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Share Tips
Broker Stock Recommendations 28 July – 6 to BUY, 6 to SELL and 6 to HOLD
Anthony Black - July 28, 2008
 ROBERT JOSEPH
BELL POTTER SECURITIES
BUY RECOMMENDATION
Independence Group (IGO)
IGO’s Long nickel mine has one of the lowest unit costs in the sector. Consistent production quality has underpinned profitability and substantial cash flow. The recent share price retreat provides a good buying opportunity. The company offers strong potential growth and a solid net cash balance. IGO’s Tropicana Gold joint venture with AngloGold Ashanti enhances exploration upside going forward. AngloGold has allocated a significant proportion of its worldwide exploration budget to the Tropicana project.
Orica (ORI)
Leading the way in commercial explosives, Orica has expanded its global product offering. Its chemicals division also services the mining and water treatment industries. Orica’s customers include BHP & Rio, and most of its contracts last three-to-four years. About 30 per cent of volumes can be re-priced in any one year. The buoyant resources and infrastructure sectors boost Orica’s growth prospects as does spinning off non-core assets.
HOLD RECOMMENDATION
CSL (CSL)
CSL’s core business is manufacturing human blood products. It’s one of the biggest fractionators globally, with operations in Europe, the US and Australia. Increasing output in plasma products and additional revenue from vaccine development is a positive impetus to CSL’s growth. The Bird Flu vaccine, the Human Papillomavirus (HPV) vaccine, Gardasil, and new IVIG products showcase CSL’s ability to enter and capture new markets.
Gryphon Minerals (GRY)
A junior gold explorer with an exciting project in Africa, located in a major gold producing district. Drilling results from its Banfora gold project warrant further attention. Two hundred metres of a 30 kilometre trend has been tested, including three metres at 8.96 grams a tonne and 12 metres at 2.54 grams a tonne. The mineralisation remains open at depth and along strike. Management has an aggressive exploration program in place and is cashed up with about $9 million in the bank. Further drilling results should provide positive news flow.
SELL RECOMMENDATION
Goodman Fielder (GFF)
The trading environment will remain challenging. Rising cost pressures (fuel, wheat, canola oil, etc.) and possible loss of market share to cheaper labels are downside risks that will keep management on its toes. Recently, Woolworths noted shifts of bread and dairy products to private labels. Additionally, a third of Goodman Fielder’s revenue is generated from New Zealand and its NZ business may be affected by a weakening economy. Adverse currency movements and competitors discounting prices suggest better value elsewhere.
Biota Holdings (BTA)
Litigation between Biota and GlaxoSmithKline has concluded through mediation. While Biota, an anti-infective drug development company, will receive a $20 million payment, each party is bearing its own legal costs. This long, protracted case diverted valuable time away from Biota’s product development, not to mention the cost of legal fees. Competing products have gained considerable market share since the litigation started. Further delays to trials could add to the disappointment.
 STEVEN HING
NOVUS CAPITAL
BUY RECOMMENDATION
CSL (CSL)
CSL has fallen from a high of $43.19 in May to around $35 levels on July 25. The company is the world’s leading plasma products producer and widely regarded as a high quality biotech stock. The stock recently fell on a weak outlook for Gardasil, (a cervical cancer vaccine), but this is only a small part of the company’s profits. In my view, the stock represents solid value at these levels, as the company has a strong history of achieving its revenue and growth targets.
Minara Resources (MRE)
The nickel miner has fallen from $6.57 in March to around $2 on July 25. It appears to have been over-sold in the current market despite the switch away from resources in recent weeks. The moving averages on the chart suggest a potential bottoming out, with a move back to $4 a strong possibility.
HOLD RECOMMENDATION
BHP Billiton (BHP)
I recommended buying the stock around $40 a few weeks back. Since then, it has fallen to a low around $36.50. However, I believe the selling below $40 was more likely a result of a switch from out-performing resources to under-performing financials as fund managers began to try and square up books. The stock appears to be moving back to $40, and I still believe it will be a solid performer over the longer term. Also, a decision on the Rio Tinto merger must be looming.
Paladin Energy (PDN)
Recently, I recommended PDN as buy based on the view that China and India may consider moving to nuclear power as energy demands increase and coal prices rise. Also, the push for climate change may have impacts here. The company recently announced it had missed its production targets and the share price dipped to $5.20. But I am still a strong believer in the long-term story and expect the share price to move back to $7.50.
SELL RECOMMENDATION
JB Hi-Fi (JBH)
I can’t understand how this stock continues to defy gravity. In a world of high interest rates, fuel and food prices, one could conclude that consumer discretionary spending must be declining. I know consumers love new gadgets like the iPhone and plasma TV’s (ahead of the Olympics), but the cost of credit and the general squeeze on disposal incomes is likely to weigh on JB’s expansion and growth. Harvey Norman has been hit, as have a number of other retailers, but the JBH story continues. I can’t see the stock moving above recent highs of $13.50, and would not be surprised to see a return to $10.
Caltex (CTX)
Despite the high crude oil price, the CTX share price has gone south. Margins are feeling the pinch and there’s a possibility even more fuel will need to be imported from Singapore. Analysts predict earnings per share will remain under pressure as the US dollar continues to weaken against the Australian dollar, making importing crude oil more expensive. The stock may re-test its $10.60 March low after failing to break back through $15.50.
 SCOTT MARSHALL
SHAW STOCKBROKING
BUY RECOMMENDATION
Adelaide Brighton (ABC)
The company is continuing to benefit from the strong mining and infrastructure industries, demand for lime within the resources industry and ABC's cost reductions during the past few years. Our 2008 forecast segment split for ABC is almost 100 per cent construction materials and mining (concrete and lime), with building products, due to the weak market, contributing only a small amount to group earnings before interest and tax.
Coeur d'Alene Mines (CXC)
The market is yet to recognise any growth that will flow from the commissioning of San Bartolome, Palmarejo and the Kensington silver and gold mines. While maintaining our buy recommendation, we believe CXC needs to inform the market further on the potential of its mines.
HOLD RECOMMENDATION
GPT Group (GPT)
This diversified property group has significantly downgraded its profit outlook based on weak and deteriorating conditions in most of its overseas expansion strategies. The core Australian operations remain very strong. Confidence in management needs to be restored. The strong underlying assets have been tarnished in line with poorly- managed growth strategies.
Woodside Petroleum (WPL)
Woodside continues to be sought for oil price leverage. The growth outlook is promising, with Pluto starting production in 2011, and Browse and Sunrise potentially moving closer to development. Some value is beginning to appear with the share price well under $60 (July 25), although oil price momentum seems to have abated.
SELL RECOMMENDATION
Hastie Group (HST)
HST is a leading supplier of mechanical and electrical building services and refrigeration systems in Australasia, the UK and the Middle East. HST is exposed to the non-residential construction cycle, a sector that tends to be late into an economic downswing and late out. Exposure to the non-residential construction cycle is adversely affecting investor sentiment.
Peet (PPC)
PPC has two divisions. The first is developing residential land estates, medium-density residential property and land syndications. The second is a funds management business. Housing prices are under downward pressure, which may adversely affect deal flow. With gearing (debt-to-equity) of140 per cent at June 2008, the company also has some financial risk.
Anthony Black is a long-standing journalist, having worked in newspapers for more than 20 years. He was the Sunday Herald Sun’s finance editor for eight years and his reports were published in News Limited papers across Australia.
More articles from this edition of CompareShares:
Share tips: Broker Stock Recommendations 28 July – 6 to BUY, 6 to SELL and 6 to HOLD
Share investing: Run your share portfolio like a professional fund manager
Ask the Expert - CFDs: Strategies for boosting profits when you’re losing money
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Stocks: Top Ten CFD stocks for the week
Banking: ANZ warning shows Australia 'not immune'
Mining: Mining to need 86,000 extra workers
Property: More vacant US properties for sale than entire housing stock of Australia: NAB
Economy: China growth beginning to slow
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