Alex Beer, State One Stockbroking

BUY RECOMMENDATIONS

Westpac Bank (WBC)

Westpac expects more St George Bank merger synergies, with cost savings of $400 million and revenue benefits of $175 million, according to a recent company update. Furthermore, expect a key driver this year to be its size and quality advantage, with strong forecast interest margins and below sector bad debt/loan ratios. WBC is trading on a forward full-year 2010 price earnings ratio of 12 times and a dividend yield of 5.8 per cent.

QBE Insurance (QBE)

QBE made considered purchases in 2009, particularly with its well-timed acquisition of Elders’ insurance business, which are likely to generate synergies into full-year 2010. QBE is also likely to benefit from any increase in gross interest margins with more than $25.6 billion in cash at June 30, 2009. QBE continues to hold a relatively small proportion of its investments in equities, which provides an excellent hedge against any policy claims.

HOLD RECOMMENDATIONS
 
Woodside Petroleum (WPL)

Its Pluto LNG project remains on target to deliver first gas by the end of 2010 and cargo in early 2011. Woodside’s current price is attractive even with crude oil trading lower over doubts regarding the shape and pace of economic recovery.
 
NRW Holdings (NWH)

This specialist civil and mining contractor is leveraged to Western Australia’s iron ore market, with significant revenues from BHP Billiton and Rio Tinto. NRW Holdings recently won further work on the southern section of the rail duplication for the RGP5 (rapid growth project).

SELL RECOMMENDATIONS
 
iiNet (IIN) 

Competition remains strong for ADSL2+ customers. Optus, TPG and Telstra are now offering more competitive pricing. Expect competition to put downward pressure on ADSL prices. As a result, east coast expansion may slow in 2010.

Myer Holdings (MYR)

Reported flat 2010 second quarter sales, but recently confirmed it’s on track to generate earnings before interest and tax of $261 million. While its price/earnings ratio appears attractive when compared to peers, discounting over Christmas indicates department store margins will remain under pressure in 2010. Retailers received the lion’s share of the Australian GFC stimulus packages in 2009.

Simon Bond, RBS Morgans

BUY RECOMMENDATIONS

TPG Telecom (TPM)

The company recently completed a $65 million institutional placement and expects to raise
$5 million plus via a share purchase plan. The funds will lower TPM’s debt amid its $373 million all-cash bid for Pipe Networks. We don’t view this capital raising as necessary, but it does de-risk TPM’s balance sheet. We view current share price weakness as a buying opportunity.

Suncorp (SUN)

New chief executive Patrick Snowball should benefit from an
improving banking environment and benign weather at his inaugural result on February 23. We believe rapidly declining bad and doubtful debts mean the underlying dynamics remain highly favourable for Suncorp and we retain our buy call.

HOLD RECOMMENDATIONS

Coca-Cola Amatil (CCL)

The soft drink giant continues to perform well operationally, but it’s trading at
the upper end of fair value, in our view. While a strong full-year 2009 result may see
further strength in the short term, we believe this could provide an opportunity to
take some profits.

Foster’s Group (FGL)

The recent trading update confirmed our fears on poor wine fundamentals,
particularly with sustained Australian dollar strength. With an additional transactional
currency kicker in the first half of 2010 likely to continue in the second, we remain cautious. The only upside we see is a potential demerger.

SELL RECOMMENDATIONS

WorleyParsons (WOR)

Lower full-year 2010 net profit after tax guidance highlights our concerns about softer-
-than-expected operating conditions. We continue to see opportunities in this engineering services company in the medium-to-long term amid its increasing exposure to key markets. However, in
comparison to its peers, valuation still looks a challenge.

BT Investment Management (BTT)

While the 2009 first half result demonstrated BTT’s strong cost-cutting capability, it also highlighted the negative margin effect in the shift to cash products. While profit will no doubt rebound in full-year 2010, given the uplift in markets in the past six months, variable costs are also likely to increase. The stock is trading close to 30 times full-2009 normalised earnings per share. In our view, earnings risk remains for full-year 2010.

 

Peter Russell, Intersuisse

BUY RECOMMENDATIONS

BHP Billiton (BHP)

Global growth for decades will be driven by China, India and other stgeloping nations. The gorilla supplying their resource needs is BHP. Its half-year results showed a sound performance. Revenues above US$24 billion were down on lower prices despite record volumes in three key commodities. But return on capital was 24 per cent, net gearing was just 15 per cent, the dividend rose a cent and net operating cash flow and attributable profit was US$5.1 billion.

Computershare (CPU)

The world’s biggest share registry is also a market leader in employee equity plans, proxy and stakeholder communications. In global markets, it’s building businesses in China and Russia. The last half-year was a record despite the global financial crisis. Earnings were up 20 per cent.

HOLD RECOMMENDATIONS

Bradken (BKN)

A leading supplier of consumable and capital products to the resources, energy and freight rail industries, Bradken has factories in Australia, New Zealand, US, UK and China. Much of its revenue is recurring. In this interim result, earnings were $25.7 million, down 26 per cent but just above guidance. Cash flow was strong and re-financed debt was cut by $72 million.

Primary Health Care (PRY)

The largest Australian pathology provider and major medical centre operator has an outstanding track record. The Symbion Health operations acquired in 2008 doubled revenues. Margins are stronger from successful integration.

SELL RECOMMENDATIONS

National Australia Bank (NAB)

We generally recommend the banks and NAB’s price is low. However, in the short term, we suggest investors lighten holdings. We expect NAB will buy AXA’s Australian operations if it gets a deal with AXA’s French parent and approval from the Australian Competition and Consumer Commission. It may also bulk up its UK operations to critical mass by acquisition in that depressed market. If either or both occur, NAB will probably raise capital. The price may trend down until then. Keep a toehold in case of a share purchase plan and watch to subscribe or buy again.

Navitas Limited (NVT)

Again, we like Navitas. It runs educational courses in Australia, UK, Canada, Singapore, Sri Lanka and Africa. It just opened four colleges in the US. The share price has soared on strong results. It’s a leader in a major industry with a strong cash-generating and GFC-resistant model. Lighten in the short term, but watch to buy back at $4.25. On February 12, it was trading at $4.64.

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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