50 cents a share. The offer looks in line with comparable transactions. We’re happy to move on. The shares closed at 48.5 cents on October 8.

AusNet Services (AST)

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

AusNet recently conducted a review of its faulty smart meters and concluded issues can be fixed at a cost of about $175 million. The company retained its distribution guidance of 8.36 cents. But we estimate cash generation to support the distribution will be stretched, and only 88 per cent covered by operating cash flows post maintenance capital expenditure.

 

James Samson, Lincoln Indicators

BUY RECOMMENDATIONS

Woodside Petroleum (WPL)

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

Weak oil prices lately will impact WPL’s profits. However, the longer term theme remains intact as LNG assets have strong and lengthy production profiles. WPL’s Pluto and North West Shelf projects are expected to produce strong cash flows, underpinning dividends for the foreseeable future. Any dip in the price makes the dividend yield compelling for investors seeking income.

Mobile Embrace (MBE)

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

Focuses on mobile payment technology and mobile advertising. We believe company plans to expand internationally have been well supported with the announcement of new contracts in Switzerland, Russia and Singapore. MBE was sold off on the announcement of Apple pay technology, but we believe this represents an opportunity for investors willing to take on a little more risk. Financial health is strong.

HOLD RECOMMENDATIONS

iiNet (IIN) 

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

A big telecommunications business, focusing on the higher service quality end of the market.  We expect IIN to remain a strong performer, but we note this is largely factored into expectations. The share price responded positively after the company posted a strong 2014 financial report.

Domino’s Pizza Enterprises (DMP)

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

The company has enjoyed a staggering share price run in recent years. However, expectations have risen significantly after acquiring a chain in Japan. DMP was recently trading on a fiscal year 2015 price/earnings ratio of about 42 times. We like the company and believe business operations will still provide growth, but the shares may be fully priced at theses levels. The shares were trading at $25.71 on October 9.

SELL RECOMMENDATIONS

Coca-Cola Amatil (CCL)

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

CCL was a powerhouse for so long under former chief executive Terry Davis, but it now faces several structural challenges. The company is facing a price squeeze from supermarkets amid consumers shifting away from sugar- based drinks. We note CCL has provided the market with numerous downgrades in recent years and earnings per share are expected to be inconsistent going forward. We believe risks remain and investors can find better defensive options elsewhere.

Atlas Iron (AGO)

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

AGO is cheap at current prices. But with low iron ore prices and the company struggling to compete with the majors on a production cost basis, we believe the risks don’t justify the investment. Further, any prolonged period of low prices might put pressure on the company’s cash balance and require some sort of additional capital injection.

 

Jonathon Feil, Morgans CIMB

BUY RECOMMENDATIONS

iBuy Group (IBY)

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

The company has been subjected to a brutal sell down recently on a market jumping at shadows. The market is questioning revenue generation levels and whether the company needs to raise capital. In our view, the market has lost sight of the huge potential in this infant company. It’s the largest player by turnover in South East Asia. As platform and logistics efficiencies are built in, profits will follow. Worth noting is its relative value to peers, such as VIP Shop (NYSE:VIPS).

Titan Energy Services (TTN)

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

Shares suffered a substantial sell down in response to management downgrading EBITDA from a “conservative” $23 million to between $10 million and $12 million. While this is alarming (and holders are naturally now sceptical of management), the company is now priced almost for failure. Management indicated revenue would be deferred to fiscal year 2015 and the pipeline of work is solid.  So this may be a bargain.

HOLD RECOMMENDATIONS

Regis Healthcare (REG)

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

The stock was issued at $3.65 and jumped to $4.01 on the first day. It’s a beneficiary of the recent strength in healthcare plays amid the gloomy market. Attractive, but may be worth taking some profit and looking towards Medibank Private. The shares closed at $4 on October 8.

Kathmandu Holdings (KMD)

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

Has been an outperformer in an otherwise weak retail market. Chief executive Peter Halkett’s recent departure may just signify KMD has reached its highs. The company is relying on the success of international expansion and keeping a close eye on gross profit margins.

SELL RECOMMENDATIONS

Liquefied Natural Gas (LNG)

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

After the recent run-up culminating in entry to the S&P/ASX300 Index, the reality is starting to set in that $2 billion is a lofty market cap for a pre-production story. The share price has softened recently, but it appears there’s more to go as US buying dries up.

Sirius Resources (SIR)

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

The nickel market spike on the back of an Indonesian ore export ban has seen SIR’s share price rally like that of other nickel plays. Production won’t start for several years at its Nova-Bollinger project, meaning it will miss the current boom in prices.

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.