Peter Day, Wilson HTM
Lend Lease (LLC)
Outlook commentary for most businesses was encouraging in the company’s recent profit report. Lend Lease is positioned for underlying earnings growth in full-year 2010. Gearing of 3 per cent and a reducing payout ratio provides funding certainty for the stgelopment pipeline and growth for the investment management platform.
BlueScope Steel (BSL)
The recent retreat is a buying opportunity. Its 2009 full-year loss of $66 million closed the books on a very challenging six months. A return to profit in 2010 appears likely as domestic steel prices and production levels recover. Permanent cost savings of $132 million will set the tone for the earnings recovery story.
This global leader of pallet and plastic container pooling services delivered a credible result. It reported signs of inventory destocking coming to an end. The company appears well positioned for any rebound, although we are cautious about the speed of a recovery.
ASX Limited (ASX)
The ASX announced a full-year net profit after tax of $314 million, down 14 per cent on the prior corresponding period. A profit decline of only 14 per cent, when activity has fallen about 30 per cent, demonstrates the resilience of ASX income. We expect the ASX share price to perform in line, or marginally below the market in the short term.
Flight Centre (FLT)
Australia’s biggest high street travel agent has suffered in recent years. Lack of cash flow, earnings volatility and a shift to online bookings has reduced the effectiveness of the business. We recommend shareholders take profits on share price strength.
Macquarie Countrywide Trust (MCW)
This trust invests in a geographically diversified portfolio of supermarket-based retail properties across the globe. Recent share price strength and outperformance presents an opportunity to reduce weighting. Further downside risk in asset values should be considered.
Peter Russell, Intersuisse
Macmahon Holdings (MAH)
A significant contractor delivering specialised civil engineering and underground mining services in Australia, New Zealand and Malaysia. Infrastructure and civil work is now 57 per cent of revenues and growing. Leighton Holdings has built a 19 per cent stake and the two companies work well together. Positioned to leverage underground expertise into civil jobs and increase work overseas. Company prospects are strong.
One of the top ten global engineering design firms, it’s well managed with major international growth options. It’s involved in 57 multi-billion dollar mega projects, particularly in hydrocarbons. Worley is a leading global provider of professional services to the energy, resource and complex process industries. Geographic diversity adds strength. Nuclear, infrastructure and renewable prospects are good, and metals should kick in by full-year 2011. A key investment for exposure to the inevitable growth of LNG, oil and gas projects.
ALE Property Group (LEP)
This real estate investment trust pays high distributions. It also offers growth prospects on the underlying value of its Woolworths tenanted pub portfolio, with annual CPI rent adjustments. Even add to positions at current prices.
Primary Health Care (PRY)
Australia’s largest pathology provider has delivered outstanding returns. It’s integrating operations of Symbion Health after acquiring it in 2008. The strong progress in 2008/09 shows Primary Health Care is making the right restructuring decisions to deliver higher returns.
Transpacific Industries Group (TPI)
Listed in May 2005, this “total waste management” company worked hard to corner the national market. Investors enjoyed a price ride from $2 to $11 and back again. Aggressive acquisition followed acquisition until the global financial crisis took its toll on heavy borrowers. A 1.77-for-1 issue at $1.20 has cut excessive debt to merely high levels, with no more repayments until 2012. Why wait to see when there are so many strong stories in today’s market.
Melbourne’s EastLink toll road has been earning less than its interest bill before operating expenses. A reappraisal has optimistic ramp-up figures for two years and slow growth to follow. Unit issues have already diluted security holders and a new 1-for-2 issue at 33 cents plus a placement will make matters worse. The capital will fund half an $800 million loan repayment. Buying time for two years, this group is just one of a number limping along on the market. At times like these, the strong get stronger and the weak get weaker.
Mark Goulopoulos, Patersons Securities
The share price of CSL hasn’t participated in the substantial sharemarket rally in past few months, despite the company continuing to show both earnings resilience and growth. CSL is now trading at a substantial discount to its historical price/earnings ratio, relative to the broader sharemarket, and this presents a very attractive buying opportunity.
Lihir Gold (LGL)
The share price has experienced sustained downward momentum in the past few weeks, although this appears to be easing. This weakness has emerged despite a resilient gold price, but it’s unlikely to persist for an extended period. Share price catalysts are likely to be the full-year result and any news on the Ballarat gold field divestment.
While Boral offers excellent exposure to a residential construction recovery, the share price has run ahead of fundamentals in the short term. More housing starts are required to provide sufficient earnings upside to justify a higher share price. This is likely in the longer term, but the stock is fully valued for the short-to-medium term.
Woodside Petroleum (WPL)
A stronger than expected full-year profit and outlook, combined with a stronger oil price, has driven the Woodside share price significantly higher in recent weeks. While the stock is attractive over the long term, expect a short-term share price retreat to provide cheaper entry.
James Hardie Industries (JHX)
The recent full-year result was much stronger than expected, and has driven a substantial share price rally from an already relatively high price. James Hardie is heavily reliant on a US housing recovery, which remains at a very early stage and fragile to any unexpected shocks. The stock is over valued at the current share price.
Leighton Holdings (LEI)
A number of recent contract wins has driven the share price sharply up in the past six weeks. This over exuberance is likely to be short-term, and the share price is at risk of retreating when more realistic forecasts for future growth are assessed. Leighton is a very high quality business, but it’s considerably over valued in the short-term.
Other articles in this week’s newsletter
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