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Peter Moran, Wilson HTM

BUY RECOMMENDATIONS

Estia Health (EHE)

Chart: Share price over the year

Our preferred exposure to the aged care sector. We believe an ageing population and a consolidation of providers will drive growth. We expect investors will continue to support EHE’s acquisition strategy because, as displayed in most recent results, it successfully integrated two large acquisitions (Padman and Cook Care) along with several smaller providers.

Harvey Norman (HVN)

Chart: Share price over the year

Recent share price weakness has been driven by the acquisition of a dairy business. While we’re not in favour of the acquisition, the outlay was small at 3 cents a share, and believe the price retreat has created a buying opportunity. HVN’s fiscal year 2015 result was strong and we remain confident that exposure to homemaker categories will continue to underpin strong momentum, particularly given HVN is a late cycle beneficiary of the housing boom.

HOLD RECOMMENDATIONS

Wesfarmers (WES)

Chart: Share price over the year

Continues to deliver good performances from most of its businesses despite a challenging retail environment and increasing competition in the supermarket sector from smaller competitors like Aldi. At current prices, we believe the share price mostly reflects a bright outlook and retain a hold recommendation.

Domino’s Pizza Enterprises (DMP)

Chart: Share price over the year

We believe Domino’s will sustain earnings growth, led by an increasing number of stores, digital innovation and an improved menu. Additionally, there’s the prospect of further acquisition activity in the year ahead. However, with the share price recently on a price/earnings ratio above 40 times for 2016, we believe it adequately factors in the positive news.

SELL RECOMMENDATIONS

Cochlear (COH)

Chart: Share price over the year

Our key concern for this hearing implants maker is sales volumes. Despite a range of new product offerings and strong gains in developed markets, COH unit sales grew by only 3.2 per cent for financial year 2015. As a result, we believe margins may fall over time as marketing spending increases in an attempt to generate more growth. Apart from this risk, the shares are trading at a premium to our valuation.

Boom Logistics (BOL)

Chart: Share price over the year

This crane logistics company continues to experience deteriorating trading conditions and earnings. We believe there’s a risk of a covenant breach if it’s unable to sell assets within the next year. The risk is behind our sell recommendation.

 

Warwick Grigor, Far East Capital

BUY RECOMMENDATIONS

Aguia Resources (AGR)

Chart: Share price over the year

The shares have risen from 5 cents on April 10 to close at 20 cents on September 16. There are very good reasons.  Management changes have inspired confidence and there’s been a very successful capital raising. Offering a very simple business model, the company is advancing phosphate projects in Brazil that will supply the local market, replacing high cost imports. The economics look bright, especially with the falling Brazilian currency.

Anova Metals (AWV)

Chart: Share price over the year

Anova has a low risk gold project in Nevada that can be brought on stream very cheaply by accessing a nearby, under utilised treatment plant at Jerritt Canyon. The net present value at current gold prices is 2 to 3 times the current share price on the first phase of a three year life. The first gold pour is running late due to permit delays. The first pour is now planned for the early first quarter of 2016. Don’t be surprised if a takeover bid comes along.

HOLD RECOMMENDATIONS

Legend Mining (LEG)

Chart: Share price over the year

The company is in the process of buying nickel exploration assets from Mark Creasy in the Fraser Range – not far from the Range Nova Bollinger discovery by Sirius Resources in WA. Exploration is always risky, but in my view, there isn’t a better explorer to be involved with than Creasy. There will be something valuable in the ground, but we don’t know how long it will take before it’s revealed. Nevertheless, the odds look good on this prospective ground.

Talga Resources (TLG)

Chart: Share price over the year

Talga has come off with the rest of the market, but it isn’t a reflection on operations. The pilot plant work in Germany is underway with about 400 tonnes of block graphite now mined. There will be two or three phases of operation during the next six to nine months as different graphene production techniques are tested at different scales. The outcome is expected to be the lowest cost bulk graphene available, with very high profit margins.

SELL RECOMMENDATIONS

Paringa Resources (PNL)

Chart: Share price over the year

A surprisingly strong performer in the past year on the back of coal in the US, but that’s been anomalous given the state of the coal sector. Enigmatic and successful corporate management emanating from successful entrepreneur, Ian Middlemas, would account for the strength in the share price, but getting a bid for it may not be that easy. There are better pickings elsewhere.

St Barbara (SBM)

Chart: Share price over the year

St Barbara has been a gold company that stumbles from one calamity to the next, with an intervening period of recovery that invariably gets snipped out just when things start to look good again. Well, the shares have rebounded strongly as new management has been getting the house back in order. Any market speculation about the temptation to do a big share issue will place a ceiling on how much higher the shares can go.

Disclosure: Interests associated with the author own shares in Aguia Resources, Anova Metals and Talga Resources.

 

Simon Herrmann, wise-owl.com

BUY RECOMMENDATIONS

Collection House (CLH)

Chart: Share price over the year

Just in time for a dividend play, the debt collection business will trade ex-dividend on September 22, 2015, distributing a final dividend of 4.7 cents. At recent prices, the full year dividend yield is about 4 per cent. In the past three years, CLH’s revenue rose 11.5 per cent while net profit increased 22 per cent. Reliable cash flow provides a fundamental income base.

Greencross (GXL)

Chart: Share price over the year

Fiscal year 2015 was a transformational period for the veterinary giant as large investments resulted in price volatility, and ultimately a significantly lower share price in the first half. Most acquisitions are now complete and should be earnings accretive for fiscal year 2016. Its growth strategy is based on acquisitions, vertical expansion and same store sales growth.

HOLD RECOMMENDATIONS

Gold Road Resources (GOR)

Chart: Share price over the year

Even though the gold price has come under pressure when nominated in US dollars, the fall in the Australian dollar has offset most of the losses. GOR recently announced the discovery of 5.6 million ounces at the Gruyere mine in WA. Gruyere’s large scale, long life and under explored surrounds has the potential to attract interest from established miners. We expect takeover interest to build.

Insurance Australia Group (IAG)

Chart: Share price over the year

IAG has experienced a significant pullback in the past six months amid challenging trading conditions for the insurance market. IAG announced a strategic partnership with Berkshire Hathaway, in which Berkshire takes a 3.7 per cent stake in IAG. The 20 per cent quota share agreement reduces IAG’s earnings volatility and capital requirements. Overall, we expect more favourable conditions in the next six to 12 months.

SELL RECOMMENDATIONS

Breville Group (BRG)

Chart: Share price over the year

Technical support for this small electrical appliances company is broken on the daily and weekly chart. Financial results disappointed us. Even though the company aims to focus on international sales, we believe investors can do better elsewhere.

Monadelphous Group (MND)

Chart: Share price over the year

The fiscal year 2016 outlook for this mining and engineering services provider appears soft despite recently securing several contracts. While the company will most likely remain profitable and survive the mining downturn, we reduce exposure as the share price is struggling to find support.

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