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Share Tips
Broker Stock Recommendations 4 August – 6 to BUY, 6 to SELL and 6 to HOLD
Anthony Black - August 04, 2008
 KEITH THOMPSON
SHADFORTHS
BUY RECOMMENDATION
Arrow Energy (AOE)
A gas explorer, developer and producer with activities in Australia and Asia. The company’s successful strategy has been to position itself as a major participant in the Bowen, Surat and Clarence Moreton Basins and the Nagoorin Graben coal seam gas provinces. A recent joint venture, with Shell buying in for $776 million, is strategically smart.
Suncorp Metway (SUN)
The insurer cut its full-year net profit by half and now expects it to range between $525 million and $550 million. On Friday, August 1, SUN offered a litany of excuses, including the credit crunch and storm damage. It’s disappointing. However, the company’s fundamentals appear sound for the long term. Now (August1) this financial stock is trading around pre-2000 levels. Is it a good time to get in? Possibly. Barring any more surprises, the stock looks cheap and that’s when investors can pick up a bargain. And it will retain its final dividend of 55c a share, taking the full-year dividend to $1.07. SUN's acquisition of Promina made it the second biggest domestic general insurer. Also, the group has a large regional banking franchise in Queensland. The integration of Promina and the extraction of cost-saving synergies have gone well to date.
HOLD RECOMMENDATION
Macquarie Group (MQG)
MQG is Australia’s most successful investment bank. Strength lies in a diverse income stream laden with annuity-style income, courtesy of the growing specialist funds under management. International expansion adds another dimension to the group’s earning capacity. A duplication of the successful Australian model offshore provides upside potential as long as favorable investment banking conditions persist. Management is sharp, astute and ever ready to take full advantage of market situations.
PanAust Limited (PNA)
Produces copper-gold concentrate and gold doré at its Phu Kham operations inLaos. PNA is sometime referred to as Oxiana’s (now Oz Minerals) little brother. Its first 10,000 tonne shipment of copper-gold concentrate has been sold to a Chinese copper smelter. A second 10,000 tonne shipment is due to depart soon. A production target of 240,000 tonnes a year is expected to rise to 300,000 tonnes by 2010.
SELL RECOMMENDATION
Orgin Energy (ORG)
Integration of this energy company’s exploration, production and generation on top of selling gas and power lifts the range of development opportunities and reduces risk. It’s strategy is to explore and develop gas where it’s easy to market. The recent take-over attempt by the UK’s BG Group has added premium to the stock and now is a good time to take some profits.
Coffey International (COF)
A specialist in the niche engineering and infrastructure fields. Its competitive advantage flows from its specialist knowledge, and the ability to effectively manage its growing teams. But cash flow needs to improve to restore market confidence in its business model. Recent disclosure and accounting problems have hurt management’s creditability and it will dampen confidence until the issues are fully resolved.
 PETER ADDISON
INTERSUISSE
BUY RECOMMENDATION
Westpac Bank (WBC)
Bank share prices have been punished amid US sub-prime problems flowing through to Australian lenders. Westpac appears to have largely avoided the problems associated with margin lending and US market exposure. The medium-term outlook is strong on the back of an expected merger with St. George Bank and a sound capital position from the recent raising of more than $1 billon dollars by way of preference securities. Westpac also offers a well spread business in retail, corporate and funds management. A fully-franked dividend yield is bouncing around 7 per cent.
Woolworths (WOW)
An Australian success story, with significant operations in New Zealand. Other operations include petrol sales through Caltex, liquor retailing, consumer merchandising and electronics. The company is well managed and utilises state-of-the-art technology systems. Its financial position remains strong. Expect steady profit growth to continue, with an increase of between 12 per cent and 15 per cent over the next year.
HOLD RECOMMENDATION
QBE Insurance Group (QBE)
A diversified global property and casualty insurance group, with its main operations in the US, Europe, the UK and Australia. The company has an enviable risk/management record, and continues to deliver strong earnings growth. The share price has fallen more than 30 per cent since late last year in response to the global financial meltdown. The company holds a dominant position in Australia and is well managed by Frank O’Halloran.
Kagara (KZL)
Producers copper, zinc and lead concentrates from mining and treatment operations in north Queensland, and is currently evaluating other metal projects in Queensland and Western Australia. The company announced a record tonnage of copper in the June quarter together with higher grades. With new and increasing production expected, profit is projected to increase by about 35 per cent to $100 million over the next 12 months.
SELL RECOMMENDATION
Qantas Airways (QAN)
Operates domestic and international airlines, with a fleet of more than 200 aircraft and offers extensive holiday activities, including the frequent flyers program. The significant increase in fuel costs during the past six months has dented its cost structure. With a change in chief executive and fierce competition from other airlines, the outlook remains clouded. Probably better value elsewhere.
Tabcorp Holdings (TAH)
The company offers a wide range of wagering and gaming activities. A State Government decision to offer the Woolworths Group a gaming licence through joint venture arrangements will mean stiffer competition. Smoke-free venues and higher interest rates cutting disposable income are having a negative impact. The share price has been steadily declining during the past 12 months.
For further information please visit http://www.intersuisse.com.au/
 ANDREW DOHERTY
MORNINGSTAR
BUY RECOMMENDATION
Cochlear (COH)
COH's hearing implants are complex, innovative and built for reliability. Its track record of reliability and innovation makes it hard for any would-be competitor to offer a comparable product. Economic conditions have a limited impact on sales because costs are usually covered by health insurance. COH dominates its industry with an international market share of 75 per cent.
Telstra (TLS)
The leading telecommunications and information service provider in Australia. Its infrastructure provides the most extensive coverage for fixed-line, mobile and broadband in Australia, which, in turn, drives significant cash flow. Telstra is not the cheapest provider of telecommunications services, but it’s the lowest cost provider resulting in earnings (before interest, tax, depreciation and amortisation) margins of more than 45 per cent.
HOLD RECOMMENDATION
Monadelphous Group (MND)
This engineering, construction and maintenance services company is highly exposed to the growth resources, energy and infrastructure sectors. It’s subject to an industry-wide shortage of human and capital resources, and the inherent cyclical nature of engineering/ construction contracting. Recent expansion of the maintenance and industrial services arms help diversify revenues.
Commonwealth Property Office Fund (CPA)
CPA is a low risk real estate investment trust with interests in 28 office properties in CBD and suburban locations across Australia. Conservative gearing and a good quality portfolio are appealing. CPA is highly exposed to the robust Sydney market - about 63 per cent of the portfolio. Developments add to long-term rental growth.
SELL RECOMMENDATION
JB Hi-Fi (JBH)
JBH operates more than 100 electrical stores across Australia and New Zealand, and is rapidly growing via an aggressive store roll-out program. Consumer appetite for technology upgrades, electronics and home theatre is proving robust, despite tight discretionary spending patterns elsewhere. The business is at high risk from price deflation and intense competition, particularly once store roll-outs slow.
Emeco Holdings (EHL)
EHL holds leading positions in earthmoving equipment rental markets in Australia and Indonesia. There is little sector diversification. This is a highly capital intensive business, operating on low margins. Results are characteristically volatile. The share price currently overstates the long-term potential.
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:
Stocks: The next hot spot for resources and stocks set to thrive
Share tips: Broker Stock Recommendations 4 August – 6 to BUY, 6 to SELL and 6 to HOLD
Resident trader: SMSF Negative Returns Not Required – part 2
Stock picks: Stock of the week – National Australia Bank
Stocks: Top Ten CFD stocks for the week
Takeover: Just Group may recommend Premier offer
Credit crunch: Self employed face loan troubles
Turnover: Lend Lease expects a profit fall of 47%
Stocks: Short-selling sends Fortescue stock plummeting
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