Jonathon Howe, Red Leaf Equities
Ainsworth Game Technology (AGI)
Recent selling in AGI has again made it an attractive buying opportunity. The market’s concerned that earnings in Australia are still weak. AGI has previously confirmed it expects to see the domestic economy improve in the second half while international earnings continue to grow.
Magellan Financial Group (MFG)
MFG has alpha to blue chip US stocks, with funds under management inflows of $500 million plus a month, and it doesn’t look to be slowing anytime soon. Top management and astute stock picking means MFG is well suited in the current market.
Donaco International (DNA)
In our view, this leisure and entertainment operator hasn’t performed at its the best in the past five months. But the new Cambodian acquisition Star Vegas will have a significant impact on earnings once completed in July.
Dick Smith Holdings (DSH)
The consumer electronics giant is going through a cost cutting process to help boost underlying earnings and to continue paying attractive dividends. It was recently yielding about 7 per cent.
BC Iron (BCI)
The softer iron ore price is damaging the landscape for producers and it doesn’t appear to be getting better anytime soon. With Atlas Iron shutting down operations, we believe it’s only a matter of time before the next one. BCI may be next in the firing line given it’s at cash burn with an iron ore price in the $US40 levels.
Liquefied Natural Gas (LNG)
US funds have been instrumental in this stock’s success on the ASX. The recent current market cap of $1.7 billion is scary given there’s no earnings. It’s likely that a large capital raising will be undertaken to build its proposed plant.
Peter Day, Macquarie Private Wealth
Fairfax Media (FXJ)
We resume coverage on FXJ with a buy recommendation and target price of $1.14. Despite a mixed operating outlook for FXJ, particularly print, there’s strong upside potential from property website Domain, the radio business and cost-out initiatives. Domain, the key earnings driver for FXJ, is approaching listing parity with REA Group and benefiting from take-up of depth products and the agent ownership model. The shares were trading at $1.04 on April 16.
Lend Lease Group (LLC)
We attended an LLC-hosted asset tour to two major projects involving the Brisbane Showgrounds and Sunshine Coast Public University Hospital. Residential conditions remain favourable for LLC, with strong apartment pre-sales. Sunshine Coast Hospital is a good example of the integrated model. While broader risks to non-residential construction are increasing, the earnings profile for the next three years is attractive.
Rio Tinto (RIO)
We retain a hold recommendation on the global miner despite incorporating our mineral sands price downgrades, which translate to a 5 per cent cut to our 2015 earnings estimates. Headwinds also include weak iron ore and aluminium prices, which currently sit below our 2015 forecasts.
This engineering company received a non-binding $2.50 cash offer from Koch Industries and Pacific Equity Partners. The Bradken board rejected the bid as being below fair value and won’t engage further. Hold, as demand for capital products is likely to remain subdued. Additionally, debt levels are likely to limit future growth initiatives.
Iluka Resources (ILU)
We review our investment thesis for ILU after making several changes to our Australian dollar exchange rate forecasts and our mineral sands pricing forecasts. We see the outlook for ILU as challenging in the face of weakening Chinese demand and a misaligned resource base. Downgrade to sell.
Woodside Petroleum (WPL)
The company has completed the Apache transaction involving oil and LNG. But, in our view, the Wheatstone LNG acquisition appears fully priced with little resource upside. Sell.
Matthew Litchfield, PhillipCapital
Provides payment solutions for re-loadable and non-reloadable pre-paid card programs, which can be restricted at point of use. After meeting with managing director Tom Cregan, we’re positive about its growth prospects. The recent acquisition of Store Financial in the UK is profitable and cash flow positive from day one.
Macquarie Group (MQG)
This growth focused global investment bank has been a stellar performer, with the shares rising significantly in 2015. The company flagged improved trading conditions, the weaker Australian dollar and marginally lower tax rates as key drivers. MQG can also benefit from merger and acquisition activity, which was up 23 per cent in the first quarter compared to last year’s first quarter.
The rubber glove and condom maker recently announced a small acquisition of UK based protective clothing group Microgard funded from cash on hand. While market conditions may well be challenging, we’re likely to see revenue synergies. It has a sound balance sheet, and is also leveraged to a falling Australian dollar and economies of scale.
IOOF Holdings (IFL)
IFL has been a great performer for shareholders this year. Happy to hold this medium sized wealth manager, as it’s a beneficiary of low interest rates and favorable demographic trends. The phased-in increase in compulsory superannuation contributions should also support long term growth prospects.
Medibank Private (MPL)
Provided a satisfactory half year result in line with expectations after a successful float late last year. Given the large scale back for many IPO applicants, small holdings can sold at a profit and investors can seek better growth opportunities elsewhere.
Fortescue Metals Group (FMG)
Among analysts, FMG receives the most number of strong sell recommendations and it isn’t hard to see why. The price of iron ore has more than halved in the past 12 months, the debt levels are high and the cost of production is also high compared to some other producers. My view is that now is a good time to sell, as better opportunities exist elsewhere.
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