Jeremy Hook, TMS Capital
BUY RECOMMENDATIONS Amcor (AMC)
This global packaging giant has been a strong performer in recent years and we expect further growth in the future. With a solid fiscal year 2016 behind it amid a strong return on equity, the outlook is bright. Trading on undemanding multiples, it should continue rising towards $17. The shares were trading at $15.84 on August 25. CSL (CSL)
The blood products giant reported a solid fiscal year 2016 profit without delivering the short term earnings growth that would excite the market and drive the stock higher in coming weeks. We think the sleeper for this business is China. The Chinese market could be a potential reward for holding after an already strong share price performance this financial year. A quality business representing good long term value. HOLD RECOMMENDATIONS Wesfarmers (WES)
Chart: Share price over the year
The industrial conglomerate is performing well in its key divisions of home improvement and supermarkets. WES has been a preferred stock for some time due to its focus on shareholder returns above all other considerations. Chief executive Richard Goyder and chairman Michael Chaney are among the best and most responsible managers in Australian business. WES offers a strong balance sheet and a healthy and rising grossed up dividend yield. It will enhance portfolio income, and we expect it to perform solidly going forward. InvoCare (IVC)
IVC owns and operates funeral homes, cemeteries and crematoria in Australia, New Zealand and Singapore. More recently, it’s expanded operations to the US. IVC also operates a substantial quasi funds management operation through its $400 million plus pre paid funerals business. Inevitability, with an ageing population in the countries it operates, IVC should benefit from growing, consistent revenue and the scalable nature of its assets. A quality company that’s fairly priced. SELL RECOMMENDATIONS AMP (AMP)
AMP is a chronic underperformer and continues to represent less value than alternative stocks in the diversified financial sector. On our numbers, its return on equity is lower than other listed fund managers by some margin, and its various other businesses are outflanked by competitors. Its first half result was unimpressive. There’s better value elsewhere. The stock was trading at $5.44 on August 25. Bank of Queensland (BOQ)
BOQ has recorded good growth during the post GFC years. It expanded from its Queensland base to the southern states via its franchise model. The theory was based around diversifying away from the more volatile nature of property investment in Queensland, a state heavily dependent on cyclical industries, such as mining and tourism. This has been partly successful. However, compared to the majors, this regional bank has reduced access to wholesale funding markets, which results in higher costs and lower margins. BOQ is trading at a premium to our valuation and it’s a smaller player in a sector that rewards scale.
Mathan Somasundaram, Baillieu Holst BUY RECOMMENDATIONS APN Outdoor Group (APO)
We retain a buy rating despite unexpected weaker advertising demand leading to a guidance downgrade. We believe the company will bounce back, as the fundamentals of the outdoor media structural growth story remain intact. The share price reaction provides a more reasonable entry point for investors. Our analyst Nicolas Burgess has a price target of $6.80. The shares were trading at $4.87 on August 25. Infomedia (IFM)
The global sales opportunity for this automotive software provider remains substantial. The strategy briefing provided comfort in that bottlenecks in selling and delivering the product are being addressed, although ongoing patience is likely to be required on the revenue front. We retain a high risk rating on the stock to account for the recent poor execution track record, while acknowledging a change in senior management.
HOLD RECOMMENDATIONS GBST Holdings (GBT)
Although the outlook for this financial software provider is improving, fiscal year 2017 shapes as one of consolidation before potential growth emerges the following year. The company remains well capitalised, with net cash of $8.8 million at June 30. We regard the forecast fiscal year price/earnings multiple of 17.7 times as close to fair value. Nicolas Burgess has a price target $4.10. The shares were trading at $4 on August 25. Select Harvests (SHV)
A vertically integrated nut and health food company. We see further upside risks to pricing as US retail pricing resets in coming months. But, on balance, we believe the valuation margin of safety has narrowed. The stock was recently yielding 4.2 per cent. Our analyst Josh Kannourakis has a price target of $6.65. The shares were trading at $6.745 on August 25. SELL RECOMMENDATIONS Panoramic Resources (PAN)
We don’t expect PAN will re-open its Savannah nickel mine until fiscal year 2018 despite indications that planning has started. The Philippines potentially ceasing exports of nickel laterite wouldn’t necessarily solve the global supply and demand imbalance. Our analyst Warren Edney has a price target of 12 cents. The shares were trading at 23 cents on August 25. Saracen Mineral Holdings (SAR)
Following consistent cost performance in the past two quarters at Carosue Dam and a better than forecast start up at the Thunderbox operation, we have brought our forecast costs down towards company guidance. We’re still unable to generate a valuation equivalent to recent share trading levels. Our analyst Warren Edney has a price target of $1.25 for this gold company. The shares were trading at $1.53 on August 25.
Daniel Han, Alpha Securities
Transurban Group (TCL)
This toll roads operator has $9 billion of development projects in the pipeline to keep it growing. Although the stock was at fair value near its recent peak, it’s since fallen to attractive levels for short term upside. The shares were trading at $11.90 on August 25. Scentre Group (SCG)
The retail landlord is on track to deliver growth as expected for the 2016 full year. Expect strong retail demand to be retained as a result of a lower interest rate environment, which we anticipate will be reflected in the share price. HOLD RECOMMENDATIONS
Treasury Wine Estates (TWE)
The company more than doubled net profit after tax and earnings per share for the 2016 full year. It posted NPAT of $179.4 million and earnings per share of 25.1 cents. The business is expected to remain stable, as management has ensured future cash flow security by storing a large number of luxury wines. We expect the share price to hold around these levels. The shares were trading at $11.30 on August 25. ResMed (RMD)
The medical device maker is seeking growth via acquisition. It recently added health care and technology company Brightree to its stable. We expect the share price to hold at these levels for some time while it extracts synergies from the acquisition. SELL RECOMMENDATIONS
BHP Billiton (BHP)
The global miner posted a statutory net full year loss of $US6.38 billion for the 12 months to June 30. Weaker commodity prices had an impact. Net debt of $US26.1 billion remains too high. The final dividend was slashed to US14 cents a share. Too much uncertainty going forward. Platinum Asset Management (PTM)
Recent full year results show profit after tax was down 6 per cent to $200.9 million. Average funds under management dropped 1 per cent to $25.8 billion. Fee revenue fell 1 per cent to $337.9 million. Prefer others for value going forward.
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