Carey Smith, Alto Capital
Legend Corporation (LGD)
This engineering solutions provider to the electrical, information technology, semiconductor and medical industries produces excess cash from its operations, enabling the company to pay out a large proportion of earnings as dividends. Recently trading on a price/earnings multiple below 8 times and a fully franked dividend yield above 8 per cent, we believe the company provides top value.
Mermaid Marine Australia (MRM)
Australia’s largest provider of marine services has been whacked by the market in the past six months on the back of falling oil prices. The share price has fallen from about $2 to close at 69 cents on April 1. While we’re expecting a significant decrease in earnings for 2016 and 2107, we believe the market has over-reacted.
National Australia Bank (NAB)
The UK businesses continue to be a drag on earnings. The company is looking at options to divest the troubled businesses. Until the UK division has been successfully turned around or sold, NAB will continue to trade at a significant discount to its peers.
Sonic Healthcare (SHL)
This international medical diagnostics company continues to report solid earnings growth in the high single digits, with 2015 first half earnings and dividends matching our forecasts. SHL is generally considered a defensive play due to its constant and reliable strong cash flows. Similar growth in the high single digits is forecast for 2015 and 2016.
Domino’s Pizza Enterprises (DMP)
The shares closed at $37.05 on April 1. The company has been a top performer in the past five years. However, recently trading on a forward price/earnings ratio above 50 times, we feel the stock is too highly valued and would suggest holders reduce their exposure and lock in some profits.
Commonwealth Bank (CBA)
Australia’s largest and most profitable bank has benefited from low interest rates, a housing market boom on the east coast and relatively low unemployment. But we believe the chase for yield has pushed the bank’s valuation too high and it may be timely to sell a portion of shares.
Michael Heffernan, PhillipCapital
Macquarie Group (MQG)
A second tier Australian bank that’s more diversified than the four majors and has been a very strong sharemarket performer in the past 12 months. Any improving sharemarket activity should lead to increasing revenue and profit, and a stronger US dollar is icing on the cake as it generates a significant amount of revenue in the US.
Treasury Group (TRG)
This financial services company has been a strong performer in the past few years. Also, its recent merger with US funds manager Northern Lights is expected to be earnings per share accretive, which helps bolster its future profit growth.
With Coles supermarkets and Bunnings homeware stores as key components of its retail stable, the company’s profit growth profile continues to be strong in an uncertain economic environment. As well as a quietly impressive interim report, its outlook statement was much more positive than rival Woolworths.
BHP Billiton (BHP)
The global miner’s recent report was satisfactory due to cost cuts, capital expenditure reductions and productivity gains, which helped balance iron ore and oil price falls. The proposed separation of its non core businesses looks to be a sound move for the company and investors.
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A disappointing recent report amid reduced investment in the mining sector has crimped the prospects for this internationally focused provider of professional services to resources and infrastructure projects. Recent compliance issues from its operations in Ecuador have hindered its appeal.
Atlas Iron (AGO)
The falling iron ore price is playing havoc with the viability of smaller iron ore producers like Atlas. With
no turnaround in prices in sight, there’s better options elsewhere.
Peter Moran, Wilson HTM
ANZ Bank (ANZ)
We still see fundamental value in ANZ. While bank valuations aren’t cheap, it’s likely interest rates will remain low for some time, so banks will remain attractive. ANZ is our preferred pick among the banks. Retail and commercial franchises and the global wealth divisions continuing to grow. ANZ’s share price has under performed the other banks in response to concerns regarding the institutional franchise, which we believe is more than factored into the share price. On a forecast yield of 5.2 per cent and price/earnings ratio of 14.5 times, we retain our buy recommendation.
Select Harvests (SHV)
We are positive on this almond producer due to its positive outlook driven by the prospect of substantial production growth boosted by recent acquisitions. Sustained almond consumption growth coupled with supply constraints should support attractive almond prices in the medium term. Poor industry conditions in drought stricken California and a potentially lower Australian dollar against the greenback are positive factors for financial year 2016 earnings.
Suncorp Group (SUN)
SUN is facing stiffer competition in the insurance sector from rivals. Competitor Youi lifted gross premium growth by 42 per cent in the first half. This is likely to pressure Suncorp margins. But Suncorp’s size and diversification ensures a reliable earnings stream and it offers an attractive yield. At this point, Suncorp is trading around our valuation.
Bank of Queensland (BOQ)
While BOQ has strung together a number of good results, the first half 2015 trends were more subdued. However, the bank should still offer faster growth versus peers in coming years, but this already appears to be captured in the share price.
Cockatoo Coal (COK)
COK’s re-capitalisation via a 13.7-for-1 entitlement offer was a terrible outcome for existing shareholders due to significant dilution. The one positive is COK has deferred $89 million of capital expenditure, reducing capital expenditure requirements by $106 million up to 2016. We downgrade to a sell.
Myer Holdings (MYR)
Myer’s recent profit result was well below our expectations and we have reduced our earnings estimates sharply in fiscal year 2015 and beyond. The problem of flat sales has been compounded by rising costs and it’s difficult to see a solution anytime soon. As such, we have downgraded to a sell.
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