Peter Moran, Wilson HTM
BUY RECOMMENDATIONS
Santos (STO)
Chart: Share price over the year to versus ASX200 (XJO)
We view the next two years as transitional with first gas from the company’s LNG project in PNG expected later this year. The Gladstone LNG growth projects are on schedule for completion next year. We expect the share price to gain on the back of growing cash flow and continuing exploration success.
National Australia Bank (NAB)
Chart: Share price over the year to versus ASX200 (XJO)
While we expect a subdued first half, we’re much more positive about the second half in response to a reduction in costs and UK bad debts. Later this year, a new CEO may finally sell the UK business. This could result in capital returns and would see a re-rating of the business. Recently trading on a 5.7 per cent fully franked yield, we believe NAB is worth buying.
HOLD RECOMMENDATIONS
Macquarie Group (MQG)
Chart: Share price over the year to versus ASX200 (XJO)
Looking into financial year 2015, we are forecasting earnings growth of about 35 per cent. However, it must be said, this is subject to a continuing rebound in market activity and performance fees that are difficult to forecast. We believe the market is unlikely to pay for this ahead of evidence to the upside. MQG trades at a premium to other global investment banking firms.
Bank of Queensland (BOQ)
Chart: Share price over the year to versus ASX200 (XJO)
BOQ recently announced the acquisition of Investec Australia’s specialist finance and leasing businesses for $440 million, partially funded by a $400 million equity raising. We view the deal as positive, providing relatively low risk earnings growth.
SELL RECOMMENDATIONS
Coca-Cola Amatil (CCL)
Chart: Share price over the year to versus ASX200 (XJO)
We reduced our earnings forecasts by 19 per cent following CCL’s recent trading update and announcing a strategic review. In our view, CCL’s problems aren’t easily fixed. Consumers are likely to continue moving away from high sugar drinks and some CCL products are priced well above its competitors, implying some reductions in margins could be required. Our recommendation reflects a difficult road ahead and a recent price/earnings multiple of 16 times.
Wesfarmers (WES)
Chart: Share price over the year to versus ASX200 (XJO)
It increasingly appears the easy work has been done in the Coles business and that positive momentum is fading. As such, we don’t believe a recent price/earnings multiple of 20 times (a near 20 per cent premium to the broader market) is justified and would prefer to invest elsewhere.
Gavin Wendt, MineLife
BUY RECOMMENDATIONS
Sheffield Resources (SFX)
Chart: Share price over the year to versus ASX200 (XJO)
The company has methodically explored and appraised its Thunderbird mineral sands project in Western Australia in the past three years, defining an initial resource and then substantially adding to it with step-out drilling. The company has just released the results of a scoping study that show Thunderbird to be a long-life, profitable future mining operation, targeting production in 2017.
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Horizon Oil (HZN)
Chart: Share price over the year to versus ASX200 (XJO)
The company has announced a major (but significantly overdue) milestone in the form of PNG Government approval for its Stanley gas-condensate development in PNG’s western province. The company is already an established oil producer in New Zealand, but new developments in China and PNG are see it as an emerging Asia Pacific petroleum house, with a growing production profile.
HOLD RECOMMENDATIONS
Wolf Minerals (WLF)
Chart: Share price over the year to versus ASX200 (XJO)
The company has secured the future of its emerging Hemerdon tungsten project in the UK, finalising A$182.7 million (£99.2 million) worth of equity funding in order to complete project construction and repay outstanding debt facilities. Hemerdon is now set for first commissioning during the 2015 second half and, as the world’s third-largest tungsten deposit, is set to be a supplier of choice for end users.
WHL Energy (WHN)
Chart: Share price over the year to versus ASX200 (XJO)
The company recently signed Ophir Energy as a farm in partner for its hugely prospective offshore Seychelles petroleum acreage in East Africa. In the Otway Basin, the company has AWE and Tap Oil as quality farm in partners.
SELL RECOMMENDATIONS
Woodside Petroleum (WPL)
Chart: Share price over the year to versus ASX200 (XJO)
Uncertainty remains over the Leviathan transaction in Israel, which is far from settled. WPL is desperate to be seen as a growth company, but, in our view, its reserves are falling and the risks are high. The company’s growth ambitions will suffer a setback if the Leviathan deal cannot be successfully finalised after more than 16 months of negotiations.
Mt Gibson Iron (MGX)
Chart: Share price over the year to versus ASX200 (XJO)
The recent March quarter production report was in line with forecasts, but the mix of direct shipping ore lump, fines and low grade ore was below expectations. The weaker product mix resulted in cash flow generation coming in below forecasts. The company looks fully valued. The likelihood of lower iron ore prices means risks are growing.
Boe Campion, Ord Minnett
BUY RECOMMENDATIONS
Slater & Gordon (SGH)
Chart: Share price over the year to versus ASX200 (XJO)
The law firm reported 22 per cent growth in first half revenue to $178.3 million, aided by contributions from acquired businesses in the UK. Accordingly, we have modestly upgraded full year guidance. We retain a buy recommendation and upgrade our price target to $4.96. The shares were trading at $4.61 on April 24.
RXP Services (RXP)
Chart: Share price over the year to versus ASX200 (XJO)
An information and communications technology firm providing professional services to S&P/ASX 200 companies and government bodies. First half results confirmed the broader RXP business in Australia continues to achieve high staff utilisation rates amid a strong pipeline of further acquisition opportunities. We retain a buy recommendation and have upgraded our price target to 94 cents. The shares were trading at 67 cents on April 24.
HOLD RECOMMENDATIONS
CSL Limited (CSL)
Chart: Share price over the year to versus ASX200 (XJO)
Our rating is recognition of CSL’s ability to win share in immunoglobulin as Baxter struggles with capacity constraints. CSL’s specialty products portfolio is growing and options exist in the research and development pipeline.
Telstra (TLS)
Chart: Share price over the year to versus ASX200 (XJO)
Most drivers of Telstra’s earnings contributed to a solid result. Telstra has so far defied those who questioned the upside to margins and market shares in its key products, but we believe its mobile competitors are now responding to their losses and that conditions will become less favourable in financial year 2015.
SELL RECOMMENDATIONS
Ten Network (TEN)
Chart: Share price over the year to versus ASX200 (XJO)
We have lowered our longer term revenue share assumptions, reducing our valuation to 21 cents. We see downside risk to TEN’s forecast full year net profit consensus in 2014. We prefer Seven West Media, with a recommendation to accumulate. Ten’s shares were trading at 26.5 cents on April 24.
Patties Foods (PFL)
Chart: Share price over the year to versus ASX200 (XJO)
We have reduced our gross margins to reflect a consumer shift to lower margin private label products. We have downgraded earnings per share by 3.6 per cent in full year 2014 and by 2.1 per cent in 2015.
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