Mike Bigwood, Patersons Securities
Platinum Australia (PLA)
With production ramping up at the Smoky Hills project amid a positive pre-feasibility study completed on the Kalplats project, PLA is well positioned to benefit from an expected strong demand and under supply scenario facing the platinum market. Platinum is increasingly used in pollution reducing catalytic converters – a positive for this company given that environmental considerations are taking on more importance.
Beach Petroleum (BPT)
With a strong cash position and no debt, Beach is well positioned to farm in to prospective acreage to support production figures going forward. The memorandum of understanding with Sundance Energy in the US also opens up opportunities in the unconventional space, such as coal seam gas, shale and tight gas in Australia. With the stock below a consensus price target of 97c in early morning trade on November 6, there appears to be potential for decent upside.
Australian Worldwide Exploration (AWE)
AWE has generally been my favoured pick in the mid-cap oil and gas sector, but at these levels, I believe there is better value elsewhere in the sector. I am happy to hold AWE in the hope its current drilling program will deliver positive results.
AGL Energy (AGK)
The company’s integrated energy business model provides a defensive earnings stream, with a dividend yield around 4 per cent. For this reason, it’s a stock that fits comfortably in any diversified portfolio. AGK is a company I would consider buying in the low $13 range, and believe an appropriate selling point is about mid-$15 levels.
I have been negative about Brambles for some time, and believe there are better places to be in the industrial sector. The pallet business remains under pressure from its competitor iGPS and markets don’t like uncertainty. Trading on 18 times full-year 2011 earnings, I feel the stock is expensive at current levels.
Macarthur Coal (MCC)
Despite an upgrade to our target price after MCC reported a strong sales performance for the third quarter of 2009, we still find it difficult to achieve a valuation that matches the current share price. In order to do this, our analyst says he would need to double assumed coal prices for the next two years and, therefore, MCC is a sell at current levels.
Brendan Fogarty, Alto Capital
CSL Limited (CSL)
This large cap company is a major player in the blood plasma industry, with sufficient economies of scale to enable a strong competitive advantage. Despite most of its earnings in US dollars, the company recently confirmed it’s on track to meet full-year 2010 NPAT (net profit after tax) guidance of between $1.2 billion and $1.3 billion. Apart from currency movements, CSL is performing well and is suitable for portfolio investors and traders given high volatility levels.
Avalon Minerals (AVI)
Trading activity in this small copper explorer has significantly grown. Avalon has recently undertaken drilling aimed at proving up its two advanced copper projects in northern Sweden – the Viscaria and Adak mines – to a commercial level. The logistics of the project are strong. With small speculative stocks, quality management is vital. This is a big tick for Avalon, as managing director David McSweeney has a successful background among junior resource groups. Notably, he steered Gindalbie Metals (GBG) from a minnow to an emerging mid cap in the iron ore sector.
Newcrest Mining (NCM)
The gold price outlook remains buoyant, but this can be slightly misleading as the actual Australian dollar gold price hasn’t increased much. The Australian dollar and gold price tend to trade roughly in line against the US dollar, mostly due to Australia’s status as a commodity based currency. Newcrest has forecast a 4 per cent lift in NPAT for 2010 to $533.2 million, a modest increase given it trades on a very high price-to-earnings multiple of about 30 times. Hold for exposure to gold, but Newcrest is trading above fair value.
Asciano Group (AIO)
Asciano is a spin-off from Toll’s infrastructure assets, notably Patrick’s port and stevedoring assets. While it currently holds strong market positions, there’s potential for more competition. High gearing is also a risk going forward. Despite this, the infrastructure assets are attractive, generating genuine corporate appeal.
Paladin Energy (PDN)
Uranium miner Paladin has enjoyed a high profile in recent years, becoming a reasonable player in a very topical industry. However, given constant earnings disappointments, the stock is proving over valued with a market capitalisation approaching $3 billion against a relatively low earnings forecast around $16 million.
Macquarie Group (MQG)
Our largest investment bank has seen its share price rebound strongly from a low of $15 to $48.65 in early morning trade on November 6. While this rebound has been proportionally justified, given an improving macro-economic environment amid reducing risk among the financials, Macquarie’s earnings are volatile and rely heavily on a continuing improvement in the investment environment. Sell and wait for opportunities to buy on weakness at closer to fair value.
Simon Bond, RBS Morgans
David Jones (DJS)
We have upgraded the department store giant to a buy, believing market forecasts don’t sufficiently reflect the operational leverage it should enjoy when consumer spending rebounds in 2011 and 2012. Shorter term, we are positive about the outlook for 2010.
For the past two months, we’ve been concerned about consensus downgrades for full-year 2010 on the basis of currency risk for AmeriCast Technologies. Recent annual general meeting comments and share price performance has led us to believe these concerns are no longer warranted. We have upgraded the stock to a buy.
Toll Holdings (TOL)
The recent AGM didn’t offer any specific earnings guidance, with ongoing uncertainty regarding customer volumes driving a cautious outlook. The transport and logistics giant continues to talk positively about merger and acquisition activity, but we still think execution is required before another re-rating occurs.
Pipe Networks (PWK)
Pipe Networks recently upgraded guidance again, this time by about 15 per cent. Sales in the dark fibre division and on the new international cable (PPC-1) are motoring along, and PWK is now experiencing upside leverage from selling substantial spare capacity. We retain our hold rating at the risk of further positive news flow.
BT Investment Management (BTT)
The company’s result was in-line with guidance and demonstrated strong cost control in difficult market conditions. While BTT will benefit from a continuing recovery in markets, we believe this is fully reflected in its share price. BTT is trading on 20 times full-year 2010 earnings per share, which we regard as expensive.
Iluka Resources (ILU)
Iluka’s September quarterly result was consistent with its guidance of decreasing production and increasing revenues, albeit from a low base. As one headwind abates via an improving outlook for mineral sands demand, another strengthens through a rising Australian dollar. We advocate caution.
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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