18 Share Tips – 23 January 2017

Boe Campion, Ord Minnett
BUY RECOMMENDATIONS Oil Search (OSH)

We believe Oil Search is best placed to weather weaker commodity prices due to the low cost nature of its assets and via decent organic growth at the Papua LNG project. Despite Woodside Petroleum withdrawing its offer for Oil Search in December 2015, we believe the company’s assets provide corporate appeal to other global oil giants. Corporate Travel Management (CTD)

With a global network now in place, CTD organic growth could begin to surprise on the upside as potential large scale client wins are now within reach. Management remains focused on bolt-on acquisitions, which we haven’t factored into our forecasts or price target. These opportunities provide upside to our price target of $18.54. Having rated CTD as a hold for some time on valuation grounds, we’re taking this opportunity to upgrade to a buy as we see the UK-based Redfern acquisition as transformational. The shares closed at $17.52 on January 19. HOLD RECOMMENDATIONS Spark Infrastructure Group (SKI)

Investments include electricity distribution and transmission assets. We’re positive on the stock, seeing potential catalysts coming from higher distributions and improving operational efficiencies within its newly privatised Transgrid business. Wesfarmers (WES)

Our investment thesis is based on the valuation becoming more attractive following a share price decline. Also, the Coles approach to food retail competition is aggressive yet rational – a positive for all industry players. The Target turnaround is more difficult, yet it provides greater scope for continuing strong growth in Kmart. We expect resources EBIT to increase significantly.  SELL RECOMMENDATIONS Belamy’s Australia (BAL)

We have downgraded the infant formula company to a sell. We see no sales growth, an inventory blowout, declining gross margins, an adverse channel mix and a poor balance sheet. We believe fiscal year 2017 price/earnings multiples are unreasonably high. Platinum Asset Management (PTM)

The fund manager suffered significant outflows in 2016 and is up against increasing competition in the retail space. We see PTM’s flow outlook remaining challenged. We have revised our fiscal year 2017 outflow forecast from $2.2 billion to $2.85 billion, translating to a forecast decline of 6 per cent in fiscal year 2018 earnings per share. Our updated valuation has declined from $5.09 a share to $4.69. The shares closed at $5.09 on January 19.

Matthew Felsman, APP Securities
BUY RECOMMENDATIONS Newcrest Mining (NCM)

Investment fundamentals are all pointing to higher interest rates in the US. Short term, the market appears very long on the US dollar. Any fall in the Greenback will prompt further buying in gold and gold equities. For that reason, we like Newcrest Mining as a short to medium term play. BetaShares Wisdomtree Japan ETF (HJPN)

Several major global indices were recently very bullish, led by the Japanese Nikkei. Our current target for the Nikkei is a test of the 22,000 mark, an increase of more than 10 per cent on the January 19 close. We’re trading this view and buying the Japan ETF. HOLD RECOMMENDATIONS Healthscope (HSO)

The victim of a single poor market update in 2016, we bought the stock after it fell. Increasing demand for hospital care will flow to operators expanding capacity, such as major private hospital companies like Healthscope. Platinum Asset Management (PTM)

PTM had a very tough 2016, courtesy of a weaker performance and reasonably high fund outflows during the year. Given the current global market environment and the stock’s recent relative value of about 15 times earnings, we see the potential for a higher re-rating. SELL RECOMMENDATIONS Origin Energy (ORG)

We’re positive on oil in the short term after OPEC agreed to cut supplies. However, too much of the market is positioned long on oil, leaving little room for error. In our view, that paints a bearish scenario for the next one to two years. Origin’s share price has almost doubled in the past year, so we believe it’s a good time to sell into strength. Woodside Petroleum (WPL)

The oil and gas giant remains technically positive while it trades above $30. But if we were long, we would sell into any reasonable strength. We’re bearish on the sector for the next one to two years. Woodside was trading at $31.98 on January 19.
Michael Wayne, KOSEC
BUY RECOMMENDATIONS
Amaysim Australia (AYS)

Targets customers wanting to spend $40 or less on their mobile phone plan. AYS has developed a user friendly online model, enabling customers to automatically port numbers and transfer sim cards without speaking to support staff. Not only is this clearly desirable from a customer satisfaction perspective, but an automated point of purchase helps lower costs and protect profit margins. Free cash flow is impressive at $32 million, once adjusted for one off items, such as the Vaya acquisition and IPO expenses. The business is capital light, with a recurring revenue model that we feel can propel future growth.
Hansen Technologies (HSN)

A billing systems and customer care software provider that operates in Australia, the US, the UK and 37 other countries. Its plan of attack in 2017 is to service and maintain relationships with existing clients, generate new business through its best of breed offering and target acquisitions to complement organic growth. It offers a strong sales team and competitive pricing points. It also has a robust capacity to retain clients by offering high levels of service.
HOLD RECOMMENDATIONS
Seek (SEK)

This leading online job classifieds provider in Australia and New Zealand increasingly sees itself as a global player by operating in 17 countries. While the company’s domestic dominance is impressive, it’s the offshore expansion strategy that presents shareholders with the most interesting opportunities. Seek has bought minority stakes in dominant online sites where internet usage rates are growing.
Altium (ALU)

Develops and sells computer software and hardware used to design electronic products for large corporations, such as Siemens, ResMed, Bose and CSIRO. Supporting the Altium success story is a competitive pricing model, enabling it to undercut several rivals in the space. This should attract new customers over the medium term and it also acts to support retention.
SELL FRECOMMENDATIONS
Flight Centre (FLT)

This former market darling is still a fundamentally sound business, but earnings growth has started to stagnate in the face of several challenges. The company last year downgraded guidance three times in 18 months after losing market share to online players, such as Webjet and Expedia. We expect this trend is likely to continue as the company looks to develop a blended online and physical delivery model that offers both the convenience of the internet and the service of human interaction. Another issue has been deflation in the cost of overseas travel. For example, a flight to London is now 40 per cent cheaper than three years ago and its constraining margins.
Wesfarmers (WES)

While retailers, such as Bunnings, Officeworks and to a lesser extent Coles are performing well, the agribusinesses are struggling. Therefore, it tends to be a zero sum game where earnings stagnate and the share price essentially trends sideways. We’re unclear about what will drive future growth, as Wesfarmers is a mature business.

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