Peter Moran, Wilson HTM
Westpac Bank (WBC)
The share price fall in the past two months has been overdone. WBC’s recent partial sale of its BT Investment Management stake is a sensible compromise between recognising the need to raise capital while retaining a strategically important relationship and stake in a strong asset. We expect earnings growth will resume in the second half of the year. The shares were recently offering an attractive prospective dividend yield of about 6 per cent.
Slater & Gordon (SGH)
The recent acquisition of Quindell’s professional services division will transform the company. The deal will make SGH the UK’s leading personal injury law firm, more than doubling revenues and increasing its UK personal injury market share from 5 per cent to 12 per cent. More importantly, we expect successful integration of the business will provide a 40 per cent earnings increase in fiscal year 2016.
The recent announcement of a continuing deterioration in trading suggests the issues faced by Woolworths could be more difficult than initially anticipated. The departure of CEO Grant O’Brien may create an opportunity to make improvements. Following recent weakness, we see value in WOW assets. For us to be more positive, we would need to see signs of an improvement.
HSO has announced it’s selling its Australian pathology operations to Crescent Capital Partners for a total consideration of $105 million. Our estimates suggest the net impact will be immaterial. It’s a positive move as it will remove a distraction and allow management to focus on the more important hospital and international pathology operations. The share price was recently trading in line with our price target.
Virtus Health (VRT)
Although the share price fell sharply following its recent profit downgrade, we expect underperformance will continue. With the local in vitro fertilisation market under pressure, we see virtually no earnings growth in the next few years.
When we exclude lumpy Chinese tender sales, we find growth in unit sales has been consistently in the low single digits for the past four years. Even though we expect a partial recovery in the second half, it doesn’t justify the recent 2016 price/earnings multiple of 25 times for this hearing implant company.
Gavin Wendt, MineLife
Talisman Mining (TLM)
The share price has surged by almost 200 per cent in recent weeks on the back of encouraging drilling results at its Sandfire Resources joint venture acreage in Western Australia. Diamond drilling has intersected massive sulphides containing visible chalcopyrite that’s similar in nature to the massive sulphides previously identified at Sandfire’s high grade DeGrussa mine.
Offers investors free-carried exposure through a series of aggressive joint venture exploration programs in Peru and Burkina Faso. Put simply, AusQuest offers investors up to $41 million in joint venture exploration funding on its existing projects, with a market capitalisation of just $12 million. The farm-out deals minimise AusQuest’s equity funding needs in what are tough market conditions.
West African Resources (WAF)
Has accelerated its move towards production status in Burkina Faso in early 2016 by procuring a second hand heap-leach plant, completing a positive pre-feasibility study and securing a $US5 million convertible note facility to allow completion of a bankable feasibility study in 2015. Pre-feasibility study estimates suggest an internal rate of return of 63 per cent with a 14 month pay back of capital.
Consolidated Tin Mines (CSD)
Production ambitions have been significantly enhanced after acquiring Snow Peak Mining’s Mt Garnet mining assets. Although CSD remains focused on developing its tin assets this year, it’s now in the enviable position of being a diversified miner, with zinc, copper, lead and silver production revenue streams. We await the imminent release of its bankable feasibility study.
Energy Resources of Australia (ERA)
ERA is a company in limbo. Its three independent directors have resigned as a result of Rio Tinto’s decision to shelve the planned Ranger 3 Deeps uranium development, which was the key value driver for ERA from a big picture perspective. With uncertainty over title, development appears unlikely anytime soon, which means there’s little reason for investors to hold the stock.
Newcrest Mining (NCM)
Continues to suffer over its exposure to the problematic Lihir Island operation, acquired via its takeover of Lihir Gold a few years back. While possessing an enormous gold resource base, the operation is both geologically and technically challenging to the point that it’s generated little free cash flow since it was commissioned during the 1990s.
Darren Jackson, Calibre Investments
Credit Corp Group (CCP)
Operating in the debt collection space offers a highly defensive non-cyclical earnings stream. CCP management has built up a strong track record of delivering growth. The current valuation multiple is quite reasonable, while expanding into the US debt market provides upside. The stock recently broke out to a near record all-time high. The shares were trading at $12.27 on June 25.
Disruptive Investment Group (DVI)
Owns, develops and operates retail, franchise and e-commerce brands. Recently, we had the opportunity to lead manage a capital raising in DVI. The company holds a substantial interest in BYOjet.com and iBUYnew.com.au and trades on an extremely low revenue multiple. A value buy. The shares were trading at 1.5 cents on June 25.
Capilano Honey (CZZ)
In thebull.com.au on August 11 last year, we recommended buying Capilano Honey for its strategic assets, successful restructure and recent acquisition. With the stock up more than 70 per cent in less than a year, we still continue to hold. It recently announced a dividend because operating performance continues to go from strength to strength.
Vocus Communications (VOC)
We have been big supporter of mid-tier telcos (particularly M2 Group) due to favourable tailwinds and the opportunity for highly synergistic acquisitions. Recently Amcom (AMM) shareholders approved a merger with Vocus, which reduces deal risk. A merged group will have highly complementary assets, strong cross selling opportunities and significant operational cost savings.
Select Harvests (SHV)
As a pure almond play producing only in Australia, it’s been a strong beneficiary of the Californian drought. Operationally, the company has been performing well. However, a tight almond supply in response to the Californian drought may be alleviated through a strengthening El Nino weather pattern.
Ardent Leisure Group (AAD)
Has a significant exposure to the Texan economy through its main event division and the big fall in oil prices has been detrimental to consumer spending. Additionally, there’s been margin erosion in the health club division in response to increasing competition. While in March this year, there was the surprise resignation of respected chief executive Greg Shaw.
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.