Jonathon Feil, Morgans CIMB
BUY RECOMMENDATIONS
iBuy Group (IBY)
Chart: Share price over the year to versus ASX200 (XJO)
The recent sell-off has left the shares trading at a significant discount to global online retailing peers. The shares should rebound when the current round of apparent hedge fund selling is finished. Acquiring LivingSocial in Asia should result in annualised revenues of between $130 million-to-$140million, making it one of the largest online retailers in the region.
Sundance Energy Australia (SEA)
Chart: Share price over the year to versus ASX200 (XJO)
Timing of drilling programs will result in a significant uplift in oil and gas production in the Eagle Ford Shale by the end of the second quarter. Pad drilling and optimising fracture stimulation design are cutting costs and decline rates for wells. There’s been an 88 per cent increase in the reserve base since December 2013.
HOLD RECOMMENDATIONS
Macquarie Group (MQG)
Chart: Share price over the year to versus ASX200 (XJO)
Guidance is more subdued than expected. It foreshadows a fiscal year 2015 result broadly in line with the previous year. There’s potential for upside if market conditions improve. Short-term, MQG looks expensive, but the business has earnings tailwinds. A weaker Australian dollar would benefit MQG.
Myer Holdings (MYR)
Chart: Share price over the year to versus ASX200 (XJO)
Reported like-for-like growth of 0.2 per cent in the 2014 third quarter was below consensus expectations of about 1.7 per cent. This shows momentum is slowing on the second quarter despite fixing issues associated with its online channel in December. The company has made no change to fiscal year 2014 indicative guidance.
SELL RECOMMENDATIONS
Commonwealth Bank (CBA)
Chart: Share price over the year to versus ASX200 (XJO)
A solid performance in retail and strong results in wealth management and institutional banking lifted the 2014 first half. However, bad debt charges and capital ratios appeared unsustainably low. We remain cautious about the outlook in relation to capital and return on equity. Bad debts and cost levers that the CBA relied on in the first half are unlikely to generate further earnings outperformance.
Tabcorp Holdings (TAH)
Chart: Share price over the year to versus ASX200 (XJO)
TAH is facing increasing competitive threats amid a tote betting business in structural decline. This is likely to weigh on revenue growth in future years, as the market shifts to digital betting. Retaining market share will be challenging and we expect earnings growth to decline in fiscal year 2015.
Darren Jackson, Calibre Investments
BUY RECOMMENDATIONS
Telstra (TLS)
Chart: Share price over the year to versus ASX200 (XJO)
Changes to the National Broadband Network leave Telstra in an advantageous position. Telstra’s existing copper network will have a much greater role if the Federal Government chooses fibre to the node. We believe Telstra’s current re-negotiations with the Government will most likely result in a bigger contract win and a more prominent role in the NBN rollout, which isn’t fully factored into the share price.
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Woodside Petroleum (WPL)
Chart: Share price over the year to versus ASX200 (XJO)
The energy giant is currently exhibiting a strong asymmetrical return profile. The company benefits from buoyant equity markets, increasing global energy demand and potential supply risk in the Ukraine. It recently broke a very significant resistance level of $39.50 and this is where we will build a position.
HOLD RECOMMENDATIONS
GrainCorp (GNC)
Chart: Share price over the year to versus ASX200 (XJO)
We have successfully traded GrainCorp – buying before the takeover was launched and selling before the takeover was cancelled. We are happy to be a holder. Archer Daniels Midland wants to increase its stake and agricultural assets still remain strategically important.
McMillian Shakespeare (MMS)
Chart: Share price over the year to versus ASX200 (XJO)
We originally advised selling MMS on March 3, 2014. Prior to this date, MMS had been trading above $11. The stock was trading at $9.65 on May 7. Potential changes to the fringe benefits tax on car leasing remains a risk. However, given the level of discounting, we take a more neutral stance and upgrade to a high-risk hold.
SELL RECOMMENDATIONS
Coca-Cola Amatil (CCL)
Chart: Share price over the year to versus ASX200 (XJO)
Operationally, since May 2013, the beverage giant has never failed to disappoint the market with its trading updates. Consequently, this has resulted in share price falls. We think this trend is likely to continue and structural headwinds remain.
Westpac Bank (WBC)
Chart: Share price over the year to versus ASX200 (XJO)
The banks tend to run hard into results and dividend announcements. Following often-record results, the banks are sold off. May tends to be a month of weakness for the banks. In trying to exploit this, we favour selling WBC and taking a long position in Commonwealth Bank in a market neutral pairs trade. Unlike the other three majors, the CBA fiscal year ends on June 30.
Andrew Arvanitopoulos, Alpha Securities
BUY RECOMMENDATIONS
ResMed (RMD)
Chart: Share price over the year to versus ASX200 (XJO)
Revenue growth improved marginally in the third quarter for this medical devices maker. More stable dynamics in the US market and easing price concessions are leading to an improving earnings profile. In our view, a brighter outlook hasn’t been adequately reflected in trading levels.
PanAust (PNA)
Chart: Share price over the year to versus ASX200 (XJO)
This copper and gold company reported mixed production performances in the March quarter. In our view, PNA’s two mines in Laos are well positioned. Both operations are running smoothly, requiring minimal capital expenditure in the next few years. With the recently updated mine plan, Phu Kham also provides organic production growth.
HOLD RECOMMENDATIONS
Wesfarmers (WES)
Chart: Share price over the year to versus ASX200 (XJO)
While sales growth is easing in Coles supermarkets – in part because of a higher base – the next result could be interesting in terms of margin improvement. Removing steep shopper docket discounts should generate savings.
Origin Energy (ORG)
Chart: Share price over the year to versus ASX200 (XJO)
Third quarter production and revenue were strong. A 10 per cent increase in production, combined with higher average prices and third party sales, drove a 27 per cent increase in revenue. The Australia Pacific LNG project appears to be tracking in line with revised expectations.
SELL RECOMMENDATIONS
Atlas Iron (AGO)
Chart: Share price over the year to versus ASX200 (XJO)
The company is expanding projects, but our concern is potentially weaker iron ore prices going forward. For dedicated iron ore producers, much is riding on continuing strong overseas demand. Investors need to take a view. We feel more comfortable investing elsewhere.
Coca-Cola Amatil (CCL)
Chart: Share price over the year to versus ASX200 (XJO)
The shares have been under pressure in response to earnings downgrades. The company’s soft drink products face increasing competition from cheaper private labels. The company faces challenges in Australia and abroad and, at this point, we believe investors can find better value elsewhere.
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.
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