|
|
 NEWS |
|
|
|
|
Share Tips
Broker Stock Recommendations 25 August – 6 to BUY, 6 to SELL and 6 to HOLD
Anthony Black - August 25, 2008
 CAMILLA DAVEY
ORD MINNETT
BUY RECOMMENDATION
Westpac Bank (WBC)
The Westpac update briefing was generally upbeat. WBC appears better positioned than its peers in the wake of the global credit crunch. This suggests that WBC is better than its competitors at strategic positioning, but that premium is already reflected in its share price. The risk to WBC and other financial stocks is the continuing global credit crunch.
Orica (ORI)
Orica has announced a rights issue to raise $900 million. It plans to sell its consumer products business and merge its chemicals businesses. Proceeds from the rights issue will be used to pay down debt, with a view to future growth opportunities. While reducing gearing is clearly not a bad ploy in the current environment, we expect it to make an acquisition. However, with a mixed history from recent acquisitions (Yates, Marplex, Excel), we believe caution is warranted. The good news is ammonium nitrate prices are rising.
HOLD RECOMMENDATION
Foster’s Group (FGL)
We have revised our earnings forecast downwards as a result of uncertainty created by the lengthy wine trade strategic review, the impact of rising distribution costs on the back of higher fuel prices. Uncertainty about the long-term future and ownership of the wine business reduces management’s ability to execute a quick turnaround in business performance here and in the US. Our share price target is $5.70 to June 30, 2009.
AXA Asia Pacific (AXA)
AXA reported first half (2008) earnings of $94 million, down 74 per cent, but ahead of consensus. It was a reasonably good result considering the recent trends in wealth mangement. On the negative side, market risk still exists. A 10 per cent fall in equity markets could mean a $100 million hit to profits and $200 million hit to capital. Also, there is risk of margin compression in softer markers due to an increased focus on fees. Our June 2009 share price target is $5.
SELL RECOMMENDATION
Suncorp-Metway (SUN)
Its trading update on August 1 said that net profit after tax would range between $525 million and $550 million, substantially below consensus numbers two weeks earlier. In our view, the quality of SUN’s general insurance result will come under scrutiny. We also see downside risk to the banking and wealth management businesses given current economic conditions. We assume a rise in bad debts for 2009. SUN is cheap relative to the other general insurers, but given the extent of downgrades, sentiment is likely to remain poor.
Coca-Cola Amatil (CCL)
Recently reported a 10 per cent increase in net profit after tax. CCL offers relatively defensive earnings and cash flow in the context of the broader market. But in an economic downturn, it’s pricing power suffers. Current risks to the stock price include currency fluctuations, movements in sugar, aluminium and PET resin prices. Our share price target is $8.60 to June next year.
http://www.ords.com.au/
 KEITH THOMPSON
SHADFORTHS
BUY RECOMMENDATION
Lihir Gold (LGL)
An unhedged gold producer, with its main asset being the Lihir Island mine in PNG. The deposit comprises a massive high-grade gold resource of 40 million ounces. Diversification and exploration upside has improved, but acquisitions weren´t cheap. Gold has fallen from more than US$1000 an ounce to about US$836 an ounce on August 22. Lihir will recover in line with the gold price. It’s oversold and trading at year lows.
Karoon Gas Australia (KAR)
Develops acreage that is highly prospective for oil and gas. It has three focus areas - the Browse Basin (Western Australia), Tumbes Basin (Peru) and the Santos Basin (Brazil). A drill program of more than 200 days is planned for this year at a cost of about $1 million a day. If any of this drilling in the Browse Basin hits a zone, the upside for KAR is very positive.
HOLD RECOMMENDATION
Asciano Group (AIO)
AIO is the spin-out of Toll´s infrastructure-type assets, comprising Patrick´s port and stevedoring assets and Pacific National, the rail freight business. High financial gearing implies the potential for considerable earnings volatility after interest payments. The recent unsolicited takeover attempt by TPG Capital and Global Infrastructure Partners for $4.40 a share was low and opportunistic. The current price is under-pinned by the bid, but most value this stock at more like $6 a share.
WorleyParsons (WOR)
WOR is a well-managed global engineering company that enjoys an enviable reputation. It has strong international growth options, generates a lot of cash, with limited capital expenditure requirements and little gearing. WOR recently posted record full-year earnings underpinned by strong revenue and margin expansion. It expects further earnings growth this year if demand remains strong. The company generates about 75 per cent of sales and earnings from hydrocarbon services. Net profit for the year to June 30 rose 53 per cent to $343.9 million.
SELL RECOMMENDATION
Fairfax Media (FXJ)
Its merger with Rural Press has created a huge print and digital media business. The merged group publishes 240 regional, rural and community publications. It has a significant presence in New Zealand, an agricultural publishing business in the US, nine radio licences in Queensland and South Australia and metropolitan newspapers in Sydney, Melbourne and Canberra. Despite its numerous assets, the share price keeps falling. FXJ and several other media companies are out of favour with investors.
Amcor (AMC)
AMC is redefining its global packaging businesses. Niches include flexible packaging for food and beverages, PET containers and specialty printed cartons for tobacco and confectionary. Continuing global restructuring will ease raw material cost pressures. But with limited industry pricing power, there is little competitive advantage despite excellent disclosure. AMC offers reasonable upside on solid cash flows, but dividends are only partially franked. Move on and sell.
 ROBERT JOSEPH
BELL POTTER SECURITIES
BUY RECOMMENDATION
WorleyParsons (WOR)
WorleyParsons is a top five global engineering services provider. About 70 per cent of its revenue is derived from the oil and gas industry. Worley has broadened its engineering expertise through acquisitions, with the company now working on 20 contracts worth more than $1 billion. The company’s ability to execute mega contracts (including deep water developments), a solid order book and superior management team demand investor attention.
OneSteel (OST)
OneSteel is a vertically integrated mining and steel product manufacturer. OneSteel acquired the Smorgon Steel Group business this time last year. The merger of assets has extracted synergies way above the forecasted $25 million touted during the takeover process, with cost savings of $41 million in the first year and $80 million expected in 2009. OST also produces iron ore and will continue to enjoy the strong price as it increases production volumes. OneSteel offers solid growth and a fully franked dividend.
HOLD RECOMMENDATION
Adelaide Brighton (ABC)
In Australia, Adelaide Brighton is the market leader in lime manufacturing and number two in cement and concrete products. Lime is integral to the mining sector. ABC services the engineering, infrastructure and resource sectors and has a virtual monopoly in WA lime sales (BHP and RIO are customers). ABC recently secured long term gas supply and expects market growth between 3 per cent and 5 per cent over the next five years. It has also flagged price rises to its customers over the same period. Adelaide Brighton has a large institutional shareholder base and its fully franked dividend is yielding about 6 per cent.
OZ Minerals (OZL)
The marriage of Oxiana and Zinifex has had a tough time. The shares represent great value for investors who believe the commodities cycle is not finished. This mining house produces nickel, copper, gold, zinc and lead, and has serious potential emanating from Prominent Hill and Golden Grove. A major resource company would find it cheaper to takeover a company like OZL than to explore and develop the quality assets belonging to OZL. OZ Minerals has about $1 billion on the balance sheet for acquisitions and development. Current prices showcase great long term value.
SELL RECOMMENDATION
Hills Industries (HIL)
Makes and distributes electronics, hardware, building and industrial products in Australia and overseas. Rising commodity prices (particularly steel and coal) have hurt HIL’s building, home and hardware division and Korvest. There is a lag between input cost increases and passing on the price rises. While HIL has a credible management team and a dividend that appears attractive, better value can be found elsewhere in the market.
Just Group (JST)
Just Group’s board has accepted Premier Investments (PMV) takeover offer of cash and Premier shares. A master stroke by Solomon Lew, with PMV acquiring a fantastic business on the cheap (brands include Just Jeans, Portmans and Peter Alexander). Just Group’s last sales result was disappointing, as the full year figures were impacted by successive interest rates rises. Happy to sell the stock into the market, rather than accept PMV shares.
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 25 August – 6 to BUY, 6 to SELL and 6 to HOLD
Investing: Dividend Reinvestment Plans: Not as good as they once were
Expert Panel - CFDs: Does taking the emotion out of trading lead to fatter profits?
CFDs: Top Ten CFD stocks for the week
Stocks: Stock of the week – Babcock & Brown
Your Money: $50 to a $20 million empire
 Email to a friend
 Print this article
|
|
