Peter Russell, Intersuisse
M2 Telecommunications Group (MTU)
Australia’s largest independent network provider of fixed line, mobile and data telecommunications services, M2 has grown rapidly in wholesale and small-to-medium enterprise services. Judicious and well-executed acquisitions, including the Commander dealer network and People Telecom, have built it to the seventh largest telco. M2 has stuck to its core expertise, but built a very strong base for growth not yet reflected in its price.
Nomad Building Solutions (NOD)
One of Australia’s main providers of factory-built housing and on-site construction. A long time active in Western Australia and Queensland, it focuses on regional work for the government and resource sectors. While 2009 has been tough, 2010 looks much stronger, with a single-digit price/earnings ratio and a better dividend yield. The stock should benefit from increasing energy, resource, infrastructure and government spending.
This leading global packaging group has slimmed and focused after several years of aggressive acquisitions. It seized the opportunity to buy Rio Tinto’s Alcan Packaging Group, subject to approvals, on good terms. The acquisition has been funded, and it will add 50 per cent to revenues in Amcor’s chosen sectors. Amcor now has the track record to realise synergies and savings. The 5 per cent dividend yield stands to grow.
The third player in food and liquor marketing and distribution after Woolworths and Coles, it also faces competition from Costco and others. But a sound track record of profitable growth amid a strong national base places it well for steady expansion. The distinctly higher yield and low price/earnings ratio leaves Woolworths and Wesfarmers (Coles) behind.
CHEP provides the bulk of earnings and growth. The Americas provide more than half of Brambles’ profit. Cash generation is strong. Yet CHEP faces competition in the US that has led to a major review and change of chief executive. The costs of change are likely to hold back profits for three years. On an above market price/earnings ratio and US-focused, we prefer the top growth sectors in the top performing global economy – Australia.
Platinum Asset Management (PTM)
Platinum’s had a great run, doubling from its March low as a rising market supported fund managers. A boutique specialist in global equities and hedging, it seeks under-valued investments and actively uses short selling. Funds under management are up from $13.5 billion in March to $16 billion now. Earnings should rise steadily, but this is discounted in market capitalisation of $3.4 billion and a price/earnings ratio over 27 times. The P/E is expected to remain above 20 times in 2012. Over valued.
Sean Conlan, Macquarie Private Wealth
Atlas Iron (AGO)
We believe AGO is the best positioned of the Pilbara iron ore juniors to ship material quantities of iron ore on a one-to-two year view. However, there is a still a lot of hard work and hurdles in front of AGO to reach its targets. There is valuation support at current trading levels. We are encouraged that AGO, which has been selling iron ore for almost a year, has learned valuable lessons about operating as a little fish in the big Pilbara pond, placing it ahead of the junior pack.
Rio Tinto (RIO)
Rio Tinto posted strong 2009 third quarter production statistics, characterised by a cracking quarter in iron ore and resilient copper production, despite planned maintenance at Escondida mine. Our expectations for global growth and a positive view of Rio Tinto go hand-in-hand, and the quarterly results have only cemented confidence in our outperform recommendation.
News that CSL’s operational business is sound, with no signs of any weakness relative to expectations, is a clear positive. However, any continuing rise in the Australian dollar is likely to be a drag on earnings. Our 12-month price target is $37.37 based on discounted cash flow methodology.
Asciano Group (AIO)
Asciano has lost market share in ports via the loss of a stevedoring contract amid a third operator entering the NSW coal market. The company provides significant growth opportunities, but, at this point, we believe the share price is capturing much of the value.
Harvey Norman (HVN)
We believe Harvey Norman has a confusing brand position in Australia. The brand is maturing, sales growth is slowing and margins are compressing. Management is attempting a subtle repositioning by focusing on non-traditional categories, which, interestingly, lend themselves to bulky goods centre retailing.
Fortescue Metals Group (FMG)
At today’s trading levels, we believe the market is capitalising earnings in excess of the current infrastructure (and mine capacity). While acknowledging the infrastructure can expand and may appeal to customers looking to secure a diverse supply source, we’re unable to generate a valuation ahead of current trading levels.
Michael Heffernan, Austock
Equinox Minerals (EQN)
A copper and uranium explorer and producer, with resources mostly at its Lumwana Copper Project in Zambia. Future growth looks to be exceptional and Equinox offers sound fundamentals. Expect the company to be a major beneficiary of improving global economies.
An online car sales business that recently listed on the ASX. It has the dominant share of classified used car sales, and is among the first to offer this web-based buying and selling format. An expected lift in economic activity will only serve to boost its bottom line.
David Jones (DJS)
It recently produced an impressive trading performance, a reflection of astute management navigating turbulent economic times. The department store giant is keeping costs under control, has retained its dividend and has confirmed profit guidance.
This leading bioscience and pharmaceutical company, which produces the swine flu and Gardasil vaccines, delivered an impressive 2008/09 result. A rising Australian dollar against the US greenback will be a hurdle in delivering a stronger profit next year. Despite this, the company’s underlying business is performing exceptionally well.
It’s time to move on. The Federal Government ultimatum to sell its fixed line assets or be denied 4G spectrum weighs on Telstra’s performance. Even if Telstra manages its way through this crisis, its share price growth is likely to be limited, and in this environment there are better options available.
Foster’s Group (FGL)
A fundamentally sound company and a solid performer during the past year’s turmoil. However, compared to other companies, it’s unlikely to match future growth in an improving economy. Housing a wine and beer business under the one roof hasn’t been a profit winner.
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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