George Tsarouhas, Alpha Equities & Futures BUY RECOMMENDATIONS Foster’s Group (FGL) The market has run hard and risk money might make a dash for cover in the defensives. Foster’s has a strong underlying business, pricing power, expanding margins and a big market share. With a forward price/e arnings of about 13 times, it’s trading at a 20 per cent plus discount to the ASX200 P/E of about 17 times. Value buy; one for the portfolio. QBE Insurance (QBE) It’s recent result was strong, the balance sheet is healthy and management’s outlook is cautiously optimistic. The stock is trading below historical numbers, with a forecast price/earnings of 11 times versus its longer term average of 13. A re-rating is possible. HOLD RECOMMENDATIONS Westfield Group (WDC) The Lowy family believes the property devaluation cycle has bottomed; I would stand up and take notice. The company has retained earnings guidance, and the sector is slowly recovering. Arguably, the best blue-chip listed property trust in the market and the next best thing to directly owning bricks and mortar. Telstra (TLS) I wouldn’t sell down here if you’ve held it this long. A yield play, defensive and a good generator of free cash flow. The intricacies of the national broadband network have a long way to play out, so, in the mean time, take a grossed up fully franked dividend yield of 12 per cent. SELL RECOMMENDATIONS David Jones (DJS) The retailer has enjoyed a great run on the back of the Federal Government’s stimulus package that’s reflected in earnings. But that’s history, and the market will eventually price in next year’s growth (read less growth). With unemployment set to rise and interest rates holding an upward bias, this is a profit taker. Commonwealth Bank (CBA) Now, nobody is really going to offload their entire holding in this banking giant. However, its relatively high exposure to the Australian housing market makes CBA more vulnerable to a share price retreat when one considers the premium to the other banks. A core holding in a portfolio - no doubt - but a reduction to a relatively cheaper bank makes sense. Scott Marshall, Shaw Stockbroking BUY RECOMMENDATIONS Acrux (ACR) We are expecting ACR to make significant progress towards commercialising its male testosterone replacement lotion, Axiron, in the next six-to-12 months. This could result in a major upward re-rating of ACR and a stronger share price. Coca-Cola Amatil (CCL) For the half year to June, CCL reported sales growth of 9.9 per cent to $2.0445 billion and profit growth of 10.4 per cent to $189.8 million. The result demonstrates the benefits flowing from the group's major strategies - increased production capacity, placements of retail located coolers, product development, price rises, and market share gains. The group offers a market leading business model and very strong return on capital employed above 23 per cent. HOLD RECOMMENDATIONS Austar United Communications (AUN) AUN reaffirmed guidance for pre-tax profit growth of between 10 and 15 per cent for full-year 2009. Half-year revenue growth was driven by an increase in subscriber numbers, a 5 per cent increase in average revenue per user and reduced churn. The pay TV business model has demonstrated resilience in a particularly tough environment. The strategy to sustain this position includes developing and adding content and increasing penetration. Leighton Holdings (LEI) Work in hand has increased to $37 billion compared to $30.3 billion in June 2008. Work in hand does not include contracts in preferred status, or the tail of very long-term contracts. The balance sheet remains conservative with gearing at 21 per cent. While the group expects profits to remain flat in 2010, it’s confident about achieving strong profit growth from 2011, with major infrastructure and other contracts to be awarded in Australia, Indonesia, the Middle East and Asia. SELL RECOMMENDATIONS David Jones (DJS) Dynamics that should propel the group in 2010 include further cost cutting and an expanding store roll out. But at the current price and on our forecasts, David Jones is trading on a 40 per cent premium to the market based on price/earnings. Attracted as we are to sound management, an increasingly differentiated business model and a clean balance sheet, the price is simply too high. ING Industrial Fund (IIF) IIF reported net operating income of $157.3 million and earnings per share of 13.9c per unit in 2009, broadly in line with expectations. Debt totalling $1.6 billion has been renegotiated, with higher debt lending covenants and maturity pushed out to December 2011. Distributions have been stopped until the total leverage ratio debt covenant measure falls below 45 per cent (currently 65 per cent), indicating IIF will not pay any distributions for a while. Alex Beer, State One Stockbroking BUY RECOMMENDATIONS Metcash (MTS) Metcash reported full-year 2009 adjusted net profit after tax of $219.7 million, up almost 14 per cent. It was a very solid performance against the backdrop of the global financial crisis. Wholesale sales grew from $6 billion in 2008 to $6.7 billion in 2009. Long term, we continue to see value in the stock given its defensive qualities and strong dividend yield above 5 per cent. The risk to Metcash is all out price war between Coles and Woolworths. Ausdrill (ASL) Ausdrill secured significant work during full-year 2009. In July 2009, Ausdrill began a US$150 million drilling and blasting contract at the Geita Gold Mine in Tanzania for AngloGold Ashanti. The company has taken over the existing fleet and workforce associated with activities on site, and has deployed specialist equipment to service the project. A significant portion of capital for this project was spent in the period to June 2009. Earnings before tax and depreciation were up almost 25 per cent to $122.8 million in full-year 2009. HOLD RECOMMENDATIONS BHP BILLITON (BHP) This large diversified miner managed to generate significant cash during a difficult operating period. BHP reported a record operating cash flow of US$18.9 billion, up 6 per cent in full-year 2009. Cash outflows included US$9.5 billion in capital expenditure, US$1.2 billion on exploration and US$5 billion in dividend payments. Copper in concentrate and copper cathode account for about 80 per cent of base metals sales, so any continuing recovery in prices will help the bottom line. Rio Tinto (RIO) Rio has performed well and it has addressed an over-geared balance sheet. Expect most of its markets to improve from this point, with aluminium likely to be a swing factor at the EBIT (earnings before interest and tax) level given the price movements in the past 12 months. SELL RECOMMENDATIONS James Hardie Industries (JHX) First quarter 2010 profit excluding asbestos and ASIC costs was a solid US$41.6 million, marginally higher than last year’s first quarter. Sales revenue in the key US market was down, but EBIT margins improved. Overall, sales are under pressure in the US and Asia. Harvey Norman (HVN) The retail giant reported underlying net profit after tax of $250.4 million for full-year 2009, a fall of 15.2 per cent on the previous year. With a forecast dividend yield of 2.8 per cent at current levels and economic stimulus likely to fade in the first half of 2010, we see no reason to hold the stock in the short term. Longer term, investors who are willing to risk some short-term setbacks may see otherwise. 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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