18 Share Tips – 13 April 2015

Michael Gable, Fairmont Equities

BUY RECOMMENDATIONS

Greencross (GXL)

This pet care company is consolidating fragmented vet services, pet accessories and food sectors, targeting a market share of 20 per cent. There’s clear upside potential through acquisitions and increasing market share. The chart is telling us that it may dip towards $7, which would be a better entry point, but even at current levels it’s worth buying. The shares were trading at $7.40 on April 9.

Village Roadshow (VRL)

This may surprise some, but Village Roadshow’s largest earnings contributor is from theme parks. We believe that patronage can increase as people have more money to spend due to lower interest rates, lower fuel prices and a long awaited uptick in consumer confidence. A lower Australian dollar should also increase tourism. The stock is at a cheap multiple and the recent sell-off because of bad weather is purely a buying opportunity as the effects on earnings were one off and not structural.

HOLD RECOMMENDATIONS

My Net Fone (MNF)

Has risen from about 20 cents to a high of $4 last year. For most of the past four months, it’s been correcting back, but an announcement by the company saw the stock gap up and break the downtrend line created by its recent correction. The chart now indicates that MNF can continue trading to higher levels. It should at least retest last year’s high of $4 and may push beyond that. The stock was trading at $3.72 on April 9.

Bendigo and Adelaide Bank (BEN)

The market was recently disappointed that margins and costs were under pressure, but bad debts are improving, and investment in technology should start showing its hand. Charting wise, the big four banks are over-bought, but BEN has recently been over-sold and is now hugging the uptrend line. It trades with an attractive multiple and its yield is high compared to the other banks.

SELL RECOMMENDATIONS

Coca-Cola Amatil (CCL)

Recently moved higher with the rest of the market. But it’s close to that key $11 zone, which is where it was trading last year before dropping 15 per cent in one day. So after 12 months, it’s finally recovered in price, but can the fundamentals support it? Purely from a charting point of view, we can see this area holding resistance for the stock. On a weekly chart, we can see indecision in the past two weeks. There’s also a sell signal on the weekly Relative Strength Index. Whether the stock has found a high at the moment or will quickly stick its head above $11, it appears that, at some stage, it will be trading back to the mid $9 levels again. The shares were trading at $10.93 on April 9.

AMP (AMP)

AMP has rallied higher in the past several weeks, along with the rest of the financials. We now have a reversal signal indicating lower levels. We have also noticed a sell signal on the RSI, which appears to be happening across the board with financials. We would therefore be targeting levels down towards $5.80 and $5.90.  On April 9, the shares were trading at $6.59.

Jonathon Feil, Morgans

BUY RECOMMENDATIONS

Sundance Energy Australia (SEA)

Ticks all the boxes for an oil player in the current market. It’s a well managed, low cost operator generating solid cash with low debt. It’s trading at a substantial discount to US peers. Most of its acreage is already bound by production so there’s little reason to drill. It’s at a level where potential suitors may be circling. Or, alternatively, it will take advantage of current market weakness to acquire quality plays with distressed balanced sheets. The shares closed at 50 cents on April 8.

G8 Education (GEM)

Formerly a market darling, the share price has fallen from a high of $5.58 to close at $3.40 on April 8. The stock has been affected by settlement delays, fears about debt and the potential for paying too much for acquisitions. However, with quality management led by managing director Chris Scott and a recent price/earnings multiple of about 11 times, we believe it offers compelling value.

HOLD RECOMMENDATIONS

Lovisa Holdings (LOV)

A specialist fast fashion jewellery retailer. The stock’s enjoyed a good run recently on the back of acquiring 21 stores in South Africa and stronger first half sales than guided in the prospectus.

My Net Fone (MNF)

The stock’s had a solid run following the acquisition of the wholesale voice business of Spark New Zealand. While this will result in a 2 per cent cut to fiscal year 2015 earnings per share forecasts, financial years 2016 and 2017 forecasts will increase by 4 per cent and 11 per cent respectively.

SELL RECOMMENDATIONS

Cochlear (COH)

The hearing implants company is priced at a level substantially above analyst consensus estimates. It still has one outstanding patent dispute in the US. Recently, three other patent decisions were declared invalid in favour of Cochlear. But there’s minimal room for error at today’s price. The shares were trading at $89.82 on April 9.

Liquefied Natural Gas (LNG)

US fund buying drove this stock significantly higher, which led to inclusion in the S&P/ASX300 Index. But in my view, the lofty market cap of about $1.7 billion isn’t justified for a pre-production story. On the back of a soft oil and gas market, the stock looks overvalued.

Matthew Felsman, Shaw Stockbroking

BUY RECOMMENDATIONS

iiNet (IIN)

Not a portfolio stock, but speculation remains about a fresh takeover bid after rival internet services provider TPG Telecom offered $8.60 a share plus a 35 cents franking credit. Scrutinised heavily by iiNet’s major shareholders, we believe the existing offer is likely to be rejected. But there could be a higher offer from TPG or other competitors. We consider IIN undervalued when the shares were trading at $8.91 on April 10. A trade buy.

iShares Europe ETF (IEU)

In January, the European Central Bank announced a huge bond buying program in an attempt to resuscitate the struggling Eurozone economy. It will buy 60 billion euros of sovereign bonds between March 2015 and September 2016. In theory, this is akin to a jolt of energy – a caffeine injection. Australian investors should continually be looking offshore. Get long.

HOLD RECOMMENDATIONS

Macquarie Group (MQG)

This stock provides exposure to rising asset markets, merger and acquisition activity and any fall in the Australian dollar. I like this long term given a lower Australian dollar, rising global equity markets and increasing corporate activity. Management has a reputation for under promising and over delivering when it comes to net profit guidance.

ResMed (RMD)

Listed Australian companies generating revenue in US dollars benefit from a weaker Australian dollar. This medical device maker generates substantial revenue overseas. This stock is defensive, but offers growth and yield.

SELL RECOMMENDATIONS

Newcrest Mining (NCM)

From a long term fundamental view, higher interest rates in the US with no obvious inflation is very bearish for gold, which pays its holders nothing. NCM had its fair share of problems, but a lower Australian dollar, a higher gold price and some operational stability has seen its share price rise by 26 per cent in 2015. Many Australian mining companies are price takers in large open global markets and have little product differentiation.

Insurance Australia Group (IAG)

In the past month, the S&P/ASX200 has risen about 2 per cent while general insurance as a sector slipped almost 0.5 per cent. Defensive yield can be sourced elsewhere. The stock fell below $6 on April 10.

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