Michael McCarthy, CMC Markets
JB Hi-Fi (JBH)
Analyst estimates ran ahead of JBH’s guidance. Following the half year result and a reiteration of its full year estimate, the stock is under pressure. In my view, its retail track record and higher sales growth make it attractive around $26 levels despite an increasingly competitive retail environment. The shares finished at $26.92 on February 15. Boral (BLD)
A stronger half year report points to a successful integration of a recent US acquisition. Australian exposure goes well beyond housing, and the outlook for commercial and government construction is brighter. Any announced infrastructure build in the US may lift BLD’s shares. The ‘sell the fact’ reaction to the result could offer a useful entry point for this building products maker. HOLD RECOMMENDATIONS
ANZ Bank (ANZ)
The share price is caught in the sector downdraft despite clear points of difference with its peers. An extensive re-modelling of the business is well under way, including divestment of the wealth business. The new look ANZ will be more agile and have far fewer potential conflicts.
The blood products company delivered another standout result. Research and development continues to deliver, with a 43 per cent lift in flu vaccine sales driving a 35 per cent increase in profit. Closing at $151.50 on February 15, it’s so hard to buy, but we see no reasons to sell.
Myer Holdings (MYR)
Sell and avoid. The CEO’s departure may give the company a fresh chance, but there’s no indication the leadership team is closer to a comprehensive response to the structural threats and cyclical downturn. Expectations of a takeover bid are possibly fanciful. In my view, a break up or radical re-modelling is more likely, with possible shareholder dilution.
A higher quality company with a market leading product. However, its valuation can be viewed as stretched. The recent result suggests growth is lumpier, making it difficult to justify such a significant share price premium. Major broker valuations range between $150 and $175. I would be happy to buy back in at the lower end of the range. Shares in this ear implant company finished at $174.30 on February 15.
Gavin Wendt, MineLife
Sunstone Metals (STM)
STM is set to commence its maiden drilling campaign by following up previous exciting copper and gold surface samples in one of the world’s most prospective exploration locations, Ecuador. The primary target is an area known as Bramaderos in the south, where limited historical exploration returned encouraging results, but were never properly followed up. Market interest in Ecuador is high following the performance of SolGold, which saw a rise of 1400 per cent at one stage on the back of its Cascabel discovery.
PXX has identified a 35 kilometre geological belt in Alaska that’s mineralised with copper, gold and silver at the surface. Its Alaska Range project already hosts two advanced copper deposits – the Zackly skarn (historical resource estimate of 1.5 million tonnes at 2.9 per cent copper and 4.5 grams a tonne gold) and the high grade Caribou Dome sedimentary copper deposit (JORC 2012-compliant resource of 2.8 million tonnes at 3.1 per cent copper). Mineralisation at both prospects is open at depth and along strike, and PXX aims to generate stand alone mining operations.
Australian Potash (APC)
APC is currently defining and de-risking development plans for its flagship Lake Wells sulphate of potash (SOP) project in Western Australia. A scoping study was completed and released during 2017, which exceeded expectations and confirmed the project’s economic and technical aspects are all exceptionally strong. APC has the potential to become a significant long life, low capital and high margin SOP producer.
Orinoco Gold (OGX)
The company’s high grade Cascavel gold mine in Brazil was plagued with commissioning issues in late 2015, but OGX has since implemented a methodical rectification program to deal with the mine’s nuggetty ore. Recently, OGX has achieved numerous successes related to improving gold production and sampling of tailings stockpiles, which has been reflected in a higher share price.
Berkeley Energia (BKY)
BKY is one of the success stories in the uranium sector over recent years, as it’s focused on bringing its Salamanca project in Spain into production. A definitive feasibility study completed during 2016 confirmed Salamanca to be one of the world’s lowest cost producers, capable of generating strong after tax cash flows even through the current low point in the uranium cycle. This year could prove to be a turning point for the uranium industry, but BKY investors might wish to realise some gains.
Metro Mining (MMI)
MMI has been a quiet achiever, with construction of its flagship Bauxite Hills Mine in Queensland now complete. Mining operations are scheduled to start in April 2018, with first sales in May. There’s every chance for further gains during 2018 as first production looms, but investors can consider taking profits given the strong share price performance.
Harrison Watt, Shaw and Partners
BUY RECOMMENDATIONS Managed Accounts Holdings (MGP)
MGP represents value at these levels and is trading at a discount to peers. Pre-merger funds under administration grew during the December quarter to $2.36 billion at December 31, 2017. We expect cost synergies from the Linear acquisition to drive margin expansion and the price/earnings multiple higher. Syrah Resources (SYR)
The share price has fallen significantly since the highs of early January, providing a good entry point. The company’s Balama graphite project in Mozambique continues to hit targets. I see support around current levels and tailwinds moving back into Syrah’s favour. The shares were trading at $3.30 on February 15. HOLD RECOMMENDATIONS
Domain Holdings Australia (DHG)
The resignation of chief executive Antony Catalano is weighing on the stock, but I wouldn’t be heading for the exit at this level. Domain should find some support around here, and a softening residential market may actually provide some benefit, as houses and apartments are listed for longer on the Domain site. The shares closed at $2.91 on February 15. Greencross (GXL)
After a solid end to 2017, GXL has traded in line with the market lately and shot lower. While the pet care company continues to deliver ongoing growth, it now trades in line with other comparable retail stocks on a forward price/earnings multiple of about 15 times.
SELL RECOMMENDATIONS JB Hi-Fi (JBH)
The consumer electronics giant significantly increased revenue in the 2018 first half, but gross profit margins fell 20 basis points on the prior corresponding period. Competition in the sector is going to get stiffer. Murray River Organics Group (MRG)
Recently writing down inventories highlights the long road ahead for this organic food producer. There’s been too many earnings downgrades, and I believe investors can find better value elsewhere. >>Please note that JB Hi-Fi is recommended as a buy and a sell this week as brokers have different views about its outlook.
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