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Jon Fernie, Lincoln Indicators

BUY RECOMMENDATIONS

REA Group (REA)

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

While this online real estate classifieds business has retained a strong Australian market position, its expanded to the US and South East Asia. REA provided a solid third quarter trading update, with operating earnings up 30 per cent on the prior corresponding period, although this was below market expectations. We believe concerns over slower growth and a housing market correction are overdone and continue to view the outlook favorably.

Capitol Health (CAJ)

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

A health care business providing diagnostic imaging services across Victoria and New South Wales. The company has grown earnings strongly in recent years through organic expansion and acquisitions. We expect CAJ to report strong growth for the full year from continuing gains in market share. A full contribution from recent acquisitions will also generate growth in fiscal year 2016. We believe the recent pullback provides a good entry point for the stock.

HOLD RECOMMENDATIONS

Ramsay Health Care (RHC) 

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

A global private hospital operator with facilities across Australia, the UK, France, Indonesia and Malaysia. RHC will also be the first major international hospital to establish operations in China. Management has provided earnings guidance growth of between 18 per cent and 20 per cent for fiscal year 2015. While we continue to view the operating outlook as positive, we believe this is factored into the share price.

Credit Corp Group (CCP)

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

Provides debt collection and consumer lending services in Australia, New Zealand and the US. The group is performing well in its core collection business and consumer lending will be a key growth driver this year. While expansion into the US has been a marginal drag on profitability, we see this as a good longer term opportunity. CCP also upgraded its purchased debt ledger guidance in April, which should support further growth in fiscal year 2016.

SELL RECOMMENDATIONS

Metcash (MTS)

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

Metcash is a wholesale distribution and marketing company that mostly focuses on food, liquor and hardware across supermarkets, convenience stores and other retail outlets in Australia. The group reported fiscal year 2015 results broadly in line with expectations and previous guidance, although this was down significantly on the prior year due to substantial writedowns. While MTS has a turnaround strategy in place, and the sale of its auto business strengthens the balance sheet, we continue to see the outlook as clouded given ongoing competition, discounting and current consumer trends.

Monadelphous Group (MND)

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

An engineering company providing services to the resources, energy and infrastructure sectors across Australia. Market conditions remain challenging and full year guidance is for revenue to be 15 per cent to 20 per cent lower this year. In particular, iron ore and energy projects remain under pressure given commodity price weakness. We also expect that ongoing competition will retain pressure on margins. Therefore, despite being one of the top operators in the space, we believe that some caution is warranted.

 

Jeremy Hook, TMS Capital

BUY RECOMMENDATIONS

Seek (SEK)

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

Operates online employment classified advertising. It also provides and executes training courses and invests in overseas online employment websites. The company produces very high margins, has a strong balance sheet and has managed to grow earnings through the various employment cycles of the past decade. We see upside from the decision to float online Chinese website, Zhaopin (55 per cent owned) and its various international entities.

National Australia Bank (NAB)

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

Australia’s biggest business bank, NAB is stringing together consistently improving and quality results as senior management erases previous disappointments. NAB recently raised more than $5 billion in capital to facilitate the demerger of it UK businesses and is now the best capitalised bank. The stock is moderately undervalued and was recently yielding just below 8 per cent.

HOLD RECOMMENDATIONS

DUET Group (DUE)

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

Owns energy utility assets in Australia. The core assets of DUE’s investment portfolio include the Dampier Bunbury Pipeline, United Energy and Multinet Gas. Recently, the company raised $100 million to extend the Dampier Bunbury Gas Pipeline, and we believe the raising brought the share price back into buying territory. The company was recently offering an unfranked yield of about 7.5 per cent.

Primary Health Care (PRY) 

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

Provides a range services to its network of medical and pathology centres across Australia. It also provides health care technology solutions to medical practitioners, medical practices and hospitals. Medical centres generate much of its revenue, so an ageing population will continue to fuel increasing demand.

SELL RECOMMENDATIONS

IOOF Holdings (IFL)

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

In our view, IFL isn’t the best of breed in any of its financial services activities and we can find better value in other stocks, whether they are fund managers, dealer groups or trustee services providers. Recent negative news regarding compliance and research practices cloud the issue further, but our primary concern is business quality versus value.

ALS Limited (ALQ)

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

The mining exploration cycle continues to be in the doldrums and we see no end in sight given where metals prices are sitting. Companies are trying to maintain cash balances, as they are unable to raise capital through equity capital markets.  Therefore, companies are postponing exploration. ALQ relies on demand for assay testing to grow earnings.

 

Carey Smith, Alto Capital

BUY RECOMMENDATIONS

Coca-Cola Amatil (CCL)

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

The share price of this soft drink giant has fallen by about 40 per cent in the past two years as a result of earnings in Australia and Indonesia declining more than expected. We believe this provides a top opportunity to buy a stake in one of Australia’s leading and well known companies. The shares were trading at $9.21 on July 9.

Cabcharge Australia (CAB)

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

We believe Australia’s largest combined taxi, bus and coach company has been oversold in response to competition concerns from Uber and changes to government regulations capping charges for credit card transactions. Accordingly, the share has suffered, recently resulting in a price/earnings multiple below 10 times and a fully franked dividend yield above 5 per cent.

HOLD RECOMMENDATIONS

ASX Limited (ASX)

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

Relies primarily on the number of trades and volumes to generate revenues. The increase in computerised trading (algorithmic trading), the lift in merger and acquisition activity and more IPOs in the past six months should contribute to a solid 2015 profit result.

National Australia Bank (NAB)

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

Recently completed a $5.5 billion rights issue while providing a clear road map for divesting the group’s troubled UK division. NAB remains our preferred major bank, and we believe it will outperform its Australian peers.

SELL RECOMMENDATIONS

Amalgamated Holdings (AHD)

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

One of Australia’s premier entertainment and hospitality companies, AHD has enjoyed a stellar run in the past few years as shown by a soaring share price. However, as the owner and operator of the Thredbo snow resort, it’s dealing with a poor start to the NSW snow season, which we believe is likely to have a negative impact on the group’s performance.

Blackmores (BKL)

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

The share price of this vitamin and supplement company has soared from about $20 two years ago to be trading at $69.56 on July 9. Recently, the price/earnings ratio was about 30 times and the dividend yield was about 2 per cent.  We believe the company is overvalued and suggest investors take profits.

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