Daniel Han, Alpha Securities
The share price reached a 12 month high of $121.25 on July 25, 2016. The share price briefly fell below $100 in mid September. We believe this was a market response to less than expected net profit after tax growth. The shares were trading at $108.97 on September 29. We expect more upside as this global blood products company is a proven performer and well managed. Bapcor (BAP)
This automobile parts distributor posted excellent full year results, with revenue up 82.7 per cent to $685.6 million and earnings per share increasing 31 per cent to 17.85 cents. The business is strong and profitable and we expect it will continue to operate successfully going forward. HOLD RECOMMENDATIONS
Northern Star Resources (NST)
This gold miner’s share price was $5.86 on July 7, 2016. On September 29, it was trading at $4.75. We believe uncertainty surrounding US interest rates is mostly behind the share price decline. We expect further uncertainty to continue until after the presidential election. The company is a good hold given its profitable business model and relatively low operating costs compared to its peers. Aristocrat Leisure (ALL)
This gaming machine company was recently trading at 37 times earnings and looks expensive at these levels. But it posted a top 2016 first half result with statutory net profit after tax up 105 per cent to $159.1 million. Management expects a good second half. Although the share price may stall at these levels, we believe the stock is a hold. SELL RECOMMENDATIONS
Provides commercial explosives and blasting systems to the mining, energy and construction sectors. The share price has suffered in the past few years in response to declining demand from the global resources sector. We expect the resources sector to remain subdued in the short to medium term. Alumina (AWC)
Invests in bauxite mining and alumina refining via a joint venture with Alcoa. For months, the stock appears to be range bound between $1.20 and $1.50. Alumina prices remain under downward pressure amid what has been slowing exports. We feel there are better opportunities to pursue in the short term.
Matthew Litchfield, PhillipCapital
BUY RECOMMENDATIONS Tesserent (TNT)
This internet cyber security firm provided a positive investor update in August after revenue increased 30 per cent year-on-year. We expect the business to rapidly ramp up commercialisation of its product, particularly with the new sales and marketing team in place. Transurban Group (TCL)
We believe the toll road operator has fallen to attractive price levels after hitting a six month high of $12.65 on August 1. It’s generating defensive and growing revenues from its toll road activities. Growing distributions are also attractive in the current low interest rate environment. The shares closed at $11.44 on September 29. HOLD RECOMMENDATIONS Emerchants (EML)
A leader in pre paid payments technology, Emerchants continues to perform well. The company is leveraging off its key customers, including Ladbrokes and Bet365. We’re also expecting further customer announcements in the short term, particularly from its offshore operations in the UK and US. Ramsay Health Care (RHC)
Ramsay delivered a solid full year report with core net profit after tax of $481.4 million, up 16.8 per cent on the previous period. The private hospital group has also guided for fiscal year 2017 profit growth of between 10 per cent and 12 per cent, which is solid in what could be considered a low growth environment. Its growth strategy for brownfield developments and new pharmacy stores to care for customers outside the hospital walls will continue to fuel growth. SELL RECOMMENDATIONS Origin Energy (ORG)
Origin is currently trading above our fair value estimate. We believe it’s a good time to exit this underperformer given oil price volatility. Furthermore, Origin scaled back guidance after underlying profit fell by 40 per cent. We see better opportunities elsewhere. Medibank Private (MPL)
I still believe it’s time to move on from Medibank as there are better opportunities for growth and dividends elsewhere. The Australian Competition & Consumer Commission alleges the insurer engaged in misleading conduct by failing to notify members of changes to benefits in 2014. Medicare refutes claims from the ACCC. However, another risk is a potentially growing policy lapse.
Peter Moran, Wilsons
AGL Energy (AGL)
The AGL share price has fallen sharply in recent months in response to an uninspiring result and investors moving away from yield and defensive plays. We see this pull back as a good opportunity to buy AGL at attractive prices. Decreasing capital expenditure requirements and asset sales have resulted in net debt falling by $811 million. In response, AGL has announced an on market buy back of up to 5 per cent of its stock, just below $600 million. Additionally, AGL will target a 75 per cent dividend payout ratio starting from fiscal year 2017. Applying AGL’s new guidance of a 75 per cent dividend payout ratio to our fiscal year 2017 earnings forecasts implies a dividend of 84 cents a share. National Veterinary Care (NVL)
This veterinary services provider’s first full year results since listing beat prospectus numbers. NVL has made 15 acquisitions in the past 12 months, including a recent entry into the New Zealand market. Expect earnings per share growth of 23 per cent for fiscal year 2017. Recently trading on a price/earnings ratio of 15 times, we retain our buy recommendation. HOLD RECOMMENDATIONS
Medibank Private (MPL)
The private health insurance company announced it would be spending $40 million over three years to provide members with a free annual dental check-up, with possibly more similar announcements to follow. However, the Australian Competition & Consumer Commission alleges the insurer engaged in misleading conduct in 2014 for failing to notify members it would limit benefit payments for in-hospital pathology and radiology services. Medibank refutes the claims made by the ACCC. Although the share price is trading at a discount to our valuation, the cost of repairing the Medibank brand remains a concern. Elders (ELD)
Elders is accelerating plans to exit live exports following a review of the business. We expect earnings per share to increase between 3 per cent and 10 per cent. Assuming a broadly successful exit from live exports, we forecast a reduction in gearing to more acceptable levels. With the shares trading close to our target price of $4.02, we retain a hold recommendation. The shares were trading at $3.85 on September 29. SELL RECOMMENDATIONS
IVC owns and operates funeral homes, cemeteries and crematoria in Australia, New Zealand and Singapore. It’s a defensive business that’s performed well over time. However, recent share price gains left it trading on a price/earnings ratio of 27 times. The P/E is too high, in our view, for a company with only single digit growth.
Cimic Group (CIM)
While this company, formerly known as Leighton Holdings, has a strong order book and is in a net cash position, we’re concerned about execution risk of mega contracts it’s been awarded. The share price has fallen about 30 per cent since its half year profit result. In our view, it was a disappointing result. We’re forecasting only 2 per cent annual growth for the next five years and believe the company is still overvalued.
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