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James Samson, Eureka Report

BUY RECOMMENDATIONS

AMA Group (AMA)

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Chart: Share price over the year

Owns and operates panel beating businesses in Australia. The company is the largest in a fragmented industry, and recently purchased its closest competitor, Gemini Accident Repair Centres. The deal increased the group’s centres from 29 to 70, and transformed the scale of the business. Expect growth as efficiencies and earnings are realised from this deal. In the recent market downturn, the price looks attractive, with our valuation at $1.07. The shares were trading at 87 cents on January 14.

Automotive Holdings Group (AHG)

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Chart: Share price over the year

AHG is Australia’s largest car dealer. The company has been acquiring dealerships to ensure future earnings growth and is steadily growing market share. A strong trading update was provided at the annual general meeting. We expect AHG to produce a strong dividend and post healthy profit growth when it next reports. At current levels, AHG looks attractive. The shares were trading at $4.26 on January 14.

HOLD RECOMMENDATIONS

Netcomm Wireless (NTC)

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Chart: Share price over the year

This telco devices provider had a stellar 2015, with the share price surging by more than 300 per cent. This was driven by an announcement that the company had won a major contract to supply devices to AT&T in the context of a US rural broadband project. This contract was undoubtedly a coup for NTC, and there’s potential to win similar contracts with other US providers, or even in other countries. For now, we feel the contract win is fully priced in. So despite the outstanding performance and the strong potential for further growth, NTC remains a hold.

Tox Free Solutions (TOX)

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Chart: Share price over the year

Defensive earnings appeal when the economy falters. This is what sets this company’s hazardous waste capabilities apart from many competitors in regional areas. That said, it’s difficult to continue defending margins when resource based customers are feeling the pinch. Trading at $2.61 on January 14, TOX appears correctly priced.

SELL RECOMMENDATIONS 

Suncorp Group (SUN)

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Chart: Share price over the year

Provides general insurance, banking and financial services, life insurance and other associated services. However, the company announced in mid December that rising costs had led to a lower than expected insurance margin and earnings outcome for the half year to December 31, 2015. Potentially negative sentiment may lead to further downside before it reports on February 11.

Coca-Cola Amatil (CCL)

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Chart: Share price over the year

It seems CCL has stemmed what turned out to be a very long downgrade cycle. However, the soft drink business isn’t as good as it used to be, leaving CCL vulnerable. Supply chain pressure from supermarkets remain. Competitors offering discounts present challenges in the fight for market share. Even at current prices, CCL may still hold too much risk.

 

Matthew Litchfield, PhillipCapital

BUY RECOMMENDATIONS

Commonwealth Bank (CBA)

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Chart: Share price over the year

The bank is well placed to grow earnings and dividends. The balance sheet is in good shape following a recent large capital raising. The business has a dominant market position and strong customer relationships. Investors will also be entitled to the next dividend in February. 

Macquarie Group (MQG)

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Chart: Share price over the year

According to our recent research report, this growth focused global investment bank is a key selection and is undervalued at these levels. The stock has leverage to improving markets and balance sheet capacity to drive earnings. More corporate activity should also be beneficial.   

HOLD RECOMMENDATIONS

Emerchants (EML)

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Chart: Share price over the year

This financial services company has been performing well. EML has signed agreements with sports betting company William Hill and bet365. It will launch its EachWay cash load product in the third quarter of fiscal year 2016. A rising share price paints a bright outlook. 

M2 Group (MTU)

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Chart: Share price over the year

MTU continues to grow organically and via acquisition. Its most recent merger announcement with Vocus is positive in our view. Implementation is scheduled for early 2016 after MTU shareholders vote. We see positive synergies extracted from a merger that will result in MTU becoming Australia’s fourth largest telecommunications company.  

SELL RECOMMENDATIONS

Fairfax Media (FXJ)

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Chart: Share price over the year

Structural headwinds are hurting Fairfax despite property platform Domain’s impressive growth, which is a bright spot. Our research suggests the stock is marginally overvalued. Increasing use of technology presents immense challenges for traditional newspaper groups.

BlueScope Steel (BSL)

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Chart: Share price over the year

Steelmakers, such as BlueScope, have struggled since the global financial crisis due to stiffer competition, weaker demand and slimmer margins. Given the lack of competitive advantage, I see better investment opportunities elsewhere.

 

Boe Campion, Ord Minnett

BUY RECOMMENDATIONS

McGrath (MEA)

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Chart: Share price over the year

Ord Minnett initiates coverage with a buy recommendation and a price target of $2.30. MEA is one of the leading residential real estate service providers in Australia, with a strong market presence in New South Wales and Australian Capital Territory. MEA is also growing in Queensland and Melbourne. As a market leader in a fragmented industry, the company continues to expand its footprint and take market share through rolling out company owned and franchise businesses. The shares were priced at $1.75 on January 14.

Surfstitch Group (SRF)

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Chart: Share price over the year

We reiterate our buy recommendation and raise our December price target from $2.50 to $2.60. We’re positive about the online retailer, as we believe expected strong top line growth and margin expansion in the next five years hasn’t been factored into the share price. SRF has acquired Surf Hardware International. This should enable SRF to expand margins and extend its distribution network.

HOLD RECOMMENDATIONS

Vitaco Holdings (VIT)

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Chart: Share price over the year

Since listing in September, this nutritional products supplier has already been re-rated about 17 per cent. It’s arguably priced on a fair, but not cheap earnings multiple. Similar companies, such as Blackmores, have enjoyed incredible success tapping into the Chinese consumer. But VIT has only started indirect sales to China. Opportunities exist as it’s growing from a low base. But whether VIT can replicate Blackmores success remains highly uncertain.

Platinum Asset Management (PTM)

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Chart: Share price over the year

We have cut our valuation from $7.91 to $7.07 a share based on performance. We retain a hold recommendation based on expected capital returns, limited flow momentum and upside surprise risk. The shares were priced at $6.66 on January 14.

SELL RECOMMENDATIONS

Computershare (CPU)

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Chart: Share price over the year

We retain our lighten recommendation and a target price of $10.50 for this investor services company. Guidance provided in August 2015 suggests earnings per share to fall by 7.5 per cent, primarily due to the effects of a stronger US dollar and lower yields on client balances.

Shopping Centres Australasia Property Group (SCP)

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Chart: Share price over the year

We like SCP’s strong specialty sales growth, exposure to urban growth corridors and solid balance sheet. However, it’s facing a softening earnings growth outlook, impacted by anemic anchor sales and rent growth. Recently at a 15 per cent premium to net tangible assets, we prefer retail landlords with exposure to regional and sub-regional assets. We retain our lighten recommendation and trim our target price to $1.78. The shares were trading at $2.05 on January 14.

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