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Boe Campion, Ord Minnett

BUY RECOMMENDATIONS

Westpac Bank (WBC)

Chart: Share price over the year 

Westpac remains our preferred pick in the sector. The commitment to delivering cost growth below 3 per cent will remove a key negative from recent results where cost growth exceeded revenue growth. It offers a sector leading outlook for earnings per share growth. It trades on an undemanding valuation. We retain our buy recommendation.
 
CSL (CSL)

Chart: Share price over the year 
 
We retain a positive view on this blood products company and reiterate our accumulate recommendation. The company continues to win market share across its entire recombinant coagulation portfolio, specialty products, albumin and immunoglobulin. 
 
HOLD RECOMMENDATIONS

Westfield Corporation (WFD) 

Chart: Share price over the year 

Westfield’s US peer Macerich is selling down its stake in eight regional shopping malls for $US2.3 billion on a capitalisation rate of about 4.1 per cent.  In our view, the Macerich portfolio is of similar quality to Westfield’s US portfolio. The transaction is positive for Westfield’s asset backing, given its US malls are valued on an average capitalisation rate of 5.4 per cent. The Macerich deal also provides evidence of material valuation creation likely to be generated from Westfield’s development pipeline. We retain our hold recommendation on Westfield, but raise our target price to $10.18. The shares closed at $9.87 on November 11.
 
BHP Billiton (BHP)

Chart: Share price over the year 
 
A high quality resources exposure, with near term production growth and good earnings diversification.
BHP’s valuation metrics aren’t stretched. Cost cutting and sale of non core assets will boost the balance sheet and potentially allow for greater distributions to shareholders. We retain our hold recommendation.
 
SELL RECOMMENDATIONS

Super Retail Group (SUL)

Chart: Share price over the year

Trading in the stronger auto and sports divisions was better than expected, while trading in the weaker leisure division didn’t meet expectations. We remain concerned about margin recovery potential of recently acquired businesses. Potentially, weaker consumer spending in Queensland is another concern. We retain our sell recommendation and cut our target price from $9 to $8.75. The shares finished at $9.60 on November 11.

Woolworths (WOW)

Chart: Share price over the year
 
The retail giant has experienced slowing sales growth. The company is yet to complete its senior management team. It faces challenges amid stiff competition. Prefer others. 


Matthew Felsman, APP Securities

BUY RECOMMENDATIONS

BHP Billiton (BHP)

Chart: Share price over the year

An aggressive trade based on the short term outlook for upside in the BHP share price. Technically, the company is looking very bullish. The share price has been slashed and closed at $20.95 on November 11. A short term buy trade.
 
Regis Resources (RRL)

Chart: Share price over the year

I believe the long US dollar trade has further to run. However, when rates in the US are finally raised, I expect to see an exit from the US dollar trade corresponding with a likely low in gold prices. The market will switch from value to growth and from the US to Australia. I am a buyer of well run Australian gold companies when this occurs.
 
HOLD RECOMMENDATIONS 

QBE Insurance Group (QBE)

Chart: Share price over the year

Recent US data suggests potential for gradual interest rate rises. Consequently, this could lead to a stronger US dollar, rising yields in US financial products and a return of positive sentiment in the US economy. This is a clear plus for QBE given it generates 33 per cent of earnings in US dollars. Any increase in US interest rates will considerably increase investment portfolio earnings.
 
Macquarie Group (MQG)

Chart: Share price over the year

Offshore earnings account for 71 per cent. The company delivered 25 per cent growth in the 2016 first half due to a lower Australian dollar and ever increasing merger and acquisition activity. This is an upgrade story. If the US Federal Reserve lifts rates in December, there’s a good bet the Australian dollar will start with a 6. The recent price/earnings multiple of 12.9 times is very reasonable.

SELL RECOMMENDATIONS

Blackmores (BKL)

Chart: Share price over the year

Management note demand is expected to remain strong but manufacturing capacity is peaking. The share price of this vitamin and supplements company is up more than 400 per cent in a year and sits well above consensus book value. In the past three months, company directors have sold around $10 million of their own personal stock on market. Time to take some money off the table. The shares closed at $167.77 on November 11.
 
Woolworths (WOW)

Chart: Share price over the year

A profit downgrade, a dividend set to fall, the home improvement division in limbo – and a new CEO hasn’t been appointed. The share price has been punished with no clear air ahead.


Jonathan Fernie, Lincoln Indicators

BUY RECOMMENDATIONS

OzForex Group (OFX)

Chart: Share price over the year

Provides foreign exchange and online international payment services to consumers and business clients. It has operations in Australia, New Zealand, Europe, North America and Asia. The company recently reported a solid half year result with underlying profit increasing 12 per cent to $12.3 million. This was driven by increasing client numbers and volume growth in all regions. OFX retained full year guidance for underlying operating earnings of between $38.5 million and $40.5 million. We believe it’s achievable given further expansion domestically and overseas and from new strategic partnerships. 

Senetas Corporation (SEN)

Chart: Share price over the year

Designs and manufactures encryption hardware to secure network data for delivery. The group’s client list includes government agencies and global corporates. We expect earnings growth in next 12 months to be driven by new client wins and demand for SEN’s services as network data traffic grows and data security increases in importance. Given substantial offshore earnings, the company will also benefit from any further depreciation in the Australian dollar. While the company trades on relatively high multiples, we continue to believe the outlook is robust.

HOLD RECOMMENDATIONS

REA Group (REA)

Chart: Share price over the year

A leading online real estate advertising business, with operations across Australia, Europe, Asia and the US. The company recently announced it would look to acquire the remaining 80 per cent stake in iProperty Group (IPP), which should provide long term growth opportunities in South East Asia. REA also provided a strong first quarter trading update with solid revenue growth and further margin expansion. Overall, the outlook for the business remains strong, although a recent run up in the share price means that we see the stock as fairly priced at current levels.

Westpac Bank (WBC)

Chart: Share price over the year

The bank recently reported full year results with cash earnings increasing 3 per cent to $7.8 billion. WBC delivered solid lending growth, but encountered continuing pressure on institutional margins. Also, loan impairment expenses were rising. We expect modest earnings growth in the coming year. WBC continues to provide an attractive income stream for investors and we believe this can be sustained given a strong capital position.

SELL RECOMMENDATIONS

Sydney Airport (SYD)

Chart: Share price over the year

Owns and operates Sydney Airport and also has the right to develop a second airport in the city. The company generates earnings through aviation services, leasing and advertising. SYD is expected to deliver strong earnings growth for the full year. Given recent share price increases, we believe this is more than factored in at current levels. As such, we see better alternatives elsewhere in the market. 

Seven West Media (SWM)

Chart: Share price over the year

A multi platform business providing exposure to print, radio and television. The company has been heavily sold off in the past 12 months and appears reasonably cheap on several valuation metrics. However, we continue to expect earnings headwinds during the next few years. It faces stiff competition for audiences and from online players in a subdued domestic economy. 

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