Jeremy Hook, TMS Capital
BUY RECOMMENDATIONS
CSL (CSL)
Chart: Share price over the year
Despite a strong share price performance since its profit upgrade in January, we see continuing upside for Australia’s leading health care company. CSL generates a massive 49 per cent return on equity and was recently trading at 27 times forecast 2018 earnings.
Blackmores (BKL)
Chart: Share price over the year
This vitamins and supplements company has a growth platform in Asia, particularly China, which should lift sales going forward. A strong market position and a trusted brand combine well with upside to valuation and a recently solid 3.7 per cent dividend yield. Offers a bright outlook.
HOLD RECOMMENDATIONS
BHP Billiton (BHP)
Chart: Share price over the year
The mining giant had a great 2016, but has fallen with a lower iron ore price since February. US Hedge fund Elliott Management recently provided a challenging value proposition for a break up. Closing at $23.65 on April 20, BHP remains a good hold. We see BHP adding value and growing its dividend, which, together with capital management initiatives, will deliver results in the years ahead.
REA Group (REA)
Chart: Share price over the year
This online property specialist is one of our favourite plays in the Australian market, but we have paused our buying given recent strength. It has a tremendous market position, excellent margins and a great return on equity. We will buy again on weakness.
SELL RECOMMENDATIONS
Brambles (BXB)
Chart: Share price over the year
We believe BXB is at risk of further downgrades as earnings in its pallet division have experienced unexpected pressures. We believe analysts’ forecasts remain too high in the face of near term challenges. We suggest selling and waiting for a positive signal to re-establish a position in this logistics major.
DuluxGroup (DLX)
Chart: Share price over the year
The paint company has been a solid performer in recent years. But given we expect slower earnings growth, the stock looks a little expensive. We expect DLX to underperform the market from this point and believe there’s better value elsewhere.
Peter Moran, Wilsons
BUY RECOMMENDATIONS
Ridley Corporation (RIC)
Chart: Share price over the year
We have increased our valuation for Ridley following positive trial results for its Novacq product. Novacq is a feed additive developed by the CSIRO and used in prawn farming, which improves growth and survival rates. The recent commercial scale trial at Mackay in Queensland confirmed a 37 per cent improvement in prawn survival rates. Earlier trials have consistently demonstrated growth rate improvements of about 40 per cent or more. While further product trials will be conducted in Thailand in coming months, we now have enough confidence in Novacq to increase RIC’s valuation by 39 cents a share.
Select Harvests (SHV)
Chart: Share price over the year
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We believe the breaking of the Californian drought is now priced into the SHV share price, with current almond prices supported by fundamentals. Expect SHV to increase almond production by about 50 per cent over the next seven years, driving more significant earnings growth. The recent share price correction and rebasing of consensus provide an attractive entry point for investors.
HOLD RECOMMENDATIONS
Bank of Queensland (BOQ)
Chart: Share price over the year
In our view, the bank reported a soft first half 2017 result, with cash net profit after tax 1.6 per cent below our expectations at $175 million. BOQ saw weakness in both net interest income and non interest income. The net interest margin fell by 5 basis points on the prior half as it continued to be impacted by funding cost pressures. Management is expecting a recovery in the next half. BOQ has underperformed its peers in recent months and is trading at our valuation.
Woodside Petroleum (WPL)
Chart: Share price over the year
In addition to the large Pluto and North West Shelf LNG projects, WPL has upside potential from offshore investments (Myanmar and Senegal) as well as exposure to the Scarborough and Wheatstone gas fields. However, these projects are long dated and the recent share price rally has been more about higher oil prices. We expect increased US shale production will limit the pace of growth in the oil price. Hold at current prices.
SELL RECOMMENDATONS
Bendigo and Adelaide Bank (BEN)
Chart: Share price over the year
Bendigo and Adelaide Bank recently increased variable rates by 0.25 per cent for investment home loans. But we don’t believe it will solve softer owner-occupier loan growth. Investment lending has been positive, hence the increase in investment loan rates. However, our research shows that overall lending growth in recent years has been consistently below the sector. We see BEN’s shares as overvalued at current levels and prefer to invest elsewhere.
Metcash (MTS)
Chart: Share price over the year
Metcash has worked hard in recent years to cut costs and reduce prices. As a result, Metcash sales stabilised. However, we believe market share loss at Woolworths was a key driver. Now, Woolworths is recovering and Coles continues to cut costs. So, we believe sales at Metcash could resume their decline.
Gavin Wendt, MineLife
BUY RECOMMENDATIONS
Minotaur Exploration (MEP)
Chart: Share price over the year
Represents one of our most respected exploration plays, with Sprott Group a 12.63 per cent shareholder. Importantly, the 2017 exploration field season is about to start. In a 2016 joint venture, gold and copper producer OZ Minerals (OZL) funded $2.1 million of exploration expenditure on Minotaur’s 100 per cent owned Eloise tenements. Oz Minerals is farming into Minotaur projects and could potentially fund up to $10 million of exploration over six years, for which it can earn a 70 per cent beneficial interest in the overall tenement package.
Sipa Resources (SRI)
Chart: Share price over the year
The company is engaged in high impact exploration activity on two fronts. Firstly, SRI is set to start a second drilling campaign at its Obelisk prospect in Western Australia, which represents an extensive primary copper-gold anomaly, situated immediately north of Antipa Minerals’ magnum and citadel copper-gold projects. Secondly, the company has also undertaken exploration drilling at its Kitgum Pader base metal project in Uganda, expanding the footprint of the discovery and confirming a large mineralised system.
HOLD RECOMMENDATIONS
Sheffield Resources (SFX)
Chart: Share price over the year
The company’s flagship Thunderbird mineral sands project in Western Australia represents one of the largest undeveloped zircon-rich mineral sands projects anywhere in the world. It’s also high quality. Expect strong market interest during 2017 as discussions take place with heavyweight funds and other potential investors, domestically and internationally. SFX is targeting first production during 2019.
Thundelarra (THX)
Chart: Share price over the year
The company offers investors exposure to a prospective asset base in Western Australia, with a strong focus on gold and copper. The company’s overwhelming focus is on its Garden Gully exploration project, located within the Doolgunna region. Initial drilling results have been highly encouraging, suggesting an initial potential gold deposit of several hundred thousand ounces, which could be immediately commercialised via various regional toll treatment options.
SELL RECOMMENDATIONS
Newcrest Mining (NCM)
Chart: Share price over the year
As Australia’s largest gold producer, the share price has performed solidly since December last year, with gold prices remaining strong, particularly in Australian dollars. It’s probably prudent for some investors to consider taking some profits given the recent production interruption related to seismic events at the company’s Cadia gold mine in NSW. In my view, there’s also lingering concerns over the company’s production profile, which still relies heavily on the problematic Lihir operation in Papua New Guinea.
Woodside Petroleum (WPL)
Chart: Share price over the year
Australia’s largest independent petroleum company has enjoyed a strong share price run since October 2016, so it might be time to consider locking in some profits. The oil price has recovered solidly in line with OPEC production cuts. But the near term danger lies in recovering US shale production, which threatens to cause an oversupply that leads to lower crude oil prices. This could directly impact Woodside’s earnings and share price performance.
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.
