Sean Conlan, Macquarie Private Wealth
In reporting its October traffic, Qantas revealed a recovery in domestic yields and a moderation in declining international yields. International yields appear to be stabilising, but a step up in capacity on major routes and price discounting continues to wash through the numbers. On a valuation basis, Qantas remains cheap compared to its regional peers.
Incitec Pivot (IPL)
IPL announced that Dyno Nobel president Don Brinker will be leaving the commercial explosives business. The heads of North America and Asia Pacific remain unchanged. We believe this is about new IPL chief executive James Fazzino putting his stamp on the business. IPL is trading at a discount to its peers on several multiples. We expect the company to out-perform.
Woodside Petroleum (WPL)
We have upgraded this oil and gas giant to neutral, and raised our price target to $50 levels. Incorporating revised capital expenditure guidance, the Pluto cost increases and lower production guidance may require an additional $157 million to make ends meet. Given the Apache deal collapsed, Woodside will focus more on internal exploration efforts, which make Pluto 2 a slower and more risky proposition.
Perpetual recently reaffirmed first half 2010 net profit after tax guidance. The private wealth division remains a focus for growth – current market share is less than 2 per cent. A fragmented market provides opportunities for acquisitions.
Riversdale Mining (RIV)
Brazilian steelmaker CSN has announced its intention to buy a 16.3 per cent stake in Riversdale Mining. The acquisition highlights our bullish outlook for coking coal based on our view of limited new supply entering the market. We retain an under-perform recommendation for Riversdale based on valuation grounds and risk proposition. For coking coal exposure, we prefer BHP Billiton and Macarthur Coal.
Australand Property Group (ALZ)
We have downgraded our earnings forecasts on the back of industry feedback suggesting continued margin pressure. ALZ is trading at our price target and higher interest rates pose a risk to a short-term turnaround in residential earnings.
Peter Day, Wilson HTM
A diversified giant with multiple earnings streams, including supermarkets, hardware and petrol. The company recently announced a $420 million investment that will open 12 new stores in NSW over three years. Expect more growth as Bunnings continues to expand its store network over the longer term.
This wealth manager and life insurer is vulnerable to a takeover offer. Don’t be surprised to see an Australian bank make a bid for AMP if it’s underweight in wealth management. AMP is trading on a price/earnings ratio of 13 times and a 6 per cent dividend yield. The stock appears cheap considering a return on equity of 30 per cent and earnings per share growth of 20 per cent.
Cabcharge Australia (CAB)
Operates a national charge facility for paying taxi fares and offers related business surcharge services. The recent AGM implied a soft start to the year. Taxi payments turnover in the 2010 first half will be at similar levels to the seasonally quieter second half of 2009.
Woodside Petroleum (WPL)
The Pluto 1 project continues to progress well, albeit 10 per cent above budget. We remain cautious pending drilling of larger prospects in 2010. Production guidance for 2010 of between 70 million and 75 million barrels of oil equivalent is below our expectations due to a scheduled outage at a North West Shelf project and a greater than expected decline in mature oilfields.
Incitec Pivot (IPL)
The recent 2009 full-year result for this fertiliser and chemical business was disappointing. A $491 million write down on the explosives business highlights the challenges in meeting targeted benefits and returns. More risks include global fertiliser prices, seasonal conditions, explosives demand, synergies and the value of the Australian dollar.
Uncensored documents relating to CSL’s failed $US3.1 billion takeover bid for Talecris Biotherapeutics were released by a US judge. The documents allege CSL feared Talecris would raise blood plasma production and slash industry profitability. Releasing the documents may provide fresh ammunition in a multi-million dollar civil case against CSL and rival Baxter International. A dozen US hospitals have already launched their class action.
Peter Russell, Intersuisse
Provides drilling fluids and leading down-hole instrumentation to the global mining, oil, gas and civil engineering industries. Expect sound earnings growth going forward. Imdex has been stgeloping modern gyroscopes to enable full down-hole precision surveys where magnetic surveys are difficult. Substantial prospects from its potential gyro-technology add upside.
A clear leader in online job advertising, with almost 60 per cent of the Australian and New Zealand markets. Expect earnings to grow as more ads continue to migrate from print to online media. It also has online job advertising operations in China, Brazil and South East Asia. Its education and training business is growing very rapidly.
Dexus Property Group (DXS)
Internally managed property owner and stgeloper, it claims to be number one in office and number three in industrial in Australia and New Zealand. Its high quality and 75 per cent of its Australian-based portfolio offers relatively secure income, underpinned by long-term contracts. The large stgelopment pipeline adds to otherwise inflation-like growth.
Insurance Australia Group (IAG)
Managing director Michael Wilkins has been making improvements since joining the group as chief operating officer in November 2007. Insurance premiums are stronger and operating efficiencies are taking effect. The New Zealand market is recovering, and exposure to the under-performing UK private motor vehicle market has been reduced. Earnings and yield are set to rise steadily.
West Australian Newspapers Holdings (WAN)
Its West Australian newspaper holds a dominant position in readership and revenues. However, print advertising faces tougher and increasing competition from online competitors. There are better prospects elsewhere.
Spotless Group (SPT)
Provides outsourcing and labour-based services in Australia, New Zealand and the US. Its Retailer Services division provides hanger systems, labels and packaging to the garment manufacturing and retail industries. Domestic operations should benefit from improving conditions in the next two years. However, the company faces difficult challenges overseas, and a stronger Australian dollar will be a drag on results. Better opportunities elsewhere.
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.
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