Grant Dwyer, Patersons Securities
Nido Petroleum (NDO)
At the end of the September quarter, Nido Petroleum had $12.1 million cash in the bank. Since then, the company has sold a 10 per cent stake in the Tindalo stgelopment for $8.5 million and has continued to receive revenue from its 22.9 per cent stake in the Galoc field. The company expects the Tindalo stgelopment, now 50 per cent owned, to start production next year. A recent discovery by Exxon Mobil in the Philippines has focused market attention on 30,000 square kilometres of exploration permits held by Nido and its partners, which contain over 100 exploration targets.
We have upgraded our earnings forecast by 15 per cent. After the Brandrill merger is complete, annual sales will approach $800 million. The company’s contract drilling operations will span coal, gold, coal seam gas and iron ore. Ausdrill has reduced its operational risk profile by spreading its operations geographically and over different commodities.
Gindalbie Metals (GBG)
Gindalbie recently received environmental approval for stgeloping the $1.8 billion Karara Iron Ore Project. All equity funding for this project is in place. Karara’s JORC (Joint Ore Reserves Committee) resource may have a 50-year project life. Construction has started, so expect production to begin in late 2010.
CSR Limited (CSR)
CSR reported a 22 per cent increase in first half 2010 EBIT (earnings before interest and tax), with a significant improvement in the sugar division helping to offset lower earnings from building products, aluminium and property.
AWB Limited (AWB)
AWB has expanded its focus on non-wheat pool activities following the removal of the single desk. Competition with bigger companies in the core wheat business has reduced margins and volumes. Now that AWB has sold its $2.4 billion loan book and $300 million debenture book to the ANZ bank, we have reduced our earnings forecast.
APN News & Media (APN)
Business conditions have improved, but expect the company’s publishing and classified arms to be pressured by online competition. The improving share price presents an opportunity to reduce exposure.
Ben Potter, RBS Morgans
Qantas Airways (QAN)
Qantas is one of the most financially robust airlines in the world. We see further share price upside on the back of a more positive news cycle and an anticipated pick-up in passenger travel numbers. Jetstar’s domestic operations continue to perform well.
Whitehaven Coal (WHC)
A capital raising earlier this year has left the company financially sound with a $240 million cash position. Expect more growth from its coal projects located in the Gunnedah region of NSW. We also expect more consolidation in the coal sector and, accordingly, WHC is a potential takeover target.
Sonic Healthcare (SHL)
This medical diagnostics company recently acquired a US-based clinical laboratory providing US$30 million in revenue a year. Expect further acquisitions to generate more growth next year.
Transurban Group (TCL)
The Transurban board has rejected a takeover bid from two Canadian pension funds pitched at $5.25 a share, but it may be open to higher offers. Shareholders should remain invested in this toll road owner as the market is anticipating a higher bid, possibly around the $6 level.
Iluka Resources (ILU)
While we see an improving outlook for mineral sands demand, sales revenue has been adversely affected by a rising Australian dollar. Better value exists in the resource sector.
The share price of this engineering services company looks expensive based on profit forecasts, despite possible long-term global energy and resource growth trends. Investors should take profits at these prices and look for a cheaper entry point.
Andrew Doherty, Morningstar
Alesco Corporation (ALS)
This distributor of housing and construction products and the manufacturer of B&D Doors will benefit from a turnaround in housing activity in the next two years. The balance sheet is in good shape after selling its scientific and medical division in April. Not capital intensive, it’s a reasonable generator of cash and dividends, but investors need to be comfortable with a cyclical stock.
The supermarket giant has an excellent track record, and offers good prospects for sustained earnings growth. Growth results from increasing sales per store, more stores, refurbishments and extending into new types of retail. It has good cost controls via improving supply and logistics arrangements. The balance sheet is solid and cash flows are strong.
The only global share registrar administers more than 80 million shareholder accounts for more than 13,000 corporations across 12 countries on five continents. With its scale, expertise, strong balance sheet and low capital requirements, CPU should generate solid long-term growth. Scale, including depth of technology, is an important competitive advantage.
Bradken has large market shares in mining and rail equipment. Increasing mining and rail activity provides a positive backdrop for the next few years. BKN is low margin, capital intensive and cyclical. Regard it as a higher-risk trading stock.
A vessel builder, its commercial ferry order book enables a reasonably solid repeat workflow. Sizeable but lumpy defence orders offer growth opportunities. Sales are difficult to predict. The share price more than reflects the business potential.
Although this building products and materials supplier is leveraged to improving housing and construction markets, we believe prospects are fully priced in. Boral operates in a challenging industry, characterised by cyclical demand, and it requires high levels of investment in capacity and facility maintenance. This results in relatively low returns on capital.
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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