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Lucas Beaumont, Lincoln Indicators

BUY RECOMMENDATIONS

Bellamy’s Australia (BAL)
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Chart: Share price over the year

Produces organic food and formula for infants. BAL recently reported a strong first half result, with net profit after tax up by 325 per cent to $13.7 million. Chinese demand for BAL products has driven growth and we expect this to continue as disposable income increases. The foreign website sales tax recently announced by the Chinese Government led to a share price retreat. But, in our view, it’s unlikely to materially impact the company’s outlook. The stock was recently trading at a 35 per cent discount to our valuation. The shares were trading at $9.88 on April 14.   

TPG Telecom (TPM)
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Chart: Share price over the year

TPM is Australia’s second largest telecommunications service provider following the 2015 acquisition of iiNet. The company recently reported a strong half year result on the back of integrating synergies ahead of expectations and a strong performance from the corporate segment. Management has a history of successfully integrating acquired businesses, so that’s a good performance sign for fiscal year 2016. The stock was recently trading at a 5 per cent discount to our valuation. The shares were trading at $10.93 on April 14.

HOLD RECOMMENDATIONS

Blackmores (BKL)  
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Chart: Share price over the year

A vitamin and nutritional supplement producer that’s taken advantage of strong Chinese demand for foreign, high quality consumable products. BKN offers a solid earnings base and distribution channels. The joint venture with Bega Cheese to enter the infant formula market leaves BKL well positioned for robust growth during fiscal year 2016 and beyond. We expect positive growth expectations already priced in to be met, and the company could potentially surprise on the upside.

Premier Investments (PMV)
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Chart: Share price over the year

Has a stable of specialty retail brands, with the recent growth pipeline driven by the rollout of Smiggle into the UK.  Management’s revised guidance is to open between 46 to 60 stores a year between calendar years 2017 and 2019. PMV’s expansion into Hong Kong and Malaysia will likely provide a positive catalyst for future growth and justify continuing to hold despite its current full valuation.       

 

SELL RECOMMENDATIONS

WorleyParsons (WOR)
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Chart: Share price over the year

Delivers project management expertise to the energy and resources sectors. The mining downturn has slashed company earnings, and the cycle hasn’t finished. We’re concerned about debt levels and possible earnings declines going forward.  

MYOB Group (MYO)
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Chart: Share price over the year

Provides desktop and cloud based accounting software packages mostly to small and medium sized enterprises. The challenge is to improve profitability despite fierce competition from the likes of Xero and Reckon, which offer similar products. Competition may be great for consumers, but it can be challenging for companies and investors.   

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Darren Jackson, Sanlam Private Wealth 

BUY RECOMMENDATIONS

TikForce (TKF)
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Chart: Share price over the year

A newly listed, disruptive tech stock that’s improving workplace compliance. The company is already close to cash flow positive and has strong sales momentum. The company operates in a similar space to iSignthis (ISX), CVCheck (CV1) and Xref (XF1), which have all been strong recent listings. Sanlam acted as lead manager to the TKF capital raising.

N1 Holdings (N1H)  
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Chart: Share price over the year

An Australian mortgage broker servicing Asian borrowers. We view N1H as a play on strong Asian demand for Australian property. We expect strong growth to continue, aided by the recent launch of Australia’s first Chinese language mortgage comparison website www.chengdai.com.au. Sanlam also acted as lead manager to N1H’s capital raising.

 

HOLD RECOMMENDATIONS

The a2 Milk Company (A2M)
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Chart: Share price over the year

Since our buy recommendation late last year, A2M’s valuation has soared. The company reported strong interim results underpinned by growth in infant formula sales to China, which was the main reason behind our buy recommendation. However, given recent regulatory changes in China to foreign imports and a big increase in valuation, we reduce to a hold.

Burson Group (BAP)
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Chart: Share price over the year

The auto parts company represents growth at a reasonable price. It recently reported strong operating results. Factoring in future growth and quality of earnings explains the high multiple BAP trades on. Last year’s acquisition of Metcash Automotive Holdings appears to be paying off.      

 

SELL RECOMMENDATIONS

Primary Health Care (PRY)
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Chart: Share price over the year

We expect the Federal Government’s Budget in May will aim to reduce the deficit. Health care is a huge government cost that may be cut. PRY depends a lot on government for it revenues. Other stocks appeal more to us. 

Recall Holdings (REC)
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Chart: Share price over the year

This leading document manager and information solutions provider is currently involved in a complex merger transaction with US acquirer Iron Mountain Inc. Given the complexity of the deal, which requires approval from multiple competition regulatory authorities, we see limited upside should the deal go through and significant downside if it falls apart. 

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Gavin Wendt, MineLife

BUY RECOMMENDATIONS

Strike Energy (STX)
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Chart: Share price over the year

Our preferred unconventional energy play, STX is focusing on defining the commercial viability and overall resource of its emerging Southern Cooper Basin Project. It aims to deliver gas under long term supply arrangements to growing markets in eastern Australia. Strike is one of the sector’s few success stories – a reflection of its methodical approach to acreage selection, proximity to energy markets, high levels of exploration activity and securing significant cornerstone gas customers. 

Anova Metals (AWV)
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Chart: Share price over the year

An Australian based junior gold developer, focusing on its Big Springs project in northern Nevada. Since acquiring it in 2013, Anova has steadily progressed towards production status. Final permit approvals are expected in the late second quarter of 2016, with open pit mining set to start in the second half of 2016. Anova’s share price performance reflects the progress it’s making in overcoming often frustrating permit delays.

 

HOLD RECOMMENDATIONS
Gascoyne Resources (GCY)
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Chart: Share price over the year

The company recently released a robust pre-feasibility study for its Dalgaranga gold project. The company has grown its WA gold resource inventory to 2.05 million ounces, comprising three advanced projects located on granted mining leases. 

Aurora Minerals (ARM)
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Chart: Share price over the year

The shares have risen from 2.9 cents on March 3 to close at close at 3.5 cents on April 13. The company is investing in a trio of promising up and coming ASX-listed resource plays, encompassing gold exploration in West Africa and base metals, lithium and graphite in South Korea. It’s trading at a significant discount to its asset backing.

SELL RECOMMENDATIONS

West African Resources (WAF)
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Chart: Share price over the year

The emerging gold producer’s share price has surged from a recent 12-month low of 5 cents in February to finish at 16.5 cents on April 13. In our view, the rapid move reflects the market recognising high grade mineralisation at its Tanlouka project, reinforced by recent diamond and reverse circulation drilling, which potentially could boost overall project economics. But at these price levels, it must be tempting to take some profits.

Pilbara Minerals (PLS)
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Chart: Share price over the year

On December 31, 2015, the shares were priced at 32 cents. The shares hit 60 cents on April 12, 2016 and closed at 55 cents on April 13. In our view, successful exploration, appraisal and pre-production activity on its Western Australian tantalum and lithium resource assets are contributing to the share price rise. The company’s low risk exposure to lithium – a major component in high-tech applications – via its WA Pilgangoora project is a key attraction. We remain positive about the stock, but locking in profits at these levels is worthy of consideration.

 

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