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Matthew Litchfield, PhillipCapital

BUY RECOMMENDATIONS

Macquarie Group (MQG)

 

Chart: Share price over the year

Continues to perform well and management recently announced another strong earnings upgrade. First half fiscal year 2016 profit is now expected to be 40 per cent higher.  We retain a positive view on this internationally focused asset manager and investment banking group. Macquarie will continue to benefit from improving trading conditions, a lower Australian dollar and underlying business growth.

M2 Telecommunications (MTU)

Chart: Share price over the year

M2 continues to grow organically and via acquisition. Consequently, it delivered a solid result for fiscal 2015 with underlying net profit after tax growing 17 per cent to $100.2 million. Our research suggests the shares offer value given growing revenue and dividends. The outlook is bright for this mid tier telecommunications stock.

HOLD RECOMMENDATIONS

Amcor (AMC)

Chart: Share price over the year

A defensive packaging stock that pays an attractive but unfranked dividend yield of about 4 per cent. This stock also offers exposure to growth in emerging markets and benefits from a falling Australian dollar.

Ramsay Health Care (RHC)

Chart: Share price over the year

This private hospital operator continues to grow revenue and reported 19 per cent growth in core net profit after tax to $412.1 million. Ramsay’s strong balance sheet enables it to find brownfield projects, so the outlook remains positive for this market leader.

SELL RECOMMENDATIONS

Medibank (MPL)

Chart: Share price over the year

It was pleasing to see good fiscal 2015 profit figures, which beat guidance and our estimates. But the stock is looking fair value at these levels. I see better opportunities for income and growth elsewhere. The shares closed at $2.36 on September 23.

Fortescue Metals Group (FMG)

Chart: Share price over the year

We’re avoiding the iron ore market given an increase in supply and a decrease in demand. In our view, FMG, in particular, has high debt levels and a high cost of production.

 

James Samson, Eureka Report

BUY RECOMMENDATIONS

Automotive Holdings Group (AHG)

Chart: Share price over the year

AHG is Australia’s largest owner of car dealerships, and has been growing at a steady rate in the auto market for about seven decades. The company has a strong track record for lifting dividends as profit grows and may be one of the few companies on the ASX that offers both growth and income opportunities. I expect AHG to continue offering investors exposure to a growth strategy with a good yield. Our valuation is $4.57. The shares closed at $3.92 on September 23.

G8 Education (GEM)

Chart: Share price over the year

GEM has now officially failed in its bid to take over rival childcare operator Affinity Education (AFJ) after Anchorage Capital stepped in with a higher offer. However, this isn’t all bad news. GEM will make about a $12 million profit on the transaction by selling into the Anchorage bid.  We believe it’s still well placed to grow profits to about $90 million in fiscal year 2016. The company is trading on a P/E of about 10 times forward earnings and offering a forecast dividend yield above 10 per cent (if we include franking credits). GEM may be marginally higher risk, but I think it offers compelling value at these levels.

HOLD RECOMMENDATIONS

Premier Investments (PMV)

Chart: Share price over the year

Retail has been a relatively good spot for investors during this market correction, and PMV showed its strength once again when it recently reported fiscal year 2015 results. PMV brands Just Group, Peter Alexander and Smiggle have been performing well in recent years. The company opened 24 new Smiggle stores in fiscal year 2015 and 16 more stores are expected in 2016. Expect expansion plans in Wales, Scotland, Hong Kong and Malaysia to generate future growth.

Brambles (BXB)

Chart: Share price over the year

This global logistics products business has performed well since the demerger of documents and storage business Recall Holdings (REC). However, the latest report from BXB showed signs of pressure. In particular, pallet life cycles and cost pressures in the US are causing slower than expected margin expansion. While still an attractive growth business and a beneficiary of a stronger US dollar, a hold is appropriate given expectations remain high.

SELL RECOMMENDATIONS

Metcash (MTS)

Chart: Share price over the year

Competing with Coles, Woolworths, Aldi and Costco has been tough for this supermarkets and hardware business. And, unfortunately for MTS, we expect competition to intensify going forward. Consequently, we believe MTS is vulnerable to further margin erosion and potential revenue declines as market share comes under pressure. Despite the low share price, better value may be found elsewhere.

Arrium (ARI)

Chart: Share price over the year

It’s no secret iron ore juniors are struggling. Arrium posted financial results that were significantly impacted by lower iron ore prices. It reported an underlying loss of $7 million, but this was $1.9 billion on a statutory basis. ARI has announced significant restructuring measures and cost reduction targets. Given low iron ore prices, we believe the risks in this stock remain too high.

 

Mathan Somasundaram, Baillieu Holst

BUY RECOMMENDATIONS

Aconex (ACX)

Chart: Share price over the year

Listed in December 2014 and provides cloud based collaboration software to the global construction industry. Big projects involve many participants from planning to completion. Aconex software enables stakeholders to electronically manage documents, processes, planning, compliance, audit trails, security and many other aspects of the construction cycle. Our analyst Luke Macnab has initiated coverage with a buy rating and a 12-month price target of $4.81. The shares closed at $4.28 on September 23.

GBST Holdings (GBT)

Chart: Share price over the year

Provides software and services to the global financial services industry. Given a balance of risks, valuation appeal has emerged following a share price decline in the past six months. We expect it to generate an earnings per share compound annual growth rate of 10 per cent over the next three years. Debt has been paid off and the company remains well capitalised with net cash of $7.5 million at June 30. Our analyst Nicolas Burgess has lifted his price target to $5.70. The shares finished at $4.95 on September 23.

HOLD RECOMMENDATIONS

IPH (IPH)

Chart: Share price over the year

This intellectual property services group has reached an agreement to acquire Pizzeys Patent and Trade Mark Attorneys. We have increased fiscal years 2016 and 2017 normalised earnings per share forecasts by 6 per cent and 10 per cent respectively after incorporating the Pizzeys transaction. We assume the $A13.3 million earn-out will be paid.

Mortgage Choice (MOC)

Chart: Share price over the year

A growing mortgage market, an industry using more brokers and an expanding franchise haven’t yet translated into material earnings growth for MOC or increasing market share. We would like to see harder evidence that MOC is making ground on the industry before committing to a stronger investment view. The shares finished at $1.85 on September 23. Our analyst Nick Caley retains a hold call, but the price target has been reduced from $3 to $2.35.

SELL RECOMMENDATIONS

The Reject Shop (TRS)

Chart: Share price over the year

Competition in the discretionary retail sector remains challenging. In our view, The Reject Shop is caught between the big chains and online competitors in a shrinking market place.

Metcash (MTS)

Chart: Share price over the year

The headwinds are strong. Coles, Woolworths, Aldi and Costco are fierce competitors. Shoppers are searching for lower prices. We expect MTS to face more margin pressure as competitors continue their race to the bottom on prices.

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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.