Chris Conway, Marcus Today
BUY RECOMMENDATIONS
Tabcorp (TAH)
Chart: Share price over the year
The gambling company’s share price has fallen significantly due to the Coronavirus, which, in our view, creates a buying opportunity. As the Australian economy gradually opens, it may mark a positive shift in sentiment for TAH. The company has a solid balance sheet and plenty of liquidity, so it’s unlikely to raise capital unless for acquisitions.
Nine Entertainment Co. Holdings (NEC)
Chart: Share price over the year
Another stock hit by the Coronavirus. We expect NEC’s free-to-air TV, radio stations and newspapers to recover most of its lost advertising revenue by 2021 if the economy improves. Cost initiatives could also deliver significant financial benefits in fiscal year 2020. NEC is underpinned by key digital assets, leaving it better positioned than sole free-to-air competitors.
HOLD RECOMMENDATIONS
Appen (APX)
Chart: Share price over the year
This language technology and data services company reaffirmed underlying full year 2020 EBITDA guidance of between $125 million and $130 million based on an Australian dollar at US70 cents, which is conservative. While a period of economic weakness and investments may hurt margins in the near term, Appen is diversifying and reducing client concentration, which will provide long term benefits.
Goodman Group (GMG)
Chart: Share price over the year
Many real estate investment trusts have been punished given retail uncertainty, but GMG is uniquely placed as its logistics assets are leased to the likes of Amazon, Walmart and Wesfarmers, among others. While some future projects may be delayed, as tenants take longer to commit to expansions and projects take longer to build and lease, there’s little threat to fiscal year 2020 guidance.
SELL RECOMMENDATIONS
Adelaide Brighton (ABC)
Chart: Share price over the year
ABC produces, imports and distributes clinker, industrial lime, cement and concrete products. The company withdrew full year 2020 guidance on April 2 given the uncertain duration and impact from the Coronavirus. A likely recession would negatively impact the construction industry. ABC was also expecting 2020 full year net profit after tax to be 10 per cent lower than underlying profit in 2019.
Domino’s Pizza Enterprises (DMP)
Chart: Share price over the year
DMP’s growth strategy in recent years has been driven by aggressive store openings. It’s been an effective strategy. However, some planned new store openings in 2020 will be delayed due to the Coronavirus. Store openings in fiscal year 2021 will depend on local market conditions related to the disease. Disruption to its growth strategy is behind our recommendation.
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Omkar Joshi, Opal Capital Management
BUY RECOMMENDATIONS
The A2 Milk Company (A2M)
Chart: Share price over the year
This infant formula company is in a sweet spot and a recent trading update highlighted strong revenue growth in China. The A2M share price has risen during the pandemic, and there’s also upside risk to recent earnings guidance from better cost control and an improving sales channel mix. A2M has a history of relatively conservative guidance, so we wouldn’t be surprised if the company released more positive announcements going forward.
Costa Group Holdings (CGC)
Chart: Share price over the year
This horticultural company posted a strong result in the March quarter due to stronger domestic wholesale produce pricing, a punctual start in Morocco and easing cost pressures. Although the company has withdrawn its fiscal year 2020 guidance, we believe it looked reasonable. We expect CGC to continue benefiting from ongoing strength in the green grocery channel and from people eating more often at home.
HOLD RECOMMENDATIONS
Steadfast Group (SDF)
Chart: Share price over the year
The general insurance broker network is leveraged to a continuing improvement in commercial insurance premium rates. However, Coronavirus risks exist to the June renewal cycle, which is a key period for SDF. The company has a track record of making acquisitions in the insurance broking industry and there’s potential for more in the future.
Aurizon Holdings (AZJ)
Chart: Share price over the year
The rail freight giant is largely insulated from the impact of Coronavirus. The recent update revealed no material impact to coal, or bulk above rail volumes in the March quarter. In our view, there’s no immediate risk to earnings or balance sheet liquidity. The continuing buyback reflects management’s confidence.
SELL RECOMMENDATIONS
REA Group (REA)
Chart: Share price over the year
In our view, this online advertising group specialising in property is likely to be impacted by recent weakness in new property listings due to the Coronavirus. An increase in premium listings will help offset weakness in new listings. But auction clearance rates have already softened. It’s possible property prices will also fall in the near term as the economy remains under significant pressure.
James Hardie Industries PLC (JHX)
Chart: Share price over the year
Earnings in this building products company are tied to the strength of the US housing cycle. Demand for US housing is weak due to Coronavirus related lockdowns. The JHX share price has been recently under pressure. But, in our view, the stock still isn’t cheap enough to buy as future earnings remain unclear.
Julia Lee, Burman Invest
BUY RECOMMENDATIONS
Aristocrat Leisure (ALL)
Chart: Share price over the year
Revenue in this poker machine company has taken a hit due to the temporary closure of casinos. The company has suspended its interim dividend. On a positive note, the company has a strong balance sheet, with more than $1 billion in liquidity. The digital business has been performing well and generates about 30 per cent of earnings. In the short term, the company’s liquidity is key. Longer term, ALL’s digital arm should provide growth and diversification away from land based casinos.
Spark Infrastructure Group (SKI)
Chart: Share price over the year
SKI is a regulated utility, focusing on Australian electricity networks. Its stable and defensive cash flows mean the company is likely to trade at a premium in an environment of uncertainty. Interest rates are expected to remain low for several years, so SKI appeals for its reliable cash flow.
HOLD RECOMMENDATIONS
Charter Hall Retail REIT (CQR)
Chart: Share price over the year
Owns and manages a convenience based retail portfolio. Major tenants include Woolworths, Wesfarmers, Coles and Aldi. While discretionary and apparel retailers have suffered from the impact of Coronavirus, supermarkets have fared well. CQR has successfully completed the institutional component of its capital raising, which strengthens the balance sheet and leaves room to examine suitable acquisitions.
Atlas Arteria (ALX)
Chart: Share price over the year
ALX has toll road assets in France, Germany and the US. Traffic has slumped due to community lockdowns. The share price has fallen from $8.37 on February 20 to close at $6.25 on April 30. Persistent community lockdowns increases the chances of a capital raising, in my view. We believe a possible capital raising is now factored into the share price. Upside exists when lockdowns are lifted.
SELL RECOMMENDATIONS
Fisher & Paykel Healthcare Corporation (FPH)
Chart: Share price over the year
Makes respiratory support and humidification products and associated consumables. Demand for FPH products has been a key driver of share price performance since February. The shares have risen from $23.93 on February 20 to close at $25.30 on April 30. In our view, the company’s valuation looks expensive. Competitors are emerging during the Coronavirus, and we expect their products to gain market share from FPH going forward.
Coca-Cola Amatil (CCL)
Chart: Share price over the year
Bar and restaurant lockdowns are pressuring the beverage maker’s revenue. In the first two weeks of April, Indonesian volumes plunged by 50 per cent and Australian volumes fell 15 per cent. In our view, CCL is likely to face a difficult trading environment going forward. Even when bars and restaurants re-open, the hospitality industry faces increasing financial hardship and closures.
The above recommendations are general advice and don’t take into account any individual’s objectives, financial situation or needs. Investors are advised to seek their own professional advice before investing.
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.
