Michael Heffernan, PhillipCapital
Tabcorp Holdings (TAH)
The merger with Tatts Group is now completed and synergies should continue to emerge to boost future results. It recently posted a full year statutory net profit after tax of $28.7 million, up from a $20.8 million loss in the prior corresponding period. But it’s all about the future benefits from the Tatts merger, which will drive performance going forward. TAH pays an attractive fully franked dividend yield around 4.5 per cent.
Aristocrat Leisure (ALL)
Designs poker machines and operates in the digital and online gaming market. ALL has sound fundamentals and benefits from a stronger US dollar. If it matches the enviable performance of other Australian stocks with US exposure, then we should be able to look forward to a good result at its next report in November. HOLD RECOMMENDATIONS
Its recent impressive full year report disappointed some, but the knee jerk fall in share price represented a buying opportunity in this hearing implants maker. Investment in product development and its expansion in developed and emerging markets should underpin future profitability. The shares have bounced since its August 14 report to close at $209.56 on August 23. CSL (CSL)
This internationally renowned blood plasma and vaccine developer has been a sharemarket star since listing in June 1994. Its recent full year report was most impressive and it should benefit from any strengthening in the US dollar, where it generates a sizeable proportion of revenue. SELL RECOMMENDATIONS
G8 Education (GEM)
Shares in this childcare centre operator have fallen from $4.71 on October 24, 2017 to close at $2.44 on August 23, 2018. My analysis of its outlook suggests challenging times ahead on the supply growth front. Continuing changes in the regulatory environment are unhelpful.
A major supplier of commercial explosives to the mining and quarrying industries. However, an increasing supply of explosives and price competition hurt its last results. Until there is a return to sustainable profit growth, other stocks appeal more.
Justin Klimas, Wilsons
The hearing implants maker recently released relatively conservative guidance for financial year 2019, resulting in a sell off. We view this as a buying opportunity as Cochlear is continuing to gain momentum in the US and is progressing well with its Nucleus 7 upgrades. Cochlear continues to enjoy a dominant market position and we expect earnings to support steady long term share price growth.
Aristocrat Leisure (ALL)
ALL is the leading Australian gaming machine manufacturer and appears likely to retain this position for the next 12 months. The company is continuing to grow in Australia, New Zealand and the US. Recent acquisitions of online gaming companies Plarium and Big Fish Games should generate further growth. Continuing product investment should keep competitors at bay.
Full year results showed a 29 per cent increase in net profit after tax to $US1.729 billion. Earnings per share grew 30 per cent. The company’s HAEGARDA product (used to prevent hereditary angioedema) had a strong debut. High margin products helped offset increasing costs for raw plasma collection. Product launches by plasma competitors could challenge CSL in the long term, but the earnings per share growth outlook is still encouraging.
Crown Resorts (CWN)
The casino operator posted a solid financial year 2018 result. A good cost performance at Crown Perth and higher than anticipated VIP turnover growth were the main drivers. Crown Sydney is expected to open in the first half of financial year 2021. The balance sheet is good and the company announced a new $400 million share buyback program.
The company’s first half 2018 result was adversely impacted by an increasingly competitive market. A fall in case volumes for the half can be attributed to the closure of sites for refurbishment. The company’s protect and grow strategy is increasing costs and capital expenditure, in our view. A customer shift towards lower priced cremations is also a concern.
Integrated Research (IRI)
Growth declined in the European unit over the last financial year and growth in the US was low. The moderate increase in profit over last year appears to be a result of cost reductions and a one off write-back. Cloud related products are a major structural driver in information technology and, in our view, IRI is lagging in this space.
Adam Spicer, Baillieu Holst
Global Construction Services (GCS)
Recently reported a 25 per cent increase in fiscal year 2018 net profit after tax to $13.6 million. The final dividend is 2.5 cents a share, bringing the full year total to 4.5 cents. The business has strong balance sheet with a net cash position, a robust order book going into fiscal year 2019 and potential upside risk to earnings with cladding rectification work. The stock is attractively priced, recently trading on prospective fiscal year 2019 price/earnings ratio of 9 times and a fully franked dividend yield of 6.6 per cent.
Mayne Pharma Group (MYX)
A pharmaceutical company that makes branded and generic products, which it distributes directly, or through distribution partners in Australia, the US, Europe and Asia. MYX looks undervalued based on a pipeline of new drugs expected to be launched in fiscal year 2019. MYX generates EBITDA margins of about 40 per cent. The short position in the stock has more than halved over the past five months, which recently stood around 5.58 per cent.
The paint company delivered a solid first half result in May, generating revenue and EBIT growth in all segments of the business. We remain positive about its long term potential. DLX has consistently delivered earnings per share growth and dividend per share growth over the past five years. Magellan Financial Group (MFG)
Its fiscal year 2018 result beat consensus estimates on revenues and costs. The fund manager reported underlying net profit after tax of $268.9 million, up 37 per cent on the prior corresponding period and 12 per cent ahead of consensus estimates. MFG is a high quality business, which has delivered increased revenue and earnings growth over the past eight years. We expect the stock to re-rate and trade at a premium to peers. SELL RECOMMENDATIONS
Inflationary impacts from rising raw material costs, coupled with uncertainty regarding the potential introduction of US tariffs are likely to impede fiscal year 2019 growth. We are cautious as to whether this rubber gloves manufacturer can achieve its organic sales growth target of between 3 per cent and 5 per cent. We believe the stock is fully priced based on our numbers.
Flight Centre Travel Group (FLT)
The travel agency has introduced a transformation strategy, which targets material growth in revenue and improving profit margins over three to five years. The key risk to FLT is stronger competition from online travel competitors in the Australian market. In light of a strong share price, we believe it’s prudent to sell on valuation grounds and the prospect of a softer fiscal year 2019 outlook. The shares closed at $61.68 on August 23.
Please note that TheBull.com.au simply publishes broker recommendations on this page. The publication of these recommendations does not in any way constitute a recommendation on the part of TheBull.com.au. You should seek professional advice before making any investment decisions.