18 Share Tips – 25 July 2016

Mathan Somasundaram, Baillieu Holst BUY RECOMMENDATIONS Senetas Corporation (SEN)

We believe SEN is well placed to benefit from increasing data requirements and from businesses and governments focusing more on cyber security. The introduction of new products, the expansion of the Gemalto sales force and research and development returning towards normal levels give us increasing confidence that earnings will show strong growth in fiscal years 2017 and 2018. Our analyst Luke Macnab’s price target is 20 cents. The shares finished at 13 cents on July 20. SpeedCast International (SDA)

We believe this satellite communications service provider is a quality medium term growth stock, offering good value at current levels. It was recently trading on a fiscal year 2017 price/earnings ratio of 12.3 times, with a three year compound annual growth rate of 26 per cent in earnings per share. Any acquisitions would add further upside to our target price. Our analyst Luke Macnab’s price target is $4.87. The shares closed at $3.69 on July 20. HOLD RECOMMENDATIONS

Collins Foods (CKF)

We downgrade our recommendation to a hold as we see limited margin upside within the KFC business, margin headwinds at Sizzler and tougher competition. On a more positive note, we rate management execution highly and note acquisition risks remain to the upside.  Domino’s Pizza Enterprises (DMP)

We upgrade earnings ahead of guidance, but retain our recommendation on valuation grounds. The stock was recently trading on a forecast fiscal year 2017 price/earnings ratio of 42 times, with 29 per cent earnings per share growth.  SELL RECOMMENDATIONS Doray Minerals (DRM)

We have downgraded short term earnings due to our higher than forecast costs in a recent quarter. Our earnings estimates at the Deflector gold/copper deposit from fiscal year 2017 onwards have been reduced due to a decrease in forecast copper prices. Our valuation has fallen 7 cents a share to 60 cents. The shares closed at $1.115 on July 20. Saracen Mineral Holdings (SAR)

Our earnings forecasts for this gold producer have increased 1 per cent in fiscal year 2016 to $125.7 million and 5 per cent in fiscal year 2018 to $138.5 million. The key driver is lower costs at both operations. We retain a sell recommendation, as we’re still unable to generate a valuation which reflects recent share trading levels. Our analyst Warren Edney has a price target of $1.25. The stock closed at $1.70 on July 20.

Peter Moran, Wilson HTM
BUY RECOMMENDATIONS
Vocus Communications (VOC)

Vocus has cemented its position as a growing telecommunications provider with the recent purchase of NextGen Networks and two development projects. The acquisition covers the missing link in VOC’s Australian infrastructure network. Management is forecasting to extract significant synergies from the transaction, contributing to already strong growth expectations. National Australia Bank (NAB)

We have upgraded NAB to a buy on valuation grounds. We expect a total return (including dividends) of 20 per cent during the next 12 months. While we recognise earnings growth will be subdued as bad debts lift off historically low levels, we believe this is already factored in the share price. Over the longer term, NAB will benefit from growth in its market leading business banking franchise. After recent divestments, the de-risked bank deserves a re-rating. HOLD RECOMMENDATIONS
BlueScope Steel (BSL)

BlueScope outlined that second half 2016 EBIT was 26 per cent ahead of‎ guidance provided in May 2016. The main drivers for the upgrade were higher margins in the US and increases in Asian steel prices. We believe this has also resulted in improving Australian steel margins. Given the share price rally following the announcement, we see the company as fairly valued. Woodside Petroleum (WPL)

Woodside is Australia’s largest LNG supplier, with its North West Shelf and Pluto projects contributing significant earnings and cash flow, while underpinning dividends. However, despite several small acquisitions, such as the 35 per cent stake in offshore Senegal, Woodside’s growth projects remain long term. We view the company as fully valued.    SELL RECOMMENDATIONS
DuluxGroup (DLX)

At recent prices, Dulux was trading on a forecast 2017 price/earnings ratio of almost 20 times. The property boom can’t last forever, so we believe growth is going to be more difficult to find. The P/E is far too high for Dulux.  Western Areas (WSA)

Western Areas had recently spiked about 40 per cent in the past month in response to a higher nickel price. The Philippines supplies 20 per cent of the world’s nickel. The price jumped on concerns there would be production cut in the Philippines. We can’t see the nickel price rising much more in the near term, so we believe the WSA share price is overvalued.

Gavin Wendt, MineLife
BUY RECOMMENDATIONS
Sipa Resources (SRI)

Sipa’s share price looks to have bottomed in March at 0.014 cents. Since then, strong trading volumes have coincided with a steadily increasing share price. Sipa will start maiden drilling at its Obelisk prospect in WA’s Paterson province during August. It represents an extensive primary copper/gold anomaly and lies immediately north of Antipa Minerals’ (AZY) magnum and citadel copper/gold projects, which are generating strong market interest. The shares closed at 0.022 cents on July 20.
Metalicity (MCT)

A rapidly emerging zinc and lithium play after acquiring the large and advanced Admiral Bay zinc project in WA during late 2014. It’s also acquired prospective lithium and tantalum tenements in WA’s Pilbara region. Its flagship project area lies just 5 kilometres south west of major lithium and tantalum deposits identified within Pilbara Minerals’ (PLS) Pilgangoora project. The company is set to release a scoping study for Admiral Bay within a month.
HOLD RECOMMENDATIONS
St George Mining (SGQ)

The company has captured the market’s attention in recent months upon starting maiden diamond drilling at its Mt Alexander project in WA. It’s testing highly prospective and massive nickel/copper sulphide targets. Drilling is taking place at its Cathedrals, Stricklands and Investigators prospects where highly prospective electromagnetic targets exist. A new diamond drilling program has started to test mineralised ultramafic within the Cathedrals Belt, which are now interpreted to extend intermittently for more than 3 kilometres.

Altech Chemicals (ATC)

The company is generating strong market interest after recently completing a bankable feasibility study on its proposed high purity, alumina specialty chemicals operation. It’s now focusing on project permits and funding the $100 million capital required to ensure project development. It retains an exclusive mandate with KfW IPEX-Bank, a leading German export and project finance specialist. It recently welcomed major Malaysian investor group, MAAG, as a major shareholder.
SELL RECOMMENDATIONS
West African Resources (WAF)

The company continues to report high grade gold mineralisation from appraisal drilling at its M1 prospect, which forms part of its Tanlouka Gold Project in Burkina Faso. Gold mineralisation exists to a depth of 174 metres – the deepest hole drilled so far. Investors who bought the stock at much lower levels may want to consider locking in some profit around current prices. The shares closed at 22.5 cents on July 20.  Oklo Resources (OKU)

The company recently announced further high grade gold mineralisation from drilling at its Diabarou prospect in Mali, where work has been undertaken to assess the open pit resource potential. The latest results include high grade intercepts of up to 98.80 grams per tonne gold, enhancing prospects for an initial JORC compliant resource estimate. Given the company’s recent strong share price performance, some investors may want to lock in some profits at these levels. The shares finished at 19 cents on July 20.

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