Jeremy Hook, TMS Capital
BUY RECOMMENDATIONS AGL Energy (AGL)
AGL is way off its yearly high of $26.74 a year ago. Earnings growth has slowed to an acceptable 10 per cent. Wholesale electricity and gas prices will offset falling retail power prices. A strong dividend yield of around 5 per cent will see the stock recover later in the year. Challenger (CGF)
Challenger’s price has been volatile this year, and the stock is worth buying while on the low side. This dominant player in the Australian annuities space has a bright future. We expect the company’s share price to benefit from investment and super platforms increasing exposure to annuity style options. HOLD RECOMMENDATIONS Boral (BLD)
Boral’s fly ash and plasterboard operations in the US offer good long term upside, but are currently discounted by the market. We await further good news from the acquisition of US firm Headwaters and retain a hold recommendation on this building products maker. Treasury Wine Estates (TWE)
This wine maker and distributor has been a great performer, but the price has stalled due to delays at Chinese ports. The stock is fully valued and a hold on a risk weighted approach. But there’s further upside once the Chinese issues have been resolved. SELL RECOMMENDATIONS Domino’s Pizza Enterprises (DMP)
Domino’s has bounced in recent weeks on broker reports suggesting positive sales growth during the Soccer World Cup. But on a recent price/earnings multiple above 40 times, the stock is expensive and, in our view, presents an opportunity to sell. Heathscope (HSO)
The private hospital operator received two takeover offers, but the Healthscope board denied each suitor access to due diligence on May 22, 2018. Structural headwinds are facing the industry. Without the bids, the stock, in our view, would be trading below $2. The stock closed at $2.29 on June 14.
Tony Paterno, Ord Minnett
Telstra Corporation (TLS)
We expect the telecommunications giant to announce an additional $500 million to $1 billion in cost savings during a strategy update on Wednesday, June 20. We also expect new product bundling initiatives. It’s possible there could be a structural separation of the company, which we estimate could yield more than 50 per cent potential upside, based on precedents in the US market, while retaining the dividend. We estimate the shares are already building in a dividend cut of between 25 per cent to 30 per cent and a 25 per cent decline in post paid average revenue per user. Potential upside from current levels outweighs the downside risk,
The Star Entertainment Group (SGR)
Domestic gaming offers a high margin, predictable and recurring portion of earnings. The company is delivering on initiatives to improve the domestic offering. We expect to see continuing earnings growth from projects in Brisbane and the Gold Coast. Hotel openings and improving room rates will continue to assist main gaming revenue. Recovering VIP turnover shows market strength via an international diversification strategy.
Crown Resorts (CWN)
The VIP arm is recovering, but we expect it to lag The Star Entertainment Group for some time. Recent asset sales, including CrownBet, reduce growth prospects, but enable renewed focus on core based casino operations without balance sheet pressure. Management can direct strategy on growing tourism and capital investments at Barangaroo in Sydney. These are long term growth drivers. Recent share price performance has resulted in CWN trading at an elevated price/earnings multiple versus historical trends.
Given the volatile equity market, the outlook for the business in the near term appears challenged, in our view. However, this fund manager stock has de-rated significantly and was recently trading on a forward price/earnings multiple of less than 14 times rebased earnings and is delivering a fully franked dividend yield of more than 6 per cent.
Tabcorp Holdings (TAH)
TAH is exposed to declining wagering yields from competitive pressures along with inhibited growth due to its high retail exposure. Significant execution risks remain in integrating the UBET brand and other Tatts divisions, while Sun Bets losses weigh on the bottom line. Digital lottery sales and synergies from the Tatts merger provide some margin relief, but there is lack of valuation support.
Tassal Group (TGR)
We’re concerned about the international salmon price, which has been recently weakening. Cost cutting may present challenges and we believe the potential for consensus reductions isn’t reflected in the current valuation. The shares were trading at $4.23 on June 14.
Tony Locantro, Alto Capital
Metal Bank (MBK)
MBK continues to report strong gold results from its Triumph Project in North Queensland. Recent drilling has identified several exciting targets for bulk tonnage gold resources. The targets will be assessed following the current drilling program. Despite positive advancements, MBK’s share price continues to languish, but provides an opportunity at the current price. A speculative buy for those with an appetite for risk.
Following the resignation of CEO Richard Hopkins, the share price came under heavy selling pressure. PAA has since announced the successful reformulation of monepantel into tablet form, which is suitable for canine clinical trials planned for later this year. PAA’s market capitalisation recently slipped below $10 million and represents a good buying opportunity. The shares closed at 4.4 cents on June 14.
Great Boulder Resources (GBR)
GBR recently raised capital at 27 cents and, in my view, remains an exciting exploration story. I base this on the copper-nickel-cobalt discovery at Mt Venn in Western Australia, and the emergence of a further 15 targets currently under review. The next phase of drilling could see further discoveries and a share price re-rating.
Nusantara Resources (NUS)
A 5 for 19 entitlement issue at 20 cents with an option has seen NUS weaken further. The Awak Mas deposit at Sulawesi, Indonesia is now a 2 million ounce gold resource with considerable exploration potential. NUS is targeting first production from the project in 2020. In my view, the stock is cheap relative to its peers based on perceived political risk in Indonesia.
The industrial conglomerate has completed the divestment of the Homebase home improvement business in the UK and Ireland. WES is expected to book a loss on the disposal of between 200 million pounds and 230 million pounds. WES has enjoyed a strong price run and, at current levels, provides an opportunity to lock in a profit as the retail spending figures still indicate a cautious consumer.
Commonwealth Bank (CBA)
Despite CBA’s price falling below $70, the impact of agreeing to a record $700 million fine for contravening money laundering laws amid the fallout from the Royal Commission leave the bank a sell. We also expect further downside in the residential housing market.
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