Steve Collette, StoneBridge Group
Commonwealth Bank (CBA)
Following the strength remains the key as CBA’s relative outperformance to its peers was crystallised further with a recent upgrade. With a dividend due in mid-February, prepare to buy at current levels, targeting a retest of previous highs.
Newcrest Mining (NCM)
Australia’s highest quality gold major is potentially set for a significant re-rating on the back a resilient gold price in Australian dollar terms and further expansion of existing resources. Also, under-ownership by Australian institutions, to be redressed in the next six months, may also contribute to a re-rating.
BHP Billiton (BHP)
With a wonderfully bullish technical pattern, stronger base metals amid healthy Chinese demand for iron ore, BHP’s stars are broadly aligned. A possible capital return also looms for the world’s biggest miner. To have underweight bets here is a risky proposition before there is any strong evidence that the short US dollar trade is being meaningfully unwound.
QBE Insurance (QBE)
QBE has strongly recovered from its 2009 lows, with the share price bouncing more than 50 per cent. Notwithstanding this bounce and the negative Australian dollar correlation, QBE remains a hold given the quality of its operations, in particular on a relative basis to its domestic-listed peers.
United Minerals Corporation (UMC)
I am tending to think another potential bidder for this junior miner would have shown its colours by now. The narrowing of the share price to BHP’s bid of $1.30 paints a picture and is behind my reasoning. In early morning trade on January 22, the shares were trading at $1.29. If other opportunities present, prepare to take this profit.
Insurance Australia Group (IAG)
Largely range-bound insurance name with reasonably non-descript recent guidance. It tends to get periodically stronger on rumours of corporate interest, which have never been realised. Given relative under-performance, in combination with recent activity elsewhere in the sector, I’m happy to liquidate in preference for other insurers/wealth managers.
Andrew Doherty, Morningstar
CSL stgelops, makes and markets biopharmaceutical products. Competitive advantages stem from the scale of operations and integration of services from blood collection to product manufacture. Expect earnings to be boosted in the next few years by the introduction of the Privigen product, the world’s first liquid form of intravenous immunoglobulin (IVIG), which can be stored at room temperature so it doesn’t require refrigeration or reconstitution.
Customers Limited (CUS)
One of Australia’s biggest independent ATM operators, CUS has a 20 per cent market share similar to its major rival Cashcard. The RBA’s decision in March 2009 to introduce direct charging enabled the company to take a larger share of transaction fees, which boosts revenue. Sales from co-branding arrangements, advertising and other automated services are still immature and offer growth opportunities.
Coca-Cola Amatil (CCL)
A well-managed bottler of mostly non-alcoholic beverages. Competitive advantages include the Coke brand power and its extensive distribution network. It’s still to gain the full benefits from expanding into packaged fruit and snack food after acquiring SPC Ardmona in 2005. The balance sheet is solid and dividend stream robust.
CSR is pursuing a demerger of sugar from its building products, aluminum and property businesses. China’s Bright Food company is showing an interest in acquiring sugar for up to $1.5 billion, including debt of $300 million. However, this now appears too low to attract CSR’s interest, and, in any case, there’s no concrete offer. There’s now a floor under the value of sugar. CSR’s share price is not particularly cheap at current levels.
Amcor is focusing on flexible packaging for food, beverages and specialty printed cartons for tobacco and confectionery. Chinese cigarette packaging provides growth. In Australia, AMC provides its full range of packaging products. With limited industry pricing power, there’s little competitive advantage. Cash flows are reasonably solid, but dividends are only partly franked.
MaxiTRANS Industries (MXI)
A supplier of road transport trailing solutions, it benefits as a market leader in vans and trailers. Clients include blue-chip names, such as Woolworths, ALDI, Toll and Linfox. Access to customers through its own retail outlets in Victoria, and an unequalled national dealer network are key strengths. Large capital expenditure requirements have posed a problem in the past. The current share price overstates the outlook.
Les Szancer, Kinetic Securities
Gryphon Minerals (GRY)
Gryphon has been named gold explorer of the year (2009) by the highly regarded “Gold Mining Journal” magazine. Gryphon has increased its JORC (Joint Ore Reserves Committee) inferred resource estimate to 1.1 million ounces in the past year. Keep an eye on this stock. It’s a medium to long term buy.
Azumah Resources (AZM)
This company is approaching the halfway mark of a 41,000-metre drilling campaign, aimed at enlarging the size of the gold resource. Expect the first results to be publically released in the next two weeks. It will be interesting to see what effect, if any, the results will have on the company’s share price.
Fortescue Metals Group (FMG)
Focuses exclusively on stgeloping Pilbara iron ore and infrastructure projects. Costs may moderate further from peak levels, but we still expect them to negatively impact margins. However, China’s urban infrastructure and construction programs should continue to underpin long-term demand for iron ore.
Mirvac Group (MGR)
Mirvac is a diversified property group, with two principal business operations – property investment/funds management and property stgelopment. MGR’s investment division provides sound recurring income from a well-diversified property portfolio, which we expect will contribute the bulk of short-term earnings. Expect improving domestic market conditions and consumer sentiment to underpin an earnings recovery in MGR’s stgelopment division and funds management business.
Minara Resources (MRE)
This nickel-cobalt producer operates the Murrin Murrin joint venture project with Glencore in Western Australia. MRE doesn’t hedge its nickel sales prices, exposing it to current volatility that’s influenced by lower demand and uncertain recovery rates in the global stainless steel sector. MRE isn’t a low-cost producer, and its earnings have been impacted by existing weakness in the nickel cycle. Likely softer sales volumes and constant cost pressures may add further to margin maintenance.
Valad Property Group (VPG)
Valad’s revenue is diversified across a broad range of property sectors, including office, industrial, retail and self-storage. VPG’s business model of engaging in “value adding” property activities appears to have a continuing negative impact in the current downturn. Short term, expect VPG to continue along the asset sales path, exiting businesses and managing its stgelopment book, which may have a negative impact on earnings. Most recently, Valad confirmed there would be no distribution to holders of VPG stapled securities for the six months ending on December 31, 2009.
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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