Carey Smith, Alto Capital
Tabcorp Holdings (TAH)
This gaming and wagering giant reported a better-than-expected $264 million profit for the first half of 2010. It retained a high dividend at 30 cents a share fully franked. Despite challenging conditions continuing in 2010, we expect the group to report earnings per share around 80 cents for the full year. Share price downside is limited by a low price/earnings ratio and an attractive fully franked dividend yield above 8 per cent.
Telstra Corporation (TLS)
Australia’s dominate telecommunications company reported a slightly disappointing half-year profit result of $1.85 billion, down 3.5 per cent on the same period last year. However, free cash flow increased 37 per cent to $2.6 billion, enabling the group to retain its half-year, fully franked dividend of 14c. We believe market concerns about regulatory risk are over done and expect a resolution on the National Broadband Network within a few months.
The third force in Australian food retailing provides marketing and distribution services to 2500 independent grocery stores across Australia. Metcash’s comparable same store sales and earnings per share are growing faster than Woolworths. However, the stock trades at a 20 per cent price/earnings ratio discount to Woolworths, while also providing a superior dividend yield.
Newcrest Mining (NCM)
Australia’s premier gold miner will continue to benefit from the strong bullion price and the group’s pipeline of growth projects. The major $500 million Ridgeway Deeps project is nearing completion with full production expected within 3 months. Other projects are expected to lift 2011 production.
The operating environment for this building materials group remains challenging. Difficult trading conditions in the US and a slowdown in non-residential activity in Australia are affecting profitability. Yet the company’s share price is only about 12 per cent off its year highs. Better investment propositions are available.
This premier online employment site has benefited from a strong labour market in Australia. We question whether the group can continue its strong growth going forward. Online job hunters spend almost eight out of every 10 minutes at Seek’s website, limiting growth prospects going forward. It’s been trading on a price/earnings ratio above 30 times, so we believe the stock to be too highly priced.
Michael Heffernan, Austock
Qantas Airways (QAN)
Australia’s premier airline still managed to book a modest first-half net profit after tax of $58 million in challenging times. However, with an improving Australian economy, a strong Aussie dollar and increasing passenger numbers in recent months, investors can expect a turnaround in both revenue and profits.
Virgin Blue (VBA)
The prospects for the Australian aviation industry in general are now considerably brighter. The prevalence of cheap fares and increasing traffic volumes suit VBA’s operations as it’s positioned at the low end of the price scale. Its share price has risen from the ashes, and its link with Delta Airlines in the US is a positive for the high traffic route to the west coast.
Toll Holdings (TOL)
This premier Australian logistics company has increased its activities in the Asian region and is emerging from the global financial crisis in reasonable shape. Toll is poised to benefit from accelerating economic activity in Australia and, in particular, South East Asia.
BHP Billiton (BHP)
Its recent report was most impressive and its outlook statement was cautiously upbeat as global economies strive to recover. Expect more demand for BHP’s minerals in line with a global economic recovery.
This paper merchant has suffered in recent years and has been unable to obtain sustainable profit traction. While it’s recent share price rise is welcome, lower demand and lower paper prices delays a quick profit recovery.
In recent years, Brambles has been a serial sharemarket underperformer, as its profits have been impacted by the GFC and contract losses in the United States related to its CHEP pallet business. Sluggish European and US growth compared to Australia will continue to be a drag on its prospects.
Grant Dwyer, Patersons Securities
Grange Resources (GRR)
The Savage River magnetite iron ore mine in Tasmania is showing improving cost performance due to higher grades and reductions in operating costs. It also has a pellet production business, but the pellet price fell 48 per cent in 2009, making Grange’s operation only marginally profitable. With a consensus view that iron ore prices will increase 40 per cent in 2010, Grange should benefit from a substantial lift in earnings.
Cooper Energy (COE)
After another solid quarter of oil production, Cooper Energy finished the December quarter with cash backing of 32 cents a share. We value the production assets at 15 cents a share. Short-term appraisal drilling and wildcat exploration drilling in the second half of 2010 could add substantial upside.
Gindalbie Metals (GBG)
Gindalbie has started construction at the Karara Iron Ore Project. Previous capital cost guidance for completing the project was $1.8 billion, but our analyst now expects the project to cost $2.2 billion. The cost estimate increase has led to a downgrade in our valuation and we have switched our recommendation from a buy to a hold.
Mincor Resources (MCR)
The company reported steady production and improving cash costs, but nickel stockpiles are at all-time highs and the nickel price is starting to struggle. With about 30 per cent cash backing, downside may be limited and there could be upside if the aggressive exploration program bears fruit.
Neptune Marine Services (NMS)
Neptune has slashed profit expectations for first half earnings due to project delays on contracted vessels and a more competitive international environment. Neptune is trading at 23.5 times our full-year 2010 earnings per share estimate, which looks expensive compared to the forward resource service sector median of 10.5 times.
Spotless Group (SPT)
The group’s retail service arm provides customised garment hangers and packaging solutions to retailers and garment manufactures. The division has a substantial fixed cost base. Volumes and profitability for this business have fallen due to the tough retail environment and a stronger Australian dollar.
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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