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Peter Moran, Wilson HTM

BUY RECOMMENDATIONS

Origin Energy (ORG)

 

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

Origin has strengthened its balance sheet by selling its stake in Contact Energy. Recently, it reported June quarter production above our expectations. Other parts of the business are improving with earnings in the energy markets division returning to growth for the first time in two years. However, the real driver is the Australia Pacific LNG project in Gladstone, where production is expected to start by the end of the year.

Rural Funds Group (RFF)

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

A listed property trust with a portfolio of Australian agricultural assets. We’re attracted to RFF for its 8.2 per cent distribution yield and the potential to grow the asset base. RFF has confirmed an asset revaluation for the 2015 second half, mostly related to its almond orchards. We expect RFF to increase its earnings and distributions through additional asset development and acquisition activity.

HOLD RECOMMENDATIONS

Tabcorp Holdings (TAH)

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

The decision to increase race field fees in NSW appears to be a minor negative for the wagering operator. We forecast that earnings per share for financial year 2016 will be reduced by 1 per cent. With the shares recently trading on a 2016 price/earnings ratio of 20 times and our valuation at current levels, we retain a hold recommendation.

National Australia Bank (NAB)

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

Continues to sell down non core parts of the business following the divestment of its remaining 28.5 per cent stake in Great Western Bank in the US. The next step is an IPO for Clydesdale Bank in the UK, which is due before the end of this calendar year. Conditions in the company’s SME business banking market are still soft. The shares are trading around our price target. The stock was trading at $33.53 on August 6.

SELL RECOMMENDATIONS

Fortescue Metals Group (FMG)

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

The iron ore company recently produced a solid quarterly result. However, we’re concerned it’s mining higher grade ore now, leaving lower grade ore for the future. High debt levels amid iron ore prices expected to remain under pressure are behind our sell recommendation.

Newcrest Mining (NCM)

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

Despite a reasonable quarterly result, we’re cautious about free cash flow generation for this gold company. We believe there are several capital projects that require funding in coming years to extend the life of some mines. As a result, we view the balance sheet as stretched. The issue is compounded by debt in US dollars.

 

Darren Jackson, Sanlam Private Wealth

BUY RECOMMENDATIONS

Kina Securities (KSL)

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

A recent IPO of Papua New Guinea’s largest wealth manager. Proceeds from the raising are being used to acquire PNG’s fourth largest bank, which offers strong cross selling opportunities and cost savings between the two. The current valuation metrics that KSL trades on are low while GDP growth rates of PNG are high.

Senetas Corporation (SEN)

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

Cyber security has been one of the best performing sectors on the NASDAQ this year. SEN is Australia’s leading Cyber security firm, manufacturing high speed encryption hardware used by governments. The company is a successful turnaround story delivering strong revenue growth. It also offers strong relative value compared to global peers.

HOLD RECOMMENDATIONS

TPG Telecom (TPM)

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

We continue to hold TPG Telecom from a September 2014 buy recommendation with the stock up more than 30 per cent. TPM is in the process of acquiring iiNet, making it the second largest internet service provider in Australia where size does matter. Telco acquisitions offer beneficial synergies.

Sirtex Medical (SRX)

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

We sold the stock just before clinical study results were due and this was behind our sell recommendation published in thebull.com.au on March 16. Investors slashed the stock in half after results from the SIRFLOX study failed to meet expectations. The shares recovered some upon greater examination of the SIR-Spheres treatment for liver disease. Tailwinds include a weaker Australian dollar, rising liver cancer diagnoses and increasing health care spending.

SELL RECOMMENDATIONS

iiNet (IIN)

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

TPG Telecom is offering $1.56 billion for iiNet. We advise shareholders to sell on market and consider rolling the proceeds into TPM or fellow telcos, M2 Group (MTU) and Speedcast International (SDA). The takeover premium leave the shares trading well above our original buy recommendation back in July 2012 for those still holding.

Orica (ORI)

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

This commercial explosives company is doing a rather large $400 million on market share buyback that’s helping to support the stock. The company sold its chemicals division to Blackstone for $750 million, so it’s fully exposed to the beleaguered mining services sector. In our view, risk averse investors should avoid the mining services sector.

 

Simon Bond, Morgans

BUY RECOMMENDATIONS

Select Harvests (SHV)

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

One of Australia’s largest almond growers, the company has upgraded its 2015 price and crop tonnage forecast. The almond price continues to rise and consequently we have upgraded our 2016 net profit after tax by 47 per cent. Industry fundamentals remain positive, and SHV is also highly leveraged to a falling Australian dollar.

ResMed (RMD)

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

Last quarter’s results for this medical device maker were above expectations, with double digit sales growth. We remain confident in the earnings profile given the stage of the product life cycle, a stable pricing environment, aggressive cost-out initiatives and a value enhancing health care informatics platform that is yet to hit its straps.

HOLD RECOMMENDATIONS

AMP (AMP)

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

In our view, regulatory changes that will improve profitability in the Australian life insurance market are slowly emerging. Assistant Treasurer Josh Frydenberg’s recent proposals to alter retail life insurance commission structures represent a clear win for product manufacturers like AMP. News flow is becoming more positive. But upside for AMP on a life insurance recovery is milder than may be anticipated by the market.

DUET Group (DUE)

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

In the search for yield, we believe investors are bound to be attracted to this owner of energy utility assets. But cash flow headwinds leave us cautious as to the sustainability of distribution in the medium term. We initiate coverage with a hold rating.

SELL RECOMMENDATIONS

Transpacific Industries Group (TPI)

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

TPI has direct and indirect exposures to activity levels in the mining industry, which has been weak. It’s also a mini oil and gas producer via its hydrocarbons business, and earnings are likely to be impacted (particularly on a lagged basis) by the decline in the oil price. The market has been waiting for improvements in Cleanaway’s pricing and margins, but we suspect this may take until the second half of 2016 to eventuate.

Woodside Petroleum (WPL)

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

Reported a weaker second quarter 2015 result, impacted by lower oil-linked LNG prices and lower production from flagship operations North West Shelf and Pluto. With revenue dropping as a result, we anticipate a difficult first half result for WPL, when we expect it will confirm a substantial reduction in its dividend. We retain our sell recommendation.

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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.