Michael Heffernan, PhillipCapital
BUY RECOMMENDATIONS
Breville Group (BRG)
Chart: Share price over the year
BRG has a significant presence in the premium electrical appliances market in Australia and the US. It offers a strong profit growth outlook. Potentially lower taxes in the US and a stronger US dollar are positives for BRG. Boral (BLD)
Chart: Share price over the year
The share price of this building materials supplier has performed well in the past few months. The building industry is looking buoyant. The acquisition of major US building materials firm Headwaters paints a positive outlook for growth.
HOLD RECOMMENDATIONS
Rio Tinto (RIO)
Chart: Share price over the year
The global miner is refocusing on core activities while reducing capital expenditure programs. Significant cost cutting is likely to increase future revenue and its cash position. Rio should benefit from a strong recovery in major global economies and an upbeat outlook for iron ore.
Macquarie Group (MQG)
Chart: Share price over the year
MQG broke through $100 on November 29. It’s been a strong sharemarket performer in the past 12 months. This second tier Australian bank is more diversified than the four majors and its recent profit result beat expectations. Improving sharemarket activity should lift future revenue and profit. The shares were trading at $97.57 on December 14. SELL RECOMMENDATIONS
G8 Education (GEM)
Chart: Share price over the year
This childcare centre operator recently delivered a disappointing trading update and its share price was punished. Underlying EBIT for fiscal year 2017 was downgraded on a previous forecast to $160 million. In my view, its outlook comments suggested challenging times would continue. Other stocks offer more appeal. Cabcharge (CAB)
Chart: Share price over the year
The company faces challenging times given increasing competition from Uber. Until the company returns to sustainable earnings growth, investors can look elsewhere.
Simon Herrmann, wise-owl.com
BUY RECOMMENDATIONS Coca-Cola Amatil (CCL)
Chart: Share price over the year
Trading significantly below its peak, the valuation appears undemanding in light of the company’s strong balance sheet, recent operational improvements and somewhat defensive business model. Apart from Australia, CCL also operates in New Zealand, Fiji, Indonesia, Papua New Guinea and Samoa. A mix of capital management initiatives and a re-balancing of the company’s product portfolio have the potential to drive earnings growth. Berkeley Energia (BKY)
Chart: Share price over the year
An Australian minerals company focused on uranium mining. The company’s flagship asset is the Salamanca Project in Spain, with an 18 year mine life. Financing is in place and construction will start next year. Two big uranium producers, Cameco and Kazatomprom, recently announced extensive production cuts, which could support the BKY price. HOLD RECOMMENDATIONS Regis Resources (RRL)
Chart: Share price over the year
The share price is holding up despite recent weakness in global gold prices and we remain attracted to the fundamental strength of this Western Australian gold miner. The company’s Duketon project has compelling economics – even in the current price environment – and RRL is well positioned to generate positive operating cash flow. With many asset classes trading near all time highs, demand for gold may increase next year. A solid hold. Fleetwood Corporation (FWD)
Chart: Share price over the year
Fleetwood offers exposure to affordable housing solutions and recreational vehicles. The stock has been volatile this year, but in August the company delivered a much improved result for fiscal year 2017. Fleetwood has turnaround potential. SELL RECOMMENDATIONS WPP AUNZ (WPP)
Chart: Share price over the year
WPP AUNZ is the result of a merger between STW Communications and WPP in 2016. It focuses on advertising, marketing and communications. The company recently downgraded its earnings guidance amid what we viewed as a mixed performance within the business. The advertising market is experiencing structural challenges and it could take time for the WPP business to improve. TechnologyOne (TNE)
Chart: Share price over the year
TechnologyOne is an integrated developer and distributor of enterprise software in the government, financial services, education, health and utility sectors. We see stiffer competition in TNE’s field going forward, which may challenge the company’s ability to retain margins in a cost efficient manner. While the company has a long term track record of profit growth, we believe it may be prudent to reduce exposure.
Justin Klimas, Wilsons
BUY RECOMMENDATIONS
BHP Billiton (BHP)
Chart: Share price over the year
The global mining giant has focused on returns, strong free cash flow and cutting costs. Also, it has the ability to increase production. Speculation exists the company may sell non-core assets, including US onshore oil and gas, thermal and metallurgical coal and copper. Any sale proceeds could reduce debt. It would also enable the company to focus on higher returning activities.
Nanosonics (NAN)
Chart: Share price over the year
We’re particularly attracted to NAN’s trophon product, which disinfects ultrasound probes without the need for toxic chemicals. Strong sales growth in the US continues and we expect strong sales growth in the UK, where NAN has developed a new service contract that will suit the National Health Service. We anticipate further upside from new products to be released in the next two years.
HOLD RECOMMENDATIONS
Nufarm (NUF)
Chart: Share price over the year
Manufactures crop protection products. In our view, earnings from acquisitions are likely to be offset by a marginally softer outlook in its South American division. The plant shutdown for scheduled maintenance at Laverton will reduce earnings in the short term. We’re mindful of rising material costs due to restricted supply following stricter environmental controls in China.
ASX Limited (ASX)
Chart: Share price over the year
ASX will replace its CHESS clearing and settlement platform with distributed ledger technology. This may be positive in the longer term, but we can’t see the catalysts for potential new revenue streams in the short to medium term. ASX has a strong market position and balance sheet, but the stock looks fairly valued.
SELL RECOMMENDATIONS
South32 (S32)
Chart: Share price over the year
The share price of this metals and mining company has risen strongly in recent years on the back of a recovery in commodity prices. We believe the share price is too expensive at this point. Cost pressures are starting to build, while we believe stiffer supply competition from other miners will limit gains.
DuluxGroup (DLX)
Chart: Share price over the year
We’re concerned about increasing raw material costs, particularly for its paint business, which generates most of the company’s earnings. We see slowing growth in new housing and renovations. Also, we see increasing competition from the recently merged Sherwin-Williams Valspar as potential negatives.
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