Ishan Dan, Wattle Partners
Bellamy’s Australia (BAL)
This infant formula company’s share price has been slashed from a March high of $23.07 to close at $12.91 on July 12. The share price fell on investor concerns and speculation regarding potential surplus inventories, regulatory delays in China and stiff competition in the baby formula market. These headwinds are slowly waning. Bellamy’s is trading at a large discount compared to its peers. Its long term drivers are still in play and Chinese demand for its products is holding up. We think Bellamy’s is attractive at these levels.
Chart: Share price over the year
Caltex and Woolworths have extended their fuel supply agreement for another 15 years. This deal is the next best option after BP Australia dropped plans to buy the petrol business from Woolworths for $1.8 billion. On the positive side, Woolworths will expand its rewards program and create a new income stream for its convenience store supply chain.
This diversified mining and metals company has moved to acquire Arizona Mining in an all cash offer for $US1.3 billion. Arizona owns the Hermosa Project, which contains zinc, lead and silver. S32 has a deep understanding of base metals and is well positioned to advance the project. We believe the acquisition will deliver value to S32 shareholders.
Seven Group Holdings (SVW)
This investment group has upgraded guidance. SVW expects fiscal year 2018 underlying EBIT to be 20 per cent to 25 per cent above pro-forma fiscal year 2017 EBIT of $376.9 million. The upgrade cycle continues to be supported by strong growth in infrastructure activity on the east coast. We expect the shares to go higher.
REA Group (REA)
Our analysis of recent data shows fewer homes are going to auction and clearance percentage rates are falling. During winter, auction clearance rates and transaction volumes usually fall. Investors in this online real estate classifieds company may want to consider locking in some profits. Shares have been steadily rising this year to finish at $89.73 on July 12.
Peter Moran, Wilsons
The retail giant has agreed to extend its partnership with fuel supplier Caltex. WOW is planning to sell or IPO the petrol business, but its latest agreement will enhance the price. The supermarket business is continuing to do well and, consequently, we retain our buy recommendation. Monadelphous Group (MND)
What sets this engineering contractor apart from its peers is a superior track record in contract execution, bidding discipline and risk management. Top management and staff have enabled the company to retain its market leading position even through the downturn. Improving market conditions also backs our buy recommendation. HOLD RECOMMENDATIONS
Insurance Australia Group (IAG)
The sale of assets in Thailand, Indonesia and Vietnam is a positive move and will likely result in funds being returned to shareholders. However, recent share price gains have factored in the good news. Hold for now. Commonwealth Bank (CBA)
CBA recently announced it would demerge its wealth management assets. This follows the sale of its life insurance business, which was also positive, in our view. The sales enable the bank to focus on its core business. However, in our view, CBA is unlikely to deliver special cash capital returns to shareholders after the wealth management demerger. But the bank will still continue to pay attractive fully franked dividends. SELL RECOMMENDATIONS
Retail Food Group (RFG)
Trading continues to suffer as the company struggles with difficult market conditions. RFG is planning to close poor performing businesses. The balance sheet is still stretched and we believe a substantial capital raising will eventually be required. The shares have fallen from $2.12 on February 22 to close at 45 cents on July 12. Class Limited (CL1)
The company develops and delivers cloud software solutions to the accounting market. But we expect competition to stiffen as the self managed super fund market matures. Consequently, CL1’s margins are likely to be pressured, in our view. We believe the share price implies an overly optimistic level of growth. The shares closed at $2.20 on July 12.
Michael Heffernan, PhillipCapital
The retail giant has strongly rebounded following the Masters hardware debacle. The recent significant restructuring of its hardware, supermarket and Big W businesses is a step in the right direction. And the recently announced fuel supply agreement with Caltex also looks sound. BHP Billiton (BHP)
The global miner is cashed up on the back of higher crude oil and iron ore prices. The potential sale of shale assets in the US will add to its coffers. Also, the potential for a capital management initiative, given its large pile of franking credits, make BHP shares attractive at current prices. The shares were trading at $33.51 on July 12. HOLD RECOMMENDATIONS
The recent market release and investor presentation were impressive. Investments in product development and market growth initiatives combined with a pipeline of new products are expected to underpin profit growth. Shares in the hearing implants maker were trading at $199.40 on July 12. Computershare (CPU)
This global share registry company is poised to benefit from lower company tax rates in the US. The company also invests in short term US interest rates, so rising rates are a bonus. Expect an increasing number of new floats, rights issues and placements as world economies and share markets improve. This, in turn, will provide fund inflows to Computershare. SELL RECOMMENDATIONS
Ramsay Health Care (RHC)
The private hospital operator recently downgraded earnings guidance due to difficulties in its overseas markets and several operational issues in Australia. RHC advised the market that earnings per share growth for fiscal year 2018 is expected to be about 7 per cent as opposed to previous guidance of between 8 per cent and 10 per cent. Best to wait for a return to sustained profit growth. CSR Limited (CSR)
A steady decline in Australian building approvals paints a subdued outlook for this building products company, in my view. The shares have fallen from $5.74 on May 4 to trade at $4.48 on July 12. The trends are against CSR at this point. In my opinion, better opportunities exist elsewhere.
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