Julia Lee, Bell Direct
Northern Star Resources (NST)
With the gold price due for a bounce after prolonged weakness, Northern Star is looking good. Its recent acquisition of the Pogo underground gold mine at a time of depressed underlying gold prices is a shrewd move. A top acquisition and good timing.
Mayne Pharma Group (MYX)
When looking at full year results, it’s always encouraging to see the second half of the year speeding up. It points to future growth and this is the case for Mayne Pharma. Second half revenue in its core generic medicines business grew by 26 per cent amid underlying gross profit margin expansion. Additionally, there’s potential for new products to be launched in the current financial year, adding further revenue streams. The risk is more US regulation in this area.
This telecommunications giant is still the market leader in a difficult industry. When investing in new technologies, such as 5G, having the deepest pockets can be an advantage as it means less capital spending per existing user. Also, the slow move from momentum to defensive strategies should support the share price.
QBE Insurance Group (QBE)
The tailwind of rising US interest rates should boost earnings from its investment portfolio. QBE’s strategy to maintain operations in all key insurance markets means its diversification strategy helps to manage risk. QBE is a hold and should hover around $11. The shares were trading at $10.985 on September 20.
Estia Health (EHE)
A key risk from the Royal Commission into aged care is a spotlight on quality. The key way to address quality would be to introduce mandated staff to resident care. But this would lead to a big jump in costs in a sector with already high staff turnover and one that’s struggling with profitability. EHE has relatively low employee expenses as a percentage of revenues per place. But I wouldn’t want to be holding any of the three listed aged care operators during the Royal Commission.
BWX Limited (BWX)
This vertically integrated body, hair and skin care company has lost around half of its value in 2018. With Bain Capital walking away from takeover talks after 12 weeks of due diligence, expect the takeover premium to seep out of the share price. It now looks like there will be substantial changes to the executive team and this is a turnaround play. With the executive team recently holding around 10 per cent of stock, there’s a risk that some will be sold. A turnaround is at least year to 24 months away.
Michael McCarthy, CMC Markets
Eclipx Group (ECX)
Involved in vehicle fleet leasing, fleet management and diversified financial services in Australia and New Zealand. Investors and analysts reacted poorly to a constrained outlook delivered at its August results. The ECX board rejected a takeover proposal from SG Fleet Group in August. The board concluded the cash and scrip offer valuing ECX at $2.52 a share was inadequate. A key question for investors is whether the restructuring of ECX’s product offering now puts the company in a position to outperform. Those who believe the company will outperform might consider the current share price a bargain. The shares were trading at $2.44 on September 20. BHP Billiton (BHP)
The recent share price retreat provides an opportunity to add to holdings. The global miner’s gearing is near historic lows. Energy and iron ore prices remain above most long term estimates. Although costs are forecast to rise, growth concerns in response to potential trade disputes could already be fully factored into prices. There’s also potential for a capital return to shareholders if existing conditions sour, providing a potential risk offset.
HOLD RECOMMENDATIONS Ramsay Health Care (RHC)
Shares in this private hospital operator tumbled as investors anticipated a 20.6 per cent fall in full year statutory net profit after tax announced on August 30. It may be worth hanging in RHC given its more conservative positioning and the potential for a currency kicker to earnings. Galaxy Resources (GXY)
Shareholders benefited from lithium mania late last year. The shares peaked above $4.50 earlier this year. It was recently trading closer to longer term support and resistance at $2.40. In my view, GXY is a potential takeover target, so long term believers in the lithium battery story could be rewarded for staying. The shares were trading at $2.555 on September 20.
SELL RECOMMENDATIONS Mirvac Group (MGR)
This diversified property group had recently rallied by more than 20 per cent since February, returning it to post GFC highs. Pressure on property prices and rising interest rates are rarely good news for real estate investment trusts. A recent unfranked dividend yield below 5 per cent and an increased risk profile due to recent acquisitions could lead to profit taking. Macquarie Group (MQG)
A top performer in the financial space, and potentially a solid long term investment proposition. However, the recent share price rise puts it well ahead of its peers on many investment metrics, including dividend yield. Investors took the conservative guidance as a positive, but generational change at the top may mean digestion issues and a correction in the stock.
Gavin Wendt, MineLife
Cardinal Resources (CDV)
CDV has just released a robust pre-feasibility study for its Namdini gold project in Ghana, which confirms it to be one of Africa’s most promising undeveloped, large gold assets. Financial modelling of the project shows it to be technically sound and financially viable, potentially generating $US1.4 billion of free cash flow (pre-tax) utilising a 9.5 million tonne per annum production model. Based on a $US1250 gold price, the financial model generates a 38 per cent post tax internal rate of return, with low all-in sustaining costs (AISC) of $US599 an ounce for the first two and a half years, including a payback period of almost two years.
Oklo Resources (OKU)
OKU has just announced the potential for another major gold system at its Kouroufing Project in Mali, with a first pass program of shallow drilling generating significant results. Work has generated a six kilometre long corridor of high grade gold anomalies, which is significant. It’s the same method of exploration that outlined an extensive 12 kilometre long gold corridor within the company’s Dandoko Project acreage just 20 kilometres to the north west. The auger program has only covered 25 per cent of the project area so far, with future drilling aimed at extending the dimensions of the gold corridor.
Pilbara Minerals (PLS)
The key to its success has been first mover status in the burgeoning Western Australia lithium sector. It acquired a first class acreage position when lithium wasn’t a mainstream investment story. It has since implemented a meticulous program of exploration and appraisal activity that’s demonstrated the scope and high quality of its spodumene-lithium resource base. This has flowed to successful off take agreements, with high quality end users in China providing project development funding. The company is about to export its first shipment of spodumene concentrate.
Kibaran Resources (KNL)
KNL has received assurances from Tanzanian authorities regarding renewal of its mining licence for the Epanko graphite project. This is a significant project development, as it provides greater certainty to the investment market and potential funding partners. KNL has maintained a measured and strategic approach to achieving production status at Epanko, which has demonstrated robust project commerciality.
Clean TeQ Holdings (CLQ)
After hitting a high of $1.78 late last year, the shares have plunged to trade at 51.5 cents on September 20. Last year, cobalt prices rocketed higher and continued to do so until March this year. But since then, prices have crumbled and cobalt focused companies have seen their shares do likewise. There’s every chance that cobalt prices haven’t bottomed, meaning there could be further pressure on the CLQ share price in coming months.
Peel Mining (PEX)
Peel is advancing its tenements in New South Wales, including its Wagga Tank-Southern Nights project, which is emerging as one of the most significant zinc polymetallic (zinc plus copper, gold, silver, lead) discoveries in Australia in recent years. But a lot of the speculative sizzle that hit the stock late last year has slowly evaporated, as markets grapple with lower base metal prices. There could be further selling pressure in the stock.
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