Michael Heffernan, PhillipCapital
BUY RECOMMENDATIONS CYBG PLC (CYB)
Demerged from NAB’s banking business in the UK, this group is enjoying its autonomy and will soon pay a maiden dividend. Now in control of its own destiny, CYB has shown it’s able to deliver better outcomes for all stakeholders. The share price of this banking group has risen more than $1 since early September to close at $5.71 on January 31. Crown Resorts (CWN)
Selling off non core overseas assets and focusing on its Australian casino businesses appears to be a smart move. The share price has responded positively and its future looks more promising. HOLD RECOMMENDATIONS
Harvey Norman (HVN)
Has stared down the much vaunted Amazon assault on retailers and its share price has also rebounded in spades. Harvey’s next report, which is due around the end of February, will be closely scrutinised. If HVN’s result exceeds expectations, it should provide confidence that future profits can be sustained.
REA Group (REA)
Chart: Share price over the year
A dominant online player in the robust real estate advertising market. It’s also has been an impressive performer in the past year and has attractive fundamentals. Domain’s ASX listing, as a separate entity from Fairfax, hasn’t impacted REA’s share price.
SELL RECOMMENDATIONS Tabcorp (TAH)
The $11 billion merger with Tatts Group has been approved. As the excitement and anticipation of the union fades, we must wait and see the effect on the bottom line, which may be several months away. Investors may like to take some profits given the strong run up in price prior to the completion of the merger. Cabcharge (CAB)
The share price has risen from $1.62 on November 29 to close at $1.93 on January 31. I remain concerned about the potential adverse impact of increasing competition from Uber and regulatory changes. I prefer to sit on the sidelines with this one until a clearer picture emerges about future company performance.
Justin Klimas, Wilsons
Afterpay Touch Group (APT)
We expect strong sales growth in 2017 to continue in 2018. Market penetration in domestic online and physical retail has been impressive and we see further upside. The company is planning on expanding to the US and we view this as a significant opportunity. The US expansion will be assisted by tech fund Matrix Partners, which has recently taken an equity stake in the company.
Pinnacle Investment Management Group (PNI)
Investment management firms within the Pinnacle stable had impressive net inflows for the half year to December 31, 2017. The net inflows combined with buoyant equity markets have recently resulted in a significant increase in funds under management (FUM). There’s potential for PNI to increase the number of aligned investment managers, which will further increase FUM. PNI is positioned to gain from performance fees, which, in turn, will increase profits.
Woodside Petroleum (WPL)
Woodside’s production for the 2017 December quarter was below our estimates despite being within Woodside’s guidance range. December quarter sales revenue in 2017 was lower than the previous corresponding period, with 2017 production ahead of sales volumes. Capital expenditure in 2018 will increase due to more capital intensive subsea installation and drilling works commencing at Greater Enfield.
Sims Metal Management (SGM)
We see headwinds due to stricter quality measures imposed by China on copper and aluminium scrap imports. China, for the first time, also became a net exporter of steel scrap in June 2017. However, on the positive side, Turkish imports of ferrous scrap were up year on year to the end of October. There’s also potential for Sims to benefit from robust US demand for ferrous scrap.
Beacon Lighting Group (BLX)
This retailer of lights and ceiling fans has struggled to grow profits in the past two years despite having a dominant market position and the demise of the Masters hardware chain. It’s likely the renovation market is at a peak, while competition from online providers, such as Amazon, will likely pressure sales and margins, in our view.
Retail Food Group (RFG)
The company has experienced a decline in new and re-newing franchise sales and we expect the decline to continue at least through the second half 2018. Gearing levels are high, which raises concerns.
Michael Wayne, Medallion Financial Group
Speedcast International (SDA)
An emerging business that provides satellite based communication networks and services. SDA buys satellite capacity from operators and then resells the satellite usage and telecommunication services to more than 100 different customers primarily operating in remote locations, such as ships and offshore oil rigs. The company continues to reduce debt and is winning new global contracts in a growth industry.
Integrated Research (IRI)
A global information technology company focusing on monitoring performance and software diagnostics, particularly for firms operating in business-critical computing environments. IRI is servicing about 125 of US Fortune 500 companies, including all top 10 US banks and six of the top 10 global financial services firms. Financially, the company is impressive, steadily increasing sales and profits, while generating high and relatively stable margins.
Credit Corp Group (CCP)
Australia’s largest receivables management group is a high quality business. A low cost to collection ratio has enabled the company to increase earnings and dividends each year for the past 10 consecutive years. For a business with an earning per share compound annual growth rate (CAGR) of 28 per cent, a P/E ratio below 20 seems cheap.
This data centre operator offers a range of services to corporate, government and information technology companies. Data centre businesses tend to enjoy strong operating leverage – after operating costs remain relatively fixed, additional revenues are generated at minimal extra cost. The company is in the process of investing heavily to upgrade capacity and develop market leading, energy efficient data centres, which should help give the business a sustainable competitive advantage.
APA Group (APA)
In our view, this dominant gas pipeline owner is facing a slowing growth profile and increasing regulatory risk. In Australia, utility bills are continuing to rise even after years of increases. We believe the Federal Government is likely to introduce gas industry reforms that will lead to even higher levels of transparency and possibly impact APA’s bargaining position. High leverage could increasingly become a problem as interest rates and bond yields rise.
Insurance Australia Group (IAG)
IAG’s most recent result marginally missed our expectations. It was recently trading on 17 times one year forward earnings, a premium, in our view, that’s hard to justify for a mature business with declining margins and minimal room for growth across its consumer and business divisions.
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