Ben Potter, ABN AMRO Morgans
BUY RECOMMENDATIONS
Bank of Queensland (BOQ)
Launched a $340 million capital raising from institutional and retail investors to further expand its network. Wide Bay Australia (WBB) is a smaller listed Queensland financial institution that BOQ may target for acquisition. The long-term outlook for regional bank margins is continuing to improve.
Toll Holdings (TOL)
The transport logistics giant recently announced a 14 per cent increase in underlying profit to $298 million. It now boasts a strong balance sheet with $1.6 billion in cash. Its Asian operations continue to provide solid growth, and Toll looks set to be one of the first companies to benefit from an economic rebound.
HOLD RECOMMENDATIONS
Computershare (CPU)
The world’s largest share registry company recently reported another solid profit result. The increase in free cash flow was the highlight. Management is highly regarded.
Wesfarmers (WES)
Woolworths recently declared it will move into the hardware space to compete with the Wesfarmers-owned Bunnings chain. Wesfarmers continues to generate substantial cash flow, reflected by its decision to increase the dividend payout. Wesfarmers is well prepared to take on another competitor in the hardware sector.
SELL RECOMMENDATIONS
Bendigo and Adelaide Bank (BEN)
We remain concerned about the bank’s exposure to Great Southern and rising bad debts. The 1-for- 12 rights issue at $6.75 a share can be taken up, but once the shares are allocated, we recommend selling above $8.
Fortescue Metals Group (FMG)
Fortescue will benefit from rising spot iron ore prices, but the company is expensive on fundamentals. Better value exists elsewhere in the resources sector, particularly BHP Billiton.
Andrew Doherty, Morningstar
BUY RECOMMENDATIONS
Bradken (BKN)
Bradken offers large market shares in mining and rail equipment. It’s low margin, capital intensive and cyclical, so it should be regarded as a higher-risk trading stock. It’s held up well through the downturn. Gearing remains high, but will improve via higher earnings, reduced capital investment and dividends this year. The company should benefit from increasing demand for resources amid a recovery in the US and Europe, while Chinese growth continues.
GWA International (GWT)
This manufacturer of toilets, sinks, water heaters and other housing products is solid and well managed, with strong brands and positions in not overly-competitive markets. We expect modest profit gains this year supported by new product sales and cost cutting. The recent rise in housing finance approvals point to a turnaround in construction by the end of the year. Next financial year should be stronger as housing market conditions improve, though rising interest rates, affordability difficulties and ongoing land supply shortages will provide constraints.
HOLD RECOMMENDATIONS
Westfield Group (WDC)
A major global retail property group established by the merger of Westfield Holdings, Westfield Trust and Westfield America Trust in July 2004. It holds 119 shopping centres, and the gross value of investments under management is about $62.3 billion. Passive investment assets of the trusts generate the bulk of profit. A portfolio this size generates significant restgelopment work, and management is high calibre with an impressive track record.
ARB Corporation (ARP)
ARB Corporation designs, makes and distributes 4WD accessories in Australia and overseas. Expertise in product innovation, marketing, exporting, production efficiencies and expansion of the distribution network make the firm one of the best long-term, small-cap investments on the market. The main downside risks are lower consumer and industry demand for 4WDs, a rising Australian dollar and higher steel input costs and fuel prices.
SELL RECOMMENDATIONS
David Jones (DJS)
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This retailer mostly targets high-income earners, with an emphasis on private labels and broadening the customer base to the 25-to-35 age group. This mature business offers limited revenue growth, and is delivering returns through cost efficiencies. The stock offers a blend of moderate growth and an above average dividend yield. After a strong run since March, there’s insufficient caution in the share price.
Adelaide Brighton (ABC)
This construction materials producer is a cyclical stock suitable for higher risk investors. Economic downturns leading to volume declines can be relatively harsh on earnings. Strong regional positions and an absence of price competition will hold prices, or they may even rise in some areas. Prospects are fully-factored into the share price.
Richard Batt, Shadforth Financial Group
BUY RECOMMENDATIONS
Swick Mining Services (SWK)
Swick provides surface and underground drilling services to the Australian mining industry and is a market leader in drill rig design, construction and utilisation. The company’s innovative drilling solutions have enabled it to secure some of the world’s key mining houses. The key to growth is breaking into the lucrative North American market, where it recently announced its third commercial drilling trial in the past two months. Should these trials be successful, it could lead to contracts. It’s worth noting that SWK has a 100 per cent track record of converting drilling trials into committed contracts.
Neptune Marine Services (NMS)
Neptune provides integrated engineering solutions to the oil and gas industry. It also provides underwater survey and welding work, diving services, ship surveys and repairs and maintenance. There’s growing demand for the company’s services, so expect Neptune to be a beneficiary of the Gorgon gas project in Western Australia.
HOLD RECOMMENDATIONS
Foster’s Group (FGL)
The brewing giant is a defensive investment that provides a solid dividend to investors. Beer offers good cash flow, and strong brands provide competitive advantages in the market. Although the turnaround continues in the wine division, FGL is a good long-term holding for portfolios.
Sims Metal Management (SGM)
Sims recently reported a net loss of $150 million and cut its final dividend by 87 per cent as a result of extremely difficult markets and substantially reduced demand for recycled materials. Despite this, SGM is a well-managed company and management is cautiously optimistic that trading conditions and financial results will improve in 2010 as ferrous metal markets improve amid strong demand from stgeloping countries.
SELL RECOMMENDATIONS
Bank of Queensland (BOQ)
BOQ is engaging in an interstate expansion strategy through an owner-managed branch model. The company has consistently outperformed its larger peers. But this is difficult to replicate in the current market environment as global credit concerns makes growth challenging for regional banks.
Pacific Brands (PBG)
Makes a wide range of consumer goods, including the Bonds and Tontine brands. In 2009, earnings fell in each segment in response to a consumer downturn. Discretionary spending is likely to be lower in 2010 amid the prospects of higher interest rates, rising unemployment and an absence of stimulus payments that would have bolstered earnings during 2009. In terms of exposure to retailers, there are better opportunities elsewhere.
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.
Other articles in this week’s newsletter
Pairs trading – the No. 1 strategy for traders
When junior miners catch a bid, gains will be fast & furious
Why are shares quoted to 3 decimal places?
