18 Share Tips – 12 August 2013

Janine Cox, Wealth Within

BUY RECOMMENDATIONS

Bendigo and Adelaide Bank (BEN)

Chart: Share price over the year to versus ASX200 (XJO)

If looking to buy financial stocks outside the big four, it’s worthwhile looking at mid tier companies like BEN, Bank of Queensland and Challenger. Of these, Bendigo has been making some important technical moves, having recently confirmed strong support above $9.50 then $10. It signals greater potential for the overall uptrend to continue in the medium term. On August 7, the shares were trading at $10.77.

Seven West Media (SWM)

Chart: Share price over the year to versus ASX200 (XJO)

SWM has been consolidating in price, but last week it broke upwards giving educated traders reasons to pay attention. This isn’t a stock for investors who still need to learn how to sell as weekly moves can be in the order of or exceed 10 per cent in either direction.

HOLD RECOMMENDATIONS

Woodside Petroleum (WPL)

Chart: Share price over the year to versus ASX200 (XJO)

A few months ago, I was considering WPL as a possible sell as the price was teetering on the edge of a technical cliff. But as the stock appears to have confirmed support above $35, it’s safe for the time being. In the short term, I would like to see the stock scramble back above $41. The shares were trading at $38.47 on August 7.

Westpac Bank (WBC)

Chart: Share price over the year to versus ASX200 (XJO)

A few months ago the major banks were sold down heavily to create very bearish reversal signals on long-term charts and potentially flagging that a top may not be far away, if not already in. However, recent weeks show that bank shares are still king, being supported by a huge demand for defensives with good dividends.

SELL RECOMMENDATIONS

Rio Tinto (RIO)

Chart: Share price over the year to versus ASX200 (XJO)

Given the recent rise in RIO’s share price, you may be rubbing your eyes wondering why I would put RIO here? Quite simply, it could tip either way over the near term as a long term low is due late 2013/early 2014. It’s the uncertainty about the political situation that’s been holding the big miners in the balance. If RIO falls back below $51, why would anyone want to hold on for that ride? The shares were trading at $59.03 on August 7.

Origin Energy (ORG)

Chart: Share price over the year to versus ASX200 (XJO)

Origin, in our view, is another stock sitting on a seesaw while trading at an important historical level. A strong move back below $11.35 at the end of any week would increase risk for ORG shareholders and could signal a good time to sell. That said, a rise above $13 before the end of September could save the stock. On August 7, the shares were trading at $11.97.

Simon Bond, RBS Morgans

BUY RECOMMENDATIONS

SEEK (SEK)

Chart: Share price over the year to versus ASX200 (XJO)

About a third of SEEK’s earnings now come from overseas and it has become increasingly exposed to movements in the exchange rate. We calculate that the recent decline in the Australian dollar adds 3 per cent to forecast financial year 2014 earnings and to the valuation of offshore operations. We see further upside potential if the Aussie dollar continues to fall.

Starpharma (SPL)

Chart: Share price over the year to versus ASX200 (XJO)

While the shares are up more than 25 per cent from last month’s lows, we see further upside as we believe the cash position is more than sufficient to support multiple development programs. Numerous catalysts are on the horizon to increase investor sentiment and maintain positive momentum for this biotechnology company.

HOLD RECOMMENDATIONS

Navitas (NVT)

Chart: Share price over the year to versus ASX200 (XJO)

Its valuation isn’t appealing. However, NVT offers investors exposure to a recovering education sector, minimal exposure to the weak Australian economy and upside potential from a softer Australian dollar.

Myer Holdings (MYR)

Chart: Share price over the year to versus ASX200 (XJO)

We moderate our recommendation to neutral, as we see some risk that consensus gross profit targets may not be met in 2013 second half. Despite some risk around near-term trading conditions, Myer remains one of our preferred exposures to a domestic cyclical recovery.

SELL RECOMMENDATIONS

Cochlear (COH)

Chart: Share price over the year to versus ASX200 (XJO)

We continue to view a more subdued growth outlook given the increasing competitive landscape (not only from Chinese manufacturers, but also from all major brands), a growing reliance on uptake in adults and decreasing hedge book gains. With the shares recently trading at 23.5 times consensus forward earnings, we believe the market remains too compliant, believing profitability can be retained at historic levels.

Bendigo and Adelaide Bank (BEN)

Chart: Share price over the year to versus ASX200 (XJO)

We view BEN as a low return, low growth bank that’s overpriced. We have concerns about its provision coverage, capital efficiency and the tail risk from the great southern loan book. Our target price rises, but we keep our underperform rating. Risks to our view are further rounds of mortgage re-pricing and easing term deposit competition.

Please note that Bendigo and Adelaide Bank is a buy and sell this week because of different views about the stock.

Charles Thomas, Bell Potter Securities

BUY RECOMMENDATIONS

Western Areas (WSA)

Chart: Share price over the year to versus ASX200 (XJO)

WSA is a high grade, low-cost nickel sulphide concentrate producer that we expect to be profitable through the cycle. The company’s low-impurity product is strategically important to its off-take customers, BHP Billiton and Jinchuan Group. There’s upside to our earnings and valuation should WSA expand its nickel production beyond our current conservative estimates. We expect a recovery in nickel prices as high cost supply is withdrawn from the market. WSA is leveraged to this recovery. Our 12-month price target is $3.60. The shares were trading at $2.95 on August 7.

Kathmandu (KMD)

Chart: Share price over the year to versus ASX200 (XJO)

We believe KMD’s own strong brand, coupled with a vertically integrated business model, are key factors that will foster continuing healthy top line growth. We expect these factors will underpin KMD’s successful promotional strategy, its ability to grow a loyal customer base, online growth and create opportunities to enhance KMD’s current store portfolio. We consider KMD’s valuation metrics as undemanding.

HOLD RECOMMENDATIONS

Wide Bay Australia (WBB)

Chart: Share price over the year to versus ASX200 (XJO)

Recently WBB announced higher provisions for its captive mortgage insurer Mortgage Risk Management as required by the auditors. WBB also took the opportunity to write down the full value of its $7.7 million investment in 25 per cent owned Financial Technology Securities (insurance and financial planning business). We have moved from a buy to hold rating.

Insurance Australia Group (IAG)

Chart: Share price over the year to versus ASX200 (XJO)

We have upgraded our 2013 guidance with IAG now expecting an insurance margin between 16.8 per cent to 17.2 per cent for 2013 versus February guidance of between 12.5 per cent to 14.5 per cent. We have increased 2013 earnings by 2 per cent to account for the upgrade while longer term estimates remain unchanged. As a result of the above earnings changes, we have marginally increased our price target to $6.20. The share price has enjoyed a strong run since early 2012 and we believe a hold rating is now appropriate. The shares were trading at $5.69 on August 7.

SELL RECOMMENDATIONS

Ausenco (AAX)

Chart: Share price over the year to versus ASX200 (XJO)

Provides engineering and project management services to the global resources and energy sectors. Margins remain under pressure in Australia, Africa and Asia (30 per cent of group earnings) as clients have renegotiated existing contracts at a lower rate, and this has also flowed to bids on new work.

Ausdrill (ASL)

Chart: Share price over the year to versus ASX200 (XJO)

ASL generates about 60 per cent of revenues in the copper/gold segment. Recent weakness in the gold price is a concern. We have incorporated a much more cautious view on revenue in the ASL business, with an expectation that contract deferrals and reductions in the scope of works will continue to remain a feature over coming months. We have cut NPAT forecasts by 17.7 per cent in fiscal year 2014 and by 22.5 per cent in 2015. Our 12-month price target has been cut to $1. The shares were trading at $1.14 on August 7.

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18 Share Tips – 12 August 2013: 18 Share Tips to BUY, SELL & HOLD from…

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