18 Share Tips – 8 April 2013

Charles Thomas, Bell Potter Securities

BUY RECOMMENDATIONS

Challenger (CGF)

Chart: Share price over the year to versus ASX200 (XJO)

Challenger is a diversified financial group made up of a life company specialising in annuities and a funds management business. The company has delivered a reasonable half year result, with a net profit of $149 million and an unfranked dividend of 9.5 cents. Our full year profit forecast result is $303 million or earnings per share of 56 cents, leaving the company on a price/earnings ratio of just 6.8 times. Challenger has appropriately repositioned its business to benefit from growth in superannuation. Its developed new products for baby boomers moving into retirement. Our price target is $4.70. The shares were trading at $3.80 on April 4.

Westpac Bank (WBC)

Chart: Share price over the year to versus ASX200 (XJO)

WBC’s unique position in banking and wealth integration has translated into better bottom line outcomes. We believe the bank retains its leadership in productivity and efficiency relative to the other majors. The rationale to be in the wealth space remains compelling. WBC is largely a retail and business bank with more than sufficient prudential buffers – liquidity, capital, funding and provisions. With a better risk profile supported by a healthy yield, capital return prospects and improving earnings growth, we retain our buy rating.

HOLD RECOMMENDATIONS

National Australia Bank (NAB)

Chart: Share price over the year to versus ASX200 (XJO)

NAB announced a strategy and technology update on March 13, 2013. Its revised strategic agenda involves implementing a new organisational structure and operating model that’s better aligned to a changing landscape and shifting customer behaviour. Consequently, we have increased our price target by $1 to $31.50. Given the share price rise since November, we have moved from a buy to a hold.

Bank of Queensland (BOQ)

Chart: Share price over the year to versus ASX200 (XJO)

BOQ is due to release its first half 2013 results on April 18. Our headline forecasts do not suggest any major surprises and include reported net profit after tax of $118 million (consensus $110 million), reported earnings per share of 38 cents  (consensus 36 cents) and a dividend of 26 cents a share in line with consensus. We believe the excess valuation gap has closed significantly against its banking peers. Our medium term projections remain broadly in line with key management targets and suggest any anticipated upside has already been factored into the share price.

SELL RECOMMENDATIONS

Boart Longyear (BLY)

Chart: Share price over the year to versus ASX200 (XJO)

BLY is the global leader in producing drilling rigs and consumables for minerals exploration. It’s also the largest supplier of mineral drilling services globally. BLY now trades at a premium to our revised discount cash flow valuation. As a result, we have downgraded our recommendation from neutral to a sell.

Ramsay Health Care (RHC)

Chart: Share price over the year to versus ASX200 (XJO)

RHC will enter into a 50/50 joint venture with Malaysian conglomerate Sime Darby to expand its Asian operations under the banner Ramsay Sime Darby Healthcare (RSDH). The joint venture provides a vehicle for RHC to embark on expansion in Asia, where health demographics show significant growth in healthcare spending. However, with the JV factored in, we retain our sell recommendation, with a 12 month price target of $26.90. The shares were trading at $31.95 on April 4.

Andrew Arvanitopoulos, Alpha Securities

BUY RECOMMENDATIONS

Webjet (WEB)

Chart: Share price over the year to versus ASX200 (XJO)

We believe this online travel agency is tracking nicely. The company reported a normalised net profit after tax of $7.3 million for the six months to December 31, 2012, up 24 per cent on the previous corresponding period. Growth in flight bookings was up 7 per cent. Revenue was up 13 per cent. Expect its solid performance in the core business of airline bookings to continue.

Woolworths (WOW)

Chart: Share price over the year to versus ASX200 (XJO)

It reported decent sales and profit growth. Margins improved, cash flow is healthy and recent investments are delivering results. It offered a reasonable outlook statement and raised full year guidance. All this, despite challenging trading conditions. Put some Woolies in your basket.

HOLD RECOMMENDATIONS

Coca-Cola Amatil (CCL)

Chart: Share price over the year to versus ASX200 (XJO)

The beverage maker generated strong growth is its Papua New Guinea and Indonesian operations, delivering double digit volume and earnings growth for full year 2012. With a strong foothold in these rapidly growing economies, CCL’s sales are poised to grow from here.

TPG Telecom (TPM)

Chart: Share price over the year to versus ASX200 (XJO)

The company showed strong subscriber growth in broadband and mobile in the 2013 first half. Revenue rose 10 per cent to $357 million on the previous corresponding period. Net profit after tax was up 41 per cent to $78.3 million. Expect stronger growth in the consumer broadband division to lift earnings per share going forward.

SELL RECOMMENDATIONS

David Jones (DJS)

Chart: Share price over the year to versus ASX200 (XJO)

The department store giant posted larger than expected falls in first half earnings despite better cost controls.

We aren’t convinced that DJS can combat online retail competition effectively. Better investment opportunities exist elsewhere.

Seek (SEK)

Chart: Share price over the year to versus ASX200 (XJO)

In our view, the outlook for online employment volumes is challenging and the current multiples also look a bit rich.

After a substantial share price rise in the past year, we believe investors should consider taking profits.

Chris McGrath, Alto Capital

BUY RECOMMENDATIONS

Newcrest Mining (NCM)

Chart: Share price over the year to versus ASX200 (XJO)

Newcrest is a big, long life gold miner. Long established as a low cost producer, cash costs have risen to the industry average in response to a higher Australian dollar and Papua New Guinea kina, severe industry inflation and poor productivity. Due to a downgrade in its 2013 production guidance, the share price has overshot to the downside and is probably offering value at these levels. The shares were trading at $18.82 on April 4.

Cabcharge Australia (CAB)

Chart: Share price over the year to versus ASX200 (XJO)

CAB has traditionally held a quasi-monopoly position in the taxi fare processing industry thanks to first-mover advantage, 30 years of experience and scale efficiencies which are difficult for potential competitors to replicate. Amid a forecast fully franked dividend yield of 7.3 per cent for 2013, this is a steadily growing company in a growth industry.

HOLD RECOMMENDATIONS

Metcash (MTS)

Chart: Share price over the year to versus ASX200 (XJO)

MTS is a marketing and distribution company, operating several business units. These include IGA Food Distribution, Campbells Wholesale, Australian Liquor Marketers (ALM), Mitre 10 Hardware and Automotive Brands Group. Food distribution is the main driver, realising solid growth and margin improvement through scale efficiencies. With forecast earnings per share growth close to 4 per cent and a fully franked dividend yield of 8 per cent for 2013, this is a good steady player.

Wesfarmers (WES)

Chart: Share price over the year to versus ASX200 (XJO)

WES is an efficient cash-generating machine. Operations include supermarkets, home improvement, office supplies, insurance, chemicals, energy and fertilisers and industrial and safety. Coles Group has the potential to underwrite solid earnings growth over the next decade as it improves its performance by implementing a successful turnaround strategy.

SELL RECOMMENDATIONS

Iron Ore Holdings (IOH)

Chart: Share price over the year to versus ASX200 (XJO)

Focuses on exploration and developing a portfolio of projects in Western Australia’s Pilbara region. With iron ore prices forecast to fall, smaller companies don’t have the advantages of scale enjoyed by the bigger producers. Consequently, smaller companies are more at risk.

Lynas Corporation (LYC)

Chart: Share price over the year to versus ASX200 (XJO)

LYC’s Mt Weld project in Western Australia is one of the few non-Chinese rare earth deposits. It’s large enough and of sufficient grade to be a viable alternative. The deposit is the richest in the world and is environmentally friendly in a dirty industry. After a significant price fall, this stock may bounce in the short term.  However, in the absence of profitability amid a market capitalisation of almost $900 million, this stock is still probably overvalued for the long term.

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.