Ishan Dan, Wattle Partners
The plan to demerge Coles Supermarkets makes sense given its underwhelming performance in a highly competitive space. A simplified and easier to manage Wesfarmers will be able to allocate a higher proportion of capital to the rest of its businesses to improve returns, become more nimble and seize new opportunities.
Treasury Wine Estates (TWE)
Shares in this iconic Australian wine company recently reached all time highs following a solid interim result. The company has only started to scratch the surface in China. Exports can grow exponentially as an expanding Chinese middle class drink more wine. Australian wines are still under-represented in China, so there’s strong upside potential for TWE to capture this market.
Synlait Milk (SM1)
An innovative New Zealand based dairy processing company. SM1 has long standing links with China via shareholder Bright Dairy and customer The A2 Milk Company. We expect increasing demand for clean and green food, so SM1 is in a prime position to benefit. The stock has run hard, so a recent pullback wasn’t a surprise. A long term hold.
The search is on for a new chief executive, with the existing one retiring at the end of the year. The company’s share price has fallen from $5.47 on March 8 to close at $4.89 on April 4. Under a new CEO, the door is wide open for radical change and a complete rethink of the way AMP does business.
Transurban Group (TCL)
The interest rate cutting cycle is over and rates will rise from here. As bond yields tick higher, we’re expecting investors to rotate out of bond proxy stocks and back into bonds. For that reason, infrastructure stocks may come under pressure. Shares in this toll road developer were priced at $12.98 on December 19 last year. The shares closed at $11.15 on April 4.
Domino’s Pizza Enterprises (DMP)
Its share price was $49.50 on February 13, 2018. The shares closed at $40.12 on April 4. Despite this, the company was recently trading on a price earnings ratio above 32 times, which we believe is still expensive. Its Australian business operates in an increasingly competitive space and the Japanese business recorded lower than planned sales growth. We can’t see DMP turning around any time soon.
Jeremy Hook, TMS Capital
BUY RECOMMENDATIONS Brickworks (BKW)
This building products group is benefiting from solid local infrastructure spending and a strong building cycle. A robust balance sheet and a vast asset base via a 43 per cent holding in Washington H. Soul Pattinson provides a strong and steady investment performance that’s appropriate for most portfolios. WiseTech Global (WTC)
The company’s proprietary software CargoWise One is a market leader in the logistics industry. Recurring revenue produces a quality and growing earnings stream. High valuations are based on continuing strong profit growth. While the stock is likely to remain volatile, we believe there’s value at current levels. HOLD RECOMMENDATIONS Wesfarmers (WES)
The decision to demerge up to 80 per cent of the Coles Supermarkets business is a positive move. In our view, it rids WES of an underperforming asset. The businesses left within WES, such as Bunnings offer superior returns and we expect WES will be re-rated after the demerger. CSL (CSL)
This blood products company has been a tremendous performer over many years. CSL has been strong in 2018, but we think it’s time to move to a hold. We’re still positive about the long term outlook, but expect the price to consolidate. CSL is a premium stock, but it’s now trading on full multiples. SELL RECOMMENDATIONS JB Hi-Fi (JBH)
This consumer electronics giant has defied the doomsayers and produced solid profit results over recent years. However, we believe stiffer competition led by Amazon will eventually have an impact on the discretionary retail industry and squeeze company margins. Take advantage of current share price strength in JBH and lock in profits. Mirvac Group (MGR)
Mirvac has been relatively strong lately, but we much prefer other real estate groups. Its recent dividend yield of 4.9 per cent was below the peer group. We see risks emerging in the mature residential segment and believe MGR is facing cyclical headwinds.
Ian Dorrington, Argonaut
BUY RECOMMENDATIONS Explaurum (EXU)
Work is rapidly progressing at its Tampia Gold Project in Western Australia, with a feasibility study due in mid April. Initial results from regional drill programs are expected in late April. We expect good news in the short to medium term, as the company builds the gold development project quickly. The shares closed at 12 cents on April 5. Alice Queen (AQX)
Alice Queen is rapidly progressing its Horn Island gold project located in Queensland’s Torres Straight. AQX is focusing on resource expansion drilling at the historic pit on Horn Island, which currently contains 375,000 ounces of inferred resources. AQX believes the Horn Island deposit forms part of a larger 40km structural corridor, which remains largely untested by modern exploration methods. The shares closed at 4 cents on April 5. HOLD RECOMMENDATIONS Northern Star Resources (NST)
Northern Star Resources has acquired the South Kalgoorlie Operations (SKO) from Westgold Resources. This is a value accretive deal, which lifts the constraint on processing that until now capped production at its Kalgoorlie assets. The acquisition comprises a 1.2 million tonnes a year SKO processing plant, associated resources of 4 million ounces and reserves of 250,000 ounces within the tenement package. Ausdrill (ASL)
Revenue and operating cash flow for this integrated mining and energy services group were within 1 per cent of our expectations. That’s where it ended though – ASL was comfortably ahead of our numbers at all other lines. The company is sticking with guidance of a 40 per cent uplift in profit after tax for the full year. After normalising the first half numbers, it appears ASL will comfortably achieve its target. SELL RECOMMENDATIONS St Barbara (SBM)
We continue to believe SBM is an outstanding mid tier gold miner. However, the stock is now trading significantly higher than our discounted cash flow valuation. The stock has risen from $2.62 on October 5 last year to finish at $4.03 on April 5, 2018. Qantas Airways (QAN)
The shares were priced at $3.94 on April 5, 2017. The shares closed at $5.93 on April 5, 2018. We recommend taking profits after such a great run. We expect crude oil and other costs to increase.
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