Alex Beer, State One Stockbroking
AWB Limited (AWB)
In September, AWB announced a 1-for-1 fully underwritten, non-renounceable entitlement offer and institutional placement to raise $459 million at $1 a share. AWB is well positioned to benefit from the latest ABARE (Australian Bureau of Agricultural and Resource Economics) wheat forecast of 22.7 million tonnes for 2009/10 via its GrainFlow business and Melbourne Port Terminal. Landmark will also benefit from stronger winter crop activity as farms experience stronger cash levels.
Boart Longyear (BLY)
A products maker and global leader in providing integrated drilling services to the minerals industry. Revenue was down significantly in the first half of 2009 due to the global financial crisis impact on last year’s commodity prices. Debt levels were cut after a capital raising. Boart offers an excellent position in drilling services, with more than 30 per cent of revenue derived from gold and copper exploration.
Downer EDI (DOW)
This engineering services company announced an adjusted 2009 full-year net profit after tax of $178.2 million, up 15 per cent on 2008. The overall earnings before interest and tax margin of 5.1 per cent was marginally up on 2008. Revenue was $5.941 billion, with work-in-hand of $16 billion. The company continues to focus on reducing overheads.
United Group (UGL)
United Group announced it had signed a contract with Perth-based Verve Energy to provide engineering, procurement and construction services to Verve’s gas turbine project at Kwinana. UGL’s share from the project is $190 million. UGL continues to win work, with revenue up 37 per cent in full-year 2009.
Wesfarmers shares soared on improving first quarter 2010 results. Further interest rate rises and fading government stimulus may potentially challenge a further turnaround in second half results.
Aristocrat Leisure (ALL)
The poker machine maker reported a first half 2009 net profit of $44.2 million (excluding non-recurring items). Total revenue declined by 5.3 per cent to $441.7 million. The spending environment in US gaming is weak given most gaming operators are balance sheet constrained. Replacement cycles in the US are longer, and Aristocrat will need to win market share to grow its business.
Richard Batt, Shadforth Financial Group
The industrial conglomerate recently announced a solid performance for Coles in the first quarter of 2009/10 on the back of rising food and liquor sales. This is a clear indication that Coles is beginning to recover, which should lead to higher earnings, which, in turn, will flow to shareholders.
CSL Limited (CSL)
CSL enjoys a leading position in the biopharmaceutical products industry. As most of its earnings come from overseas, the share price has recently drifted on the back of a stronger Aussie dollar. Share price weakness provides a good opportunity to buy a company offering a solid earnings history. Buying will establish a hedge against a pullback in the general market and a fall in the Aussie dollar.
Hills Industries (HIL)
Makes and distributes electronic, building and industrial products in Australia and overseas. Its broad product range across various sectors has reduced the impact of the economic downturn. The earnings outlook is positive amid an improving Australian economy. Investors should maintain their exposure to reap improving dividends going forward.
Hunter Hall (HHL)
A boutique equity fund manager, specialising in ethical investments. Funds under management should continue to grow in favourable markets. Competitive advantages include its investment team and philosophy. The shares perform well when equity markets rally as funds under management increase from stronger retail inflows.
Specialty Fashion Group (SFH)
Specialises in women’s clothing and operates more than 800 stores in Australia and New Zealand. The shares have performed well recently as the market factored in a stronger economy and improving trading conditions. The share price could struggle if trading conditions deteriorate, so we recommend investors take advantage of the current price and sell.
Aristocrat Leisure (ALL)
After recently losing a US jury trial, the gaming machine maker will be required to pay damages to bondholders. The precise amount of damages is expected to be determined by the court following further briefings by the parties. Until there is a clear indication of possible damages, we believe better opportunities exist elsewhere in the market.
Mark Goulopoulos, Patersons Securities
Telstra Corporation (TLS)
Even on worst-case scenarios regarding the structural separation of Telstra, the valuation isn’t far below the current share price. As worst-case scenarios are unlikely to happen, Telstra offers considerable value at the current price given the potential for significant upside to forecast revenue growth over the medium term.
Lihir Gold (LGL)
The recent surge in the gold price hasn’t been matched by Lihir Gold’s share price. While the Australian dollar price of gold has been more subdued, Lihir remains undervalued at the current price. Significant growth in resources and production, and the potential for corporate activity provide further upside.
Toll Holdings (TOL)
Although Toll remains a high quality company with excellent growth prospects, the share price recovery in the past six months has been considerable and the company is now fully valued. International expansion is still in its early stages and, until further signs of success are apparent, this adds risk to the investment equation.
Westfield Group (WDC)
The largest real estate investment trust in Australia and the biggest shopping centre owner in the world, Westfield has proven its resilience through the global recession. Concerns linger, as retail sales in the US may contract without the benefit of government stimulus. However, vacancy rates remain very low relative to historical levels.
David Jones (DJS)
Much of the recent sales and profit improvement has been generated by the Federal Government’s stimulus package. The current share price implies similar continuing growth in retail sales, which, we believe, is unlikely to occur. Better value exists in consumer staples, which are more resilient.
Commonwealth Bank (CBA)
Notwithstanding an impeccable long-term growth track record, the Commonwealth Bank is over valued in the short term. We believe that forecasts for 2010 and 2011 are overly optimistic and ignore many risks still in the global economy. In addition, current valuation metrics are the highest for over a decade.
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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