Anson Rosewall, BBY Ltd
BUY RECOMMENDATIONS
APN News & Media (APN)
Chart: Share price over the year to versus ASX200 (XJO)
APN’s share price is trailing behind recoveries in Fairfax Media and Seven West Media. Although APN’s publishing revenues have been under pressure, the company is focusing its efforts on generating costs savings. Furthermore, APN’s Australian Radio Network is showing improved earnings. We see substantial scope for a re-rating, providing management succeeds in stabilising earnings.
Fortescue Metals (FMG)
Chart: Share price over the year to versus ASX200 (XJO)
Australian iron ore stocks, including FMG, are ripe for short covering, particularly with iron ore back on an uptrend. It appears the market has been too bearish about the outlook for the steelmaking ingredient, with Chinese stockpiles now at a 26-month low, and clearer signals emerging that the Chinese and U.S. economies are performing well. Furthermore, take into account that India has again become a net-importer of iron ore.
HOLD RECOMMENDATIONS
Westpac Bank (WBC)
Chart: Share price over the year to versus ASX200 (XJO)
The marginal cost of wholesale funding is reducing, which is favourable for the banks. We expect WBC to perform well due to its heavy weighting in Australian mortgages. While we don’t expect much more share price appreciation, WBC still pays a grossed up yield of about 8 per cent and that’s a good reason to hold.
Aurizon Holdings (AZJ)
Chart: Share price over the year to versus ASX200 (XJO)
We acknowledge management has grown earnings through cutting costs and re-pricing initiatives. However, both these strategies are finite and sustainable growth can only come from increasing coal haulage volumes. We expect a flat share price.
SELL RECOMMENDATIONS
Macquarie Group (MQG)
Chart: Share price over the year to versus ASX200 (XJO)
We believe the group’s share price rise since the middle of last year was based on unwarranted optimism. On our numbers, MQG trades at a premium to net tangible assets compared to its global peers. We believe the company is unlikely to repeat historical successes in asset realisation, investment banking and broking. Our share price target is $30.
QBE Insurance (QBE)
Chart: Share price over the year to versus ASX200 (XJO)
Group insurance margins in the US have been declining for some time in response to over-priced acquisitions. While the company hopes this deterioration has finished, it’s difficult to be certain. We suspect there’s more to come. It has missed guidance in the past.
Peter Moran, Wilson HTM
BUY RECOMMENDATIONS
BHP Billiton (BHP)
Chart: Share price over the year to versus ASX200 (XJO)
We believe new management will have no hesitation in selling non-core assets over the next 12-to-18 months. We believe BHP can find US$25 billion in asset sales (13 per cent of our net present value for BHP). This should result in a re-rating and cash returned to shareholders.
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Woodside Petroleum (WPL)
Chart: Share price over the year to versus ASX200 (XJO)
With Pluto 1 now producing, WPL has the strongest cash flow and balance sheet in its history. We expect Browse capital expenditure to be delayed, and, assuming no significant merger and acquisition activity, we believe WPL could pay a special dividend of $3 a share.
HOLD RECOMMENDATIONS
Myer Holdings (MYR)
Chart: Share price over the year to versus ASX200 (XJO)
The department store giant has reported its third consecutive quarter of sales growth, with the trend continuing in February and March. We have increased our earnings assumptions by 1.2 per cent for the full year and left our dividend steady, resulting in a forecast yield of about 6 per cent. But we downgraded to a hold given the share price has risen by 30 per cent since the start of the year.
Pacific Brands (PBG)
Chart: Share price over the year to versus ASX200 (XJO)
PBG’s recent result shows that new chief executive John Pollaers is driving momentum across the business. However, this is yet to bear fruit in the key line – underlying sales growth. Management was at pains to point out that the strategy will take time (18 months) to gain traction. We believe the 6 per cent yield is sustainable. Hold.
SELL RECOMMENDATIONS
Wotif.com (WTF)
Chart: Share price over the year to versus ASX200 (XJO)
Wotif.com reported a disappointing first half net profit. The Australian hotels business is flat-lining and the Asian hotels business looks to be in free-fall. While the turnaround strategy being developed by new CEO Scott Blume should return top-line growth from 2014 onwards, the stock still looks over-priced at current levels.
David Jones (DJS)
Chart: Share price over the year to versus ASX200 (XJO)
Continued gross margin expansion will be helpful. But in the absence of a sales recovery, we believe it will be very difficult to stem the decline in operating earnings.
Darren Jackson, Calibre Investments
BUY RECOMMENDATIONS
Melbourne IT (MLB)
Chart: Share price over the year to versus ASX200 (XJO)
MLB recently sold its Digital Brand Services division for $152 million because the offer was too good to refuse. Current market capitalisation of about $213 million grossly undervalues the remaining business divisions, such as SMB Solutions, which generates most of the earnings and revenue. A special dividend or capital return by the company would be a welcome catalyst.
Paladin Energy (PDN)
Chart: Share price over the year to versus ASX200 (XJO)
This uranium miner has retreated to a historically low valuation level, and offers a high risk/ high reward trade opportunity from any policy shifts towards nuclear power. A new Japanese Government has indicated it will turn on nuclear reactors if they pass safety tests. Paladin is highly leveraged to the uranium price. This stock is for risk takers.
HOLD RECOMMENDATIONS
Trade Me Group (TME)
Chart: Share price over the year to versus ASX200 (XJO)
Trade Me Group is the eBay of New Zealand and one of the country’s most visited websites. The company has managed to achieve double digit revenue and earnings growth to justify its current valuation. TME is now totally devoid of Fairfax Media ownership and has recently become an S&P/ASX200 inclusion.
Ansell (ANN)
Chart: Share price over the year to versus ASX200 (XJO)
The newly elected Pope has indicated more liberal views towards using contraception, particularly in preventing disease. We view this as broadly positive for Ansell, which distributes condoms to Brazil. This country is an emerging market with a big Catholic denomination. This could help offset weaker than expected numbers reported in the recent half year.
SELL RECOMMENDATIONS
David Jones (DJS)
Chart: Share price over the year to versus ASX200 (XJO)
Most recent results were underwhelming. Interest rates are at GFC lows, but this tailwind hasn’t been reflected in overall top line sales growth for DJS. The structural shift from physical to online retailing continues to gather momentum, with names like theiconic.com.au capturing greater market share to the detriment of David Jones.
Magellan Flagship Fund (MFF)
Chart: Share price over the year to versus ASX200 (XJO)
MFF invests in other listed global multinational companies. MFF has been trading at a premium to net tangible assets. Sell and wait until MFF is trading at a discount to NTA, and the outlook for equities is brighter.
Click on the links below to read other articles from this week’s newsletter
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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.
