Michael Heffernan, PhillipCapital
Rio Tinto (RIO)
Rio’s recent full year result is unequivocally impressive. Profit is up strongly. There is a substantial increase in dividends and a further sharemarket buyback. Refocusing on core activities is a winner. Continuing strength in world economies and, consequently the iron ore price, is of immense benefit to RIO. Computershare (CPU)
This share registry company delivered a very sound result in challenging circumstances. It stands to benefit from improving world sharemarkets, a stronger US dollar and its increasing involvement in the collateral securities market business. HOLD RECOMMENDATIONS
REA Group (REA)
A dominant player in the robust real estate advertising market. Competitor Domain’s listing on the ASX hasn’t impacted REA’s sharemarket performance. REA’s presence in offshore markets is a backstop in the event the Australian real estate market comes off the boil. ASX Limited (ASX)
Delivered a sound result without much fanfare. Future revenues should be bolstered by a more buoyant sharemarket and an improving economy. The work ASX is doing with blockchain technology places it at the forefront of global stock exchanges. SELL RECOMMENDATIONS
Although operating in the growing private hospital sector, I was disappointed with its recent report. Other stocks in the healthcare sector appeal more, particularly Ramsay Health Care, which delivered a workmanlike result. Super Retail Group (SUL)
It’s still finding the going tough in the retail sector. Half year net profit was down 3 per cent to $72.2 million. While diversification should be of benefit, its recent report didn’t allay my future profit growth concerns.
Tony Paterno, Ord Minnett
The Star Entertainment Group (SGR)
Chart: Share price over the year
Star is delivering on initiatives to improve the domestic offering by reinvesting in the customer and driving tourism through product and loyalty. Hotel openings and improved room rates should continue to assist main gaming revenue, as recovering VIP turnover (+49 per cent in first half 2018) shows market strength via the international diversification strategy.
Transurban Group (TCL)
The company’s $9 billion development pipeline and management initiatives should assist in continuing to grow toll revenues and EBITDA at a rate in excess of local economies in the near term. Also, we note the potential for acquisition growth to enhance this, whether in the form of a stake in WestConnex, or a US toll road that possibly comes up for sale as part of any asset recycling to help fund the US Government’s planned $US1 trillion investment in infrastructure.
BHP Billiton (BHP)
The stock is trading near our net present value. However, we’re positive about the company’s outlook based on potential changes the new chairman may implement, including US onshore disposal. BHP is our preferred ASX diversified major.
Coca-Cola Amatil (CCL)
The $40 million reinvestment plan is designed to drive revenue growth and low, single digit EBIT growth in Australian beverages. Indonesia remains an attractive long term growth opportunity, although near term challenges with the non-alcoholic ready-to-drink market exist. Alcohol and coffee is performing well and management is exploring growth opportunities. Valuation support is limited at the current share price, although the dividend yield can be seen as attractive.
Medibank Private (MPL)
Industry volume growth has turned negative, and there is considerable political pressure for lower premium rates. If elected, a Federal Labor Government plans to cap private health insurance premium increases to 2 per cent for two years. Prefer other stocks with more certainty.
Markets have rallied in the past quarter, leading average funds under management and revenue higher, but net flows in the business continue to lag listed competitors. We can’t see any signs of meaningful flows into the business in the near term.
Adam Spicer, Baillieu Holst
BUY RECOMMENDATIONS MaxiTRANS Industries (MXI)
Makes and supplies trailing transport equipment and solutions. First half 2018 revenue was up 25 per cent on the prior corresponding period and net profit after tax grew by 27 per cent. MXI is trading on a prospective fiscal year 2018 price/earnings multiple of 10 times, with forecast fiscal year 2018 earnings per share growth of about 30 per cent. The business stands to benefit from the nation’s ageing trailer fleet. The average age is 12 years. The historical replacement cycle age is 10 years. RCR Tomlinson (RCR)
A diversified engineering and infrastructure company, with a recent market cap of $692.85 million. RCR reported first half 2018 net profit after tax of $16.3 million, which is above consensus. The balance sheet is robust, with a net cash position of $84.7 million, positioning the business for strong revenue and earnings growth in fiscal year 2018. RCR is trading at 17 times prospective fiscal year 2018 earnings, which isn’t demanding relative to expected earnings growth rates. HOLD RECOMMENDATIONS Ramsay Health Care (RHC)
A private hospital operator with a defensive, high quality business that’s achieved consistent earnings per share growth for the past 16 years. RHC confirmed core earnings per share growth of between 8 per cent and 10 per cent for fiscal year 2018. Despite the UK and France remaining challenging environments, strong growth in the Australian business is supported by favourable ageing demographics, which will continue to contribute to increasing earnings going forward. Hold at current levels. Monadelphous Group (MND)
This engineering group reported statutory first half 2018 revenue of $848.3 million and EBITDA of $62.1 million, up 35 per cent and 22 per cent respectively. MND has diversified its business mix, which should help stabilise current margins. Management has guided for 30 per cent revenue growth in fiscal year 2018. We believe MND is fully valued and a hold. SELL RECOMMENDATIONS QBE Insurance Group (QBE)
Reported a fiscal year 2017 net loss of $US1.249 billion. The cost of catastrophes in 2017 was $US1.22 billion, up from $US439 million in 2016. Debt to equity is 40.8 per cent. The businesses benchmark range is between 25 per cent and 35 per cent. QBE has consistently underperformed the broader market over the past 10 years, as the business has struggled to generate consistent earnings per share growth over this period. WiseTech Global (WTC)
Provides software to the global logistics services industry. WTC is a high quality business, which reported a strong first half 2018 result, with revenue of $93.4 million and EBITDA of $31.8 million, up 31 per cent and 32 per cent respectively on the prior corresponding period. WTC is trading on a price to sales ratio of 15.9 times prospective fiscal year 2018 revenues (a 50 per cent premium to global peers), and a forecast fiscal year 2018 price/earnings multiple of 89 times. At current market prices, WTC is too expensive. Sell on valuation grounds.
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