Michael Heffernan, PhillipCapital
BUY RECOMMENDATIONS ASX Limited (ASX)
Provides the major market exchange for dealing in equities and derivatives in Australia. ASX revenues should be bolstered by the combined effect of stronger sharemarket prices and additional capital raisings. Also, the lower Australian dollar may also encourage foreign investors to enter and trade in our market.
Domino’s Pizza Enterprises (DMP)
While its recent report was most satisfactory, DMP’s share price is off its 12-month closing high of $57.70 on August 29 this year. Despite this, its international exposure and cutting edge digital delivery methods are first class, so, in my view, its future remains positive. The shares were trading at $52.23 on September 27. HOLD RECOMMENDATIONS
Rio Tinto (RIO)
Re-focusing on core activities amid significant cost cutting should increase future revenue and benefit shareholders through capital management initiatives. The demand outlook for iron ore is bright given a strong recovery in major world economies. The recently announced off-market buyback looks attractive for investors given the substantial fully franked dividend component.
This Australian based international share registry business consistently delivers sound results in challenging circumstances. It benefits from improving global sharemarkets and a stronger US dollar. International diversification adds to its appeal.
Costa Group Holdings (CGC)
This specialist horticulture, berry and avocado company is the only listed firm of its kind on the market. But it has experienced recent adverse weather issues with its Moroccan berry business, which has hurt its share price. Until the dust settles, look elsewhere. Afterpay Touch Group (APT)
APT operates a modern day version of the lay-buy system. The share price of this company operating a buy now, pay later platform has risen from a 12 month low of $4.03 on September 28 last year to a year high of $23 on August 24 this year. But the share price has since plunged to trade at $17.35 on September 27. In my view, it’s a stock for the risk taker rather than the careful conservative retail investor.
Peter Moran, Wilsons
A Transurban led consortium has won the bid for 51 per cent of the WestConnex toll road project for $9.3 billion. The road is scheduled to open in its entirety by 2023. We view the deal as positive because it provides longer term growth and is a good fit with TCL’s other Sydney assets. The share price has been weaker because of the capital raising to fund the purchase. This provides a good buying opportunity.
The outlook for this global packaging company looks brighter. North American beverage volumes are improving and raw material costs are stabilising. We believe share price weakness provides a buying opportunity. The 52-week price high was $16.10 on October 19 last year. The shares closed at $13.60 on September 27. HOLD RECOMMENDATIONS
Rural Funds Group (RFF)
The group has continued adding to their assets with the acquisition of a cattle and a cotton property in Queensland. We expect RFF to add more value to their properties and be able to increase revenue over time. However, in our view, the shares are trading at fair value. Premier Investments (PMV)
The company reported solid full year 2018 results, with the Smiggle and Peter Alexander retail brands continuing to show strong growth. Although we expect continuing growth, share price gains of about 20 per cent this year means the good news is factored in. SELL RECOMMENDATIONS
Netwealth Group (NWL)
Netwealth is one of the better investment platform providers and is well managed. However, at current prices in an increasingly competitive environment, we believe the shares are too expensive. The shares closed at $8.10 on September 27.
Our analysis shows declining food sales in the underlying business, and it’s getting harder for MTS to sustain profitability by cutting costs. We found hardware sales growth is slowing and we’re concerned that housing price weakness could further pressure this division.
Tony Paterno, Ord Minnett
Treasury Wine Estates (TWE)
TWE continues to execute extremely well, applying fast moving consumer goods thinking. TWE is focusing on fewer brands and is leveraging scale to marketing, innovation and flexible sourcing within the wine industry. It’s also well placed to access the structural growth drivers of Asian wine demand, particularly in China. Further, the company has a disciplined approach to using capital and generates strong cash flow. These attributes should provide very strong earnings growth in the years ahead.
Alliance Aviation Services (AQZ)
The recent full year financial result was ahead of our expectations across almost all metrics. The company outlook caused us to significantly upgrade our expectations. Alliance’s aircraft inventory will now be deployed much faster than previously anticipated. Providing this additional capacity should leave Alliance well positioned to build market share. Consequently, this has boosted our short and medium term earnings expectations. With free cash flow generation increasing, we anticipate a bigger dividend payout from fiscal year 2019 and beyond.
We believe improving economic indicators and a good performing portfolio of growth brands are driving sound top line growth. However, we’ve been unimpressed by the rate of earnings growth outside what has been delivered by cost saving initiatives. We view Ansell as a business offering modest mid term earnings growth, but believe this outlook is reflected at current prices. Shares in this protection solutions company were trading at $25.25 on September 27.
Costa Group Holdings (CGC)
The fruit and vegetable grower’s fiscal year 2018 results showed significant progress in profitability, driven by citrus and avocados. Management is building a visible runway of growth, driven by berries, avocados, mushrooms and expansion overseas. Capital expenditure is materially increasing and, in the near term, we believe growth aspirations are matched by high market expectations.
ALE Property Group (LEP)
Owns a portfolio of 86 freehold pub properties across Australia. The pubs are leased to Australian Leisure and Hospitality Group (ALH), a joint venture involving supermarket giant Woolworths. LEP generates stable, long term income. However, LEP appears fully valued to us, trading at a significant premium to net tangible assets.
Monadelphous Group (MND)
In our view, this engineering contractor is likely to face challenges in fiscal year 2019 as large LNG-related oil and gas contracts roll off. We believe the stock trades at a premium valuation and we see risks to consensus.
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