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Ravi Chauhan, Fat Prophets

BUY RECOMMENDATIONS

Spark New Zealand  (SPK)

 

Chart: Share price over the year

Falling fixed line revenues are yesterday’s news. The company is successfully following a path of re-invention and delivering growth in other key areas, such as internet and cloud services. It’s opening up new frontiers for future profitability gains. We believe the market is yet to factor in potential earnings gains that we expect to flow to Spark in coming years. We believe that a recent price/earnings multiple of 15 times is undemanding. A 7 per cent dividend yield is also highly appealing in a low cash rate environment.

Evolution Mining  (EVN)

Chart: Share price over the year

Amid doom and gloom surrounding the gold price, it’s interesting to note that the gold price in Australian dollar terms has held up well if not improved. High quality Australian producers should see costs fall further while the Australian dollar gold price moves up towards $2000. Evolution Mining is one of our favourite plays in this sector. Astute and experienced management has acquired quality Australian assets, such as Cowal, Mungari and La Mancha. Evolution has become Australia’s second largest producer after Newcrest and should do well on an improving gold price.

HOLD RECOMMENDATIONS

Vocus Communications (VOC)

Chart: Share price over the year

While its numbers have been super charged by acquisitions, positive organic growth contributed to its strong fiscal year 2015 result. Bedding down the Amcom merger efficiently will be critical this year and next. However, the strong track record of company executives integrating prior acquisitions leaves us significantly confident that the outcome will be satisfactory for shareholders.

James Hardie Industries (JHX)

Chart: Share price over the year

A low US interest rate environment will support a residential construction sector. First quarter 2016 results show this building products maker was able to generate higher net sales on the back of higher average sale prices without compromising volumes. This has been largely due to an increase in underlying demand and construction activity. It’s been able to increase profit margins on a constant currency basis by leveraging its cost base and investing in productivity.

SELL RECOMMENDATIONS

Metcash (MTS)

Chart: Share price over the year

Price deflation and competitive pressures in the Australian supermarket industry are showing no signs of easing. We fear the challenges facing the core food and grocery business will require more capital and re-investment than we previously envisaged. While we believe such initiatives are certainly necessary to ensure an improving competitive position over longer term, we believe the risks far outweigh the rewards.

Onthehouse Holdings (OTH) 

Chart: Share price over the year

In our view, the strategic imperative of conserving cash on one hand and driving growth through higher service levels and product innovation seems to be at odds. While the real estate website continues to report strong growth in traffic, successfully monetising it is another proposition. Any change in sentiment regarding the property market won’t help.

 

Jonathon Feil, Morgans

BUY RECOMMENDATIONS

Ensogo (E88)

Chart: Share price over the year

The share price of Ensogo, formerly iBuy Group, has been savaged. The company provides e-commerce websites. In my view it shows similar characteristics to Amazon. Substantial cash has been required to build the platform and attract customers. Now the platform is in place, a lower cost base should lift profits. The history is worth a look. Shareholder Vipshop (NYSE:VIPS) is actively assisting with strategy.

Sundance Energy Australia (SEA)

Chart: Share price over the year

Ticks all the boxes for an oil player in the current market. It’s a low cost, low debt operator with cash. The company is well managed and is trading at a substantial discount to US peers. Most of its acreage is already bound by production, so there’s little reason to drill. In my view, potential suitors may be lurking given the share price fall in the past six months. Alternatively, it may take advantage of current market weakness to acquire quality plays with distressed balanced sheets. The shares were trading at 32.5 cents on September 10.

HOLD RECOMMENDATIONS

Urbanise.com (UBN)

Chart: Share price over the year

UBN is the creator of an industry specific, cloud-based building services delivery platform for the facility management industry. UBN looks good value following its recent correction. It appears the market had been pricing in revenue expectations of between $15 million and $20 million. Revenue was $10.2 million for the year to June 30, 2015. A US road show starting on September 14 could spur buying.

ASX Limited (ASX)

Chart: Share price over the year

In my view, the company delivered a relatively flat fiscal year 2015 result. Challenges exist into fiscal year 2016 with the roll through of recent derivative fee cuts and implications from the Federal Government’s review into clearing competition. The company looks fully valued.

SELL RECOMMENDATIONS

Affinity Education Group (AFJ)

Chart: Share price over the year

AFJ announced on August 24 that it had entered into a heads of agreement with Anchorage Capital Partners. An offer of 90 cents a share by Anchorage is subject to finalising due diligence, documentation and shareholder approvals. AFJ shareholders wanting to avoid uncertainty can sell on market. The shares were trading at 86 cents on September 10.

Cochlear (COH)

Chart: Share price over the year

On August 5, it was trading just above $91. On September 10, the shares were trading at $83.18. The hearing implants maker is priced above analyst consensus estimates. There is minimal room for error at recent prices. The stock is too expensive, in my view.

 

Carey Smith, Alto Capital

BUY RECOMMENDATIONS

Woolworths (WOW)

Chart: Share price over the year

The retail giant’s share price has fallen about 35 per cent from last year’s highs. Concerns about the loss making Masters Hardware division and increasing competition from supermarket chain ALDI have been major contributing factors. WOW was recently trading on a price/earnings ratio below 15 times and a dividend yield above 6 per cent. We believe the company offers value.

National Australia Bank (NAB)

Chart: Share price over the year

The bank has completed its $5.5 billion capital raising and has provided a clearer road map for divesting its troubled UK division. NAB remains our preferred Australian bank, and we believe it will outperform its Australian peers. The shares were trading at $30.29 on September 10.

HOLD RECOMMENDATIONS

South32 (S32)

Chart: Share price over the year

The shares were priced at $2.31 on May 22. S32 was at $1.40 on August 24. It’s climbed to be trading at $1.68 on September 10. It’s worth holding this diversified miner, as it offers a strong balance sheet, no debt and potential strong cash flows. Going forward, it may be a predator or prey.

Newcrest Mining (NCM)

Chart: Share price over the year

We consider fair value is about $12 a share for Australia’s premier gold miner. It’s benefiting from a lower Australian dollar. We expect to see substantial increases in gold production following the recent completion of two major growth projects, Cadia East and the Lihir upgrade. The shares were trading at $11.35 on September 10.

SELL RECOMMENDATIONS

Hansen Technologies (HSN)

Chart: Share price over the year

This global technology company provides proprietary customer care and billing services to the energy, telecommunications and pay TV sectors. Its share price has skyrocketed in the past two years. It was recently trading on a price/earnings ratio above 30 times. In our opinion it’s overvalued. The shares were trading at $2.77 on September 10.

Pacific Brands (PBG)

Chart: Share price over the year

We have revised our recommendation from buy to sell for this clothing, footwear and textile company. The share price jump has jumped 100 per cent in the past two months as the market reacted positively to its restructuring process. We believe the company is trading above fair value. The market has reacted too positively too fast. The shares were trading at 68 cents on September 10.

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