Sean Conlan, Macquarie Private Wealth
CPU announced that 2010 first half management EPS (earnings per share) will be 20 per cent higher than the previous corresponding period. We now expect full-year EPS growth to be 18 per cent, compared to 4 per cent previously. EPS of 18 per cent in 2010 assumes a marginally softer second half compared to the first. CPU remains our preferred pick in the sector. We expect another year of double digit EPS in 2011, underpinned by rising interest rates and improving merger and acquisition deal flow.
Lihir Gold (LGL)
Its 2009 fourth quarter production report was in line with previous guidance. Guidance for 2010 will see production marginally decline year-on-year, while costs increase. We retain our outperform recommendation and 12-month price target of $4 a share. The shares were priced at $2.84 in early morning trade on January 29.
While Boral, a building materials stock, clearly offers mid-to-long term value and very good leverage to the domestic and US recoveries, an environment of rising interest rates and short-term earnings risk has led us to neutralise our investment view.
Wotif.com Holdings (WTF)
The online accommodation specialist has outperformed strongly in the past 12 months and is again trading at a significant premium to the market. It’s a highly cash-generative business with a strong medium-term outlook. The key issue is one of valuation rather than execution or outlook.
PMP Limited (PMP)
We retain our underperform recommendation with a revised 64c price target (from 60c). Full-year 2010 should see challenging conditions continue on the distribution side (loss of market share) and weak print volumes. However, we expect earnings to benefit from cost-cutting initiatives implemented in the second half of 2009.
Fortescue Metals Group (FMG)
We believe significant expansion upside is priced in when its 55 million tonnes per annum target is yet to be achieved. We believe that other pure play iron ore producers, such as Mount Gibson, have more leverage than FMG to short-term iron ore price strength. We retain an under-perform recommendation and price target of $3.04 a share.
Mark Goulopoulos, Patersons Securities
Provides professional services to the energy and resources sector, both of which are experiencing long term, structural demand growth as the populations of China and India become more affluent. A recent profit warning has caused a sharp share price fall, presenting an excellent long term buying opportunity.
Halcygen Pharmaceuticals (HGN)
Halcygen is a licensee and stgeloper of super generic pharmaceuticals. It recently acquired the assets of Mayne Pharma International for a very attractive price. This acquisition will complement its existing business and offers strong growth prospects over the medium term.
Leighton Holdings (LEI)
The Australian construction and contract mining sector strengthened significantly in the second half of 2009 as the worst of the global financial crisis was navigated. This was accompanied by a strong rally in the Leighton share price, which we now believe is fully priced.
OZ Minerals (OZL)
Although the operational performance of its flagship Prominent Hill project has improved considerably to full capacity, it’s already reflected in the share price that’s remained resilient in the past few months. The key medium term catalyst will be the results of a feasibility study for an underground extension to Prominent Hill.
James Hardie Industries (JHX)
The share price of this building materials stock rose considerably in 2009 on a wave of optimism that US housing starts would increase. This is yet to happen. Rather, a big number of US mortgages will reset at higher rates during 2010, which is likely to further increase foreclosures and depress any potential revival in housing starts.
Foster’s Group (FGL)
A perennial underperformer. A recent announcement the wine division is still under performing continues this trend. While reliable and high cash flow beer operations will provide defensive appeal, Foster’s lacks a clear growth catalyst.
Brendan Fogarty, Alto Capital
Rio Tinto (RIO)
China and most of Asia have a strong appetite for commodities, and for this reason, I favour the resources sector. The US and Europe continue to stagnate. Rio Tinto has largely overcome the shocks of 2008 to emerge with a reformed balance sheet. Its diversified and world-class asset portfolio includes iron ore, aluminium, coal, copper, diamonds, gold and uranium. A strong fourth quarter and high leverage to the burgeoning iron ore sector should see Rio continue its recovery.
BC Iron (BCI)
Sticking with the strong iron ore sector, those looking for exposure to the smaller end of the market, BC Iron fits the bill. Its Pilbara-based Nullagine project, backed by a joint venture with Fortescue Metals, is targeting initial production of 1.5 million tonnes per annum, ramping up to 3 million tonnes. At this stage, the project looks likely to get the nod, potentially providing shareholders with a highly leveraged iron ore exposure at a relatively cheap entry.
Karoon Gas (KAR)
This oil and gas firm has strong exploration assets across the Browse Basin (WA), Santos Basin (Brazil) and Tumbes Basin (Peru). Having already confirmed a major gas find at Poseidon-1, critical testing at Poseidon-2 hasn’t established the expected flow rates required to commercialise the Browse Basin project. If Poseidon-2 cannot establish a strong flow, subsequent drilling at Kronos-1, interpreted to be located in a better part of the gas column structure, will have a critical impact on the viability of the Browse Basin project and, indeed, Karoon Gas.
Nomad Building Solutions (NOD)
Nomad make and install accommodation for Australian-based projects across the mining, oil, gas, construction, industrial and leisure sectors. Nomad has recently disappointed the market with cost blowouts, which put management under the microscope. Hold for the prospect of management improving its efforts to exploit the growing need for short and long-term accommodation in a strong resources sector.
News Corporation (NWS)
Maintains a dominant position in film, television, internet and print assets across the world. However, we expect limited growth and return on invested capital for the best part of the next five years. Also, a nil franked dividend yield below 1 per cent leads us to conclude there are better investment opportunities elsewhere in the market.
Pacific Brands (PBG)
Drastic times call for drastic measures and Pacific Brands is an example of this. It’s significantly restructured the design, manufacture and marketing of their everyday retail consumer brands to avoid what may have been a potential company collapse during the dark days of the GFC. However, low margins and the low growth industries it operates in are likely to limit a turnaround for Pacific Brands going forward.
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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