Warwick Grigor, Far East Capital
Base Resources (BSE)
Even though BSE has done well in commissioning its Kwale mineral sands project in Kenya, the market’s been slow in giving it recognition. This was largely due to institutional shareholders bailing out, but that selling has finished. There’s a new, supportive institutional shareholder and the share price is improving. Ilmenite prices have increased by 50 per cent recently and forecast profitability looks much better.
Finders Resources (FND)
Finders has successfully commissioned its 25,000 tonnes per annum Wetar SX-EW copper treatment plant in Indonesia, achieving low cash costs at $US1.11 a pound in the latest quarter. FND restructured its hedge book, releasing $US42 million to reduce debt levels to about $US101 million. After a frustratingly long lead time to production, it’s now performing well. We expect the shares to rise as the news spreads.
Broken Hill Prospecting (BPL)
Cobalt is becoming increasingly recognised as an essential element in manufacturing lithium-ion batteries, but future supply is uncertain because more than half of world production comes from the Democratic Republic of the Congo. Elsewhere, co-product mines have been closing, so supply is shrinking. We expect BPL shareholders to benefit from the Thackaringa cobalt-pyrite project located near Broken Hill, NSW.
Even though gold prices have been under pressure lately, Pantoro has held up well due to an impressive operational performance at its Nicolsons gold mine in WA. The plant is undergoing expansion to accommodate ore from new open pits. Shareholders should back management and the geology. Irrespective of gold price movements, we suggest investors hold for continuing growth.
Hexagon Resources (HXG)
The market is overcrowded with flake graphite stocks and, in our view, this is one of many with only marginal merit. The shares have risen from 7.8 cents on May 6 to trade at 27 cents on November 3 without any discernible news flow. In our view, the ore body in WA is towards the end of the queue in terms of potential development. The company looks expensive with a market capitalisation recently exceeding $70 million.
Syrah Resources (SYR)
The rapid departure of managing director Tolga Kumova recently has left many unanswered questions. You don’t ordinarily retire an MD in the middle of constructing a processing plant, so we’re left wondering. Apart from this uncertainty, the shares have fallen from grace and look like heading lower as the litmus test of mine commissioning approaches in 2017.
Disclosure: Interests associated with the author have a relevant interest in the shares of Broken Hill Prospecting and Pantoro.
Michael Wayne, KOSEC
MNF Group (MNF)
MNF is an emerging company within the telecommunications sector. The most recent report demonstrated that the business has bounced back strongly after a lacklustre 2015. Revenue grew 88 per cent on the prior year to $161.2 million, significantly surpassing market expectations. Fundamentally, MNF ticks all KOSEC boxes, with revenue, earnings per share, dividends per share and cash flow all increasing each year for the past six years. The founder of MNF is still a significant shareholder and much involved in the daily operations of the company, which ensures investor interests are aligned with those of management.
Altium is engaged in developing and selling computer software used by BMW, NASA, Cochlear and Microsoft to design plastic circuit boards. Its latest report showed operating revenue increasing 16.7 per cent to $93.5 million. EBITDA increased by 21 per cent, signalling an expansion in the EBITDA margin from 28.3 per cent to 29.3 per cent. It’s well on track to achieve its target of 30 per cent by 2017.
The private health care provider remains an attractive long term prospect in our opinion. Across the business, capital expenditure is expected to ramp up even further, resulting in a significant increase in the number of beds and operating theatres by the end of fiscal year 2018. This should generate increasing revenue and earnings for years to come.
Hansen Technologies (HSN)
The core business supplies billing systems and customer care software to service providers within the energy, pay TV and telecommunications sectors. It’s also involved in IT outsourcing services. Organic growth has been the underlying driver of operating revenue increasing 40 per cent on the previous year to $148.9 million. The acquisition of TeleBilling contributed to net profit after tax increasing by 54 per cent to $26.1 million. Not only does this expand Hansen’s reach, but it presents an opportunity to grow revenue per customer and extend margins by cross selling products.
Estia Health (EHE)
The financial pressure is on aged care providers because it’s getting harder to receive grants from aged care funding instruments. Some estimates reduce aged care funding instruments by up to 15 per cent per resident, per day. Any significant reduction in aged care funding instruments may have a negative impact on company earnings and share price performance.
Bunnings, Officeworks and to a lesser extent Coles are performing well. However, coal and its agribusinesses are struggling. Therefore, it tends to be a zero sum game where earnings stagnate and the share price essentially trends sideways. Wesfarmers is a mature business and we’re unclear about what will drive future growth.
Mathan Somasundaram, Baillieu Holst BUY RECOMMENDATIONS IPH Limited (IPH)
IPH is the holding company for intellectual property and associated companies. Notwithstanding the looming escrow related share sell down from November 19, 2016, our buy recommendation is based on a solid growth outlook and quality management. Our analyst Nick Caley has a price target of $7.05. The shares closed at $5.92 on November 2. Select Harvests (SHV)
We have upgraded to a buy based on supportive industry feedback and expectations of improving market dynamics. The stock is trading on an attractive forecast fiscal year 2017 price/earnings multiple of 11.6 times amid forecasts of 34 per cent earnings per share growth and a dividend yield of 5.3 per cent. However, earnings risks remain high due to almond price sensitivity. Our analyst Josh Kannourakis has a price target of $7.15. The shares finished at $6.06 on November 2. HOLD RECOMMENDATIONS Hansen Technologies (HSN)
This customer care and billing services provider offers investors exposure to low risk revenue streams through its long term sticky customer relationships and excellent cash flow. Potential upside exists after a three year period of faultless acquisition execution and integration. EQT Holdings (EQT)
New leadership has acted quickly to improve the foundations and focus of this trustee company. The growth outlook is improving. On a current forward multiple, we regard its valuation as fair.
SELL RECOMMENDATIONS Harvey Norman (HVN)
Retail competition is fierce. We retain a negative view on discretionary retail given shoppers are more careful about spending in an environment of rising household costs. We believe stiffer competition in white goods is likely to pressure HVN margins.
Monadelphous Group (MND)
This engineering company was recently trading on a forward multiple premium to the sector. For us, future construction earnings post fiscal year 2017 remain unclear. Our analyst Josh Kannourakis has a price target of $6.85. The shares finished at $8.82 on November 2.
>> BACK TO THE NEWSLETTER: Click here to read other articles from this week’s newsletter
Please note that TheBull.com.au simply publishes broker recommendations on this page. The publication of these recommendations does not in any way constitute a recommendation on the part of TheBull.com.au. You should seek professional advice before making any investment decisions.