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Share Tips
Broker Stock Recommendations 11 August – 6 to BUY, 6 to SELL and 6 to HOLD
Anthony Black - August 11, 2008
 CLEO NANNI
NOVUS CAPITAL
BUY RECOMMENDATION
WorleyParsons (WOR)
The major global economies have been in a financial and economic downturn for almost 12 months. Engineering services company WorleyParsons should be among the first to benefit from any upside when the turmoil subsides. The demand for oil, gas, and the mining of minerals is as strong as ever; this investment boom will have a flow-on effect to company profits. Expectations are for earnings per share to post growth above 30 per cent and net profit to be up 45 per cent. The energy infrastructure industry is experiencing unprecedented levels of investment and Worley’s competitive position continues to get stronger.
BHP Billiton (BHP)
The world’s biggest miner remains the critical stock on the ASX, making up 14 per cent of the benchmark index. BHP will hopefully report a substantial lift in net profit after tax, and back it up with a jump in the final dividend. BHP can now be bought on a single digit price/earnings ratio. Production covers major commodities, including petroleum, alumina, copper, gold, iron ore, coking coal, nickel, and diamonds. Investors should focus on the huge cash flows and consider how and when it will be returned to investors.
HOLD RECOMMENDATION
Woolworths (WOW)
Just hold it. The supermarket giant will continue to grow as our economy recovers. Investors should not forget that Woolworths operates 766 supermarkets and is involved in more than 500 petrol outlets. Other brands include Dan Murhpy’s, Dick Smith, Big W and Tandy.
It also provides Internet food retailing via Homeshop and GreenGrocer. WOW operates 199 stores in NZ under the Foodland brand. A powerhouse retailer that could be part of any balanced portfolio.
Sims Group (SGM)
Recycles ferrous and non-ferrous metals. The company has operations in Australia, New Zealand, the UK, US, Europe and Canada. Sims can continue to grow through acquisitions. Greater efficiency should drive demand for scrap, resulting in greater pricing power, which, in turn, should result in higher margins. But 2009 profit estimates are low. Over the long term, the shares will recover.
SELL RECOMMENDATION
Suncorp Metway (SUN)
This Australian banking and insurance group recently warned that its full-year net profit could fall more than 50 per cent in response to rising bad debts and storm damage. Suncorp, Australia's sixth-biggest bank, expects net profit after tax in fiscal 2008 to range between $525 million and $550 million. As a result, investors have sold the stock down. SUN has fallen heavily before, most notable in March 2008, but on that occasion found support and put on 30 per cent in the following 3 months. Question is will the company have the same support as it did then?
National Australia Bank (NAB)
The bank recently announced a further $830 million in debt provisions. In addition, Moody's Investors Service has revised its rating outlook from stable to negative. Fundamentally, the company’s share price points to a higher level. But I would prefer to see the situation settle before changing my recommendation from sell.
 SEAN CONLAN
MACQUARIE PRIVATE WEALTH
BUY RECOMMENDATION
Orica (ORI)
Our out-perform recommendation is based on a forecast total shareholder return of 31.6 per cent on our target price of $28.84. Orica, a commercial explosives supplier, provides relatively low-risk exposure to stronger mining production as infrastructure bottlenecks ease. It also offers leverage to an improving ammonia nitrate price outlook.
Navitas (NVT)
This higher education provider can be part of a diversified portfolio. Expect it to generate positive returns even if the Australian economy falters. Superior earnings risk relative to the market should see Navitas perform well in a patchy economic environment.
HOLD RECOMMENDATION
Ausenco (AAX)
AAX, a provider of engineering and project management services, is set to benefit from strong conditions in the global resource construction market, a strong balance sheet, further acquisition opportunities and a sound management team. We believe this is priced into the short-term share price and we retain a neutral recommendation with a $14.09 price target.
Woolworths (WOW)
The supermarket giant needs to jump several hurdles before it out-performs. These include lower growth than in the past five years, and EBIT (earnings before interest and tax) margins not exceeding 6.5 per cent in food and liquor. The positives are, that in tough times, you own the market leader and this company generates “shed loads’’ of cash.
SELL RECOMMENDATION
Suncorp Metway (SUN)
Although last week’s trading update has provided a reasonable understanding of the short-term banking performance, the absence of much detail, with respect to the general Insurance and wealth management numbers, makes it difficult to have confidence in our downgraded 2009 forecasts.
ABC Learning Centres (ABS)
We believe the childcare provider’s accounts are not transparent and its behaviour suggests it remains under pressure from banks to repay debt. With the underlying performance yet to demonstrate any positive momentum, ABC remains on our under-perform list.
 MICHAEL HEFFERNAN
AUSTOCK
BUY RECOMMENDATION
Energy Resources of Australia (ERA)
ERA is the world’s third biggest uranium oxide producer and offers favourable mine exploration prospects at its existing Ranger site in the Northern Territory. Expect uranium prices to rise soon, making ERA a sound investment proposition in today’s volatile investment environment.
Aquila Resources (AQA)
A mid-sized coal producer and iron ore explorer. Coal efforts are mainly focused on the Bowen Basin in central Queensland, the world’s prime coking coal region. BHP Billiton’s recent cash purchase of New Hope Coal’s “New Saraji” resource for $2.45 billion has generated interest on Aquila, whose Belvedere and Eagle Downs projects have strong parallels to the “New Saraji’’ resource.
HOLD RECOMMENDATION
Woodside Petroleum (WPL)
A quality oil and gas company with excellent assets in Australia and interests in West Africa, North Africa and the Gulf of Mexico. With oil prices likely to remain high, the outlook for Woodside’s profitability remains sound.
Toll Holdings (TOL)
The share price of Australia’s leading logistics company has been slashed since divesting its infrastructure business to Asciano. But Toll’s share price is now relatively stable, and, with its foot firmly planted on logistics business growth in Asia, the future looks more promising.
SELL RECOMMENDATION
Suncorp Metway (SUN)
Recently issued a profit downgrade as a result of difficulties in its banking and insurance business. Stiffer competition in several markets and a slowing economy is behind our recommendation. Better options exist in the financial sector.
Aristocrat Leisure (ALL)
The poker machine maker issued another profit downgrade due to slower growth in its major markets of Australia, Japan and North America. The high Australian dollar, tighter household budgets and uncertainty in terms of government regulation makes a short-term recovery difficult.
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 11 August – 6 to BUY, 6 to SELL and 6 to HOLD
Taking stock: How to set up a stock watchlist
Advisor Lounge: Ways to get more control over your super savings
Commodities: Commodity of the month – natural gas
Stock picks: Stock of the week – OneSteel
Transport: Rising costs fuel economic stress
Companies: Telstra to outdo profit guidance
Markets: US stocks strong as world oil dives
Turnover: Bendigo, Adelaide Bank 40% profit rise
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