Peter Rudd, Balnave Capital Group
APA Group (APA)
Australia’s largest natural gas pipeline operator, APA Group’s 10,000 kilometres of trunk and spur lines deliver almost half the nation’s daily gas requirements. Regulated income is enhanced by ongoing incremental expansions to the network to cater for ever-increasing gas demand.
Platina Resources (PGM)
Evaluating its platinum group metals and gold deposit at Skaergaard on Greenland’s east coast, an independent scoping study found that a new underground mine at the site could be feasible. Any success in delineation drilling of a potentially higher-grade gold zone could boost project economics.
Sims Metal Management (SGM)
Sims is the world’s largest listed metal recycler employing 5500 people at 230 facilities across North America, the UK, continental Europe and Australasia. Annual revenue is an impressive $8.6 billion. Global economies will eventually return to traditional growth rates. The company is cautiously optimistic that its 2010 financial results will improve.
Peninsula Minerals (PEN)
A potential uranium producer from leases held at Namibia in southern Africa and the US state of Wyoming. The group recently appointed a highly experienced consultant, who previously brought on stream one of Australia’s newest uranium mines – Honeymoon well in South Australia. Fast tracking of the US project could see production within several years.
David Jones (DJS)
A winding down of the Federal Government’s cash stimulus has already reduced discretionary consumer spending, while higher interest rates in future could have a further impact. Heavy Myer advertising spending, associated with its planned ASX listing, could divert investor attention away from David Jones in the short-to-medium term.
Macquarie Office Trust (MOF)
Asset sales leading to reduced debt and a stronger balance sheet have improved the company outlook. Together with a stronger broader market, the share price has more than doubled from earlier this year when recommended as a buy. However, with fewer investment properties in its portfolio, the group’s rental income is expected to be lower and this could reduce the level of future distributions to shareholders.
Ben Potter, RBS Morgans
AGL Energy (AGK)
The share price of Australia’s largest retail gas provider has under performed the broader sharemarket by almost 20 percent, reflecting a shift from defensive to cyclical investments over this period. However, with a very stable earnings outlook and new desalination contract wins in Victoria and South Australia, we believe the stock offers compelling value.
Tabcorp Holdings (TAH)
Tabcorp has made a significant commitment to build its casino division by investing $575 million in Star City. Both gaming and non-gaming capacity will substantially increase at Star, with the gaming floor increasing by more than 50 per cent. A fully franked dividend yield of 9.3 per cent supports the current share price.
Arrow Energy (AOE)
Arrow Energy has positioned itself as a major participant in Queensland’s coal seam gas provinces. The recent strong share price run has been attributed to rumours of a takeover bid from Royal Dutch Shell. Our sum-of-the-parts valuation is $4.75 a share.
Toll Holdings (TOL)
The transport logistics giant is in a sound financial position, with underlying profit up 14 per cent to $298 million and a balance sheet with $1.6 billion in cash. Its Asian operations continue to provide solid growth and investors should look to accumulate shares on any price weakness.
BT Investment Management (BTT)
BTT is an Australian-based funds management business. While the first half 2009 profit result demonstrated BTT’s strong cost-cutting ability, it also highlighted the negative margin effect of investors shifting from equity investments to cash. BTT is trading on an expensive price multiple and better value can be found elsewhere.
Sims Metal Management (SGM)
Its operations encompass buying, processing and selling ferrous and non-ferrous recycled metals. We recognise SGM’s earnings will improve considerably should scrap flows and margins normalise, but this could still take between a year and 18 months. On a price/earnings multiple of 22 times for full-year 2010, there are cheaper plays exposed to a recovery in steel markets.
Carey Smith, Alto Capital
This global provider of business support services operates two key businesses – CHEP Pallets and Recall information management. With operations in 45 countries, Brambles is connected to the global economy, and, therefore, should benefit from a recovery. Despite a sharp fall in global growth in the past 18 months, Brambles still managed to produce strong free cash flows of more than US$350 million for 2008/09.
Resolute Mining (RSG)
This Perth-based gold producer should benefit from its large production profile of more than 350,000 ounces a year and renewed interest in the gold sector. Resolute Mining also offers significant leverage to the gold price. Expect Resolute Mining to out-perform the market in the next six months as continuing concerns over the US dollar drive gold prices higher.
This third force in Australian food retailing provides marketing and distribution services to 2500 independent grocery stores across Australia. Metcash’s comparable same store sales and earnings per share are both growing faster than Woolworths. Yet the stock trades at a 20 per cent price/ earnings ratio discount to Woolworths, while providing a superior dividend yield.
AGL Energy (AGK)
AGL services the largest retail energy and dual fuel customer base in Australia, with investments in upstream gas activities and electricity generation. AGL also owns and operates the biggest renewable energy generation portfolio in Australia, with a focus on hydro and wind power. The strength of AGL’s balance sheet provides an excellent opportunity to remain a leader in renewable energy, with plans to stgelop projects collectively worth between $6 billion and $7 billion in the next decade.
Commonwealth Bank (CBA)
The strength of Australia’s banking system helped save the country from the worst of the global recession. But the extraordinary rebound in banking stocks during the past six months has pushed them into over-priced territory. CBA is currently trading at a forecast 2010 price/earnings ratio of more than 15 times (historic valuation average is 12 times). Expect new global capital and liquidity requirements to significantly impact the sector’s earnings and dividends going forward.
Billabong International (BBG)
While Billabong controls one of the premier global retail brands, the very poor retail environment in the US, its largest market, is presenting strong headwinds. Of particular concern is recent retail reports singling out T-shirts and shorts as particularly weak. Also, a stronger Aussie dollar is certain to add pressure to earnings per share, which, we believe, is unlikely to match last year’s.
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.
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