Price target increased

Boart Longyear (BLY)

Share Price: $3.36

Price target: $4.26 (RBS)

Broker Calls: RBS - Buy

P/E: 1

Market Cap: $1,550 million

Boart Longyear (BLY) falls firmly in the "value investing" box, with a P/E of less than 10, a PEG of less than .5. And brokers seem to be very keen on the stock - we tracked down six brokers with buys on the stock with price targets ranging from $3.97 to $4.26. While that alone doesn't necessarily make it a good buy, it is a share worth watching.

BLY provides equipment, drilling services, and other consumable products to the mining industry.  As such, they are at risk of a continued drop in commodity prices and a significant slowdown in China which will affect their customers – the miners.  Although their dividend payout ratio is low at 2.8%, dividend payout has been spotty, with no dividend paid for FY2009.  And although they modestly increased debt and gross gearing, they are still low enough to consider their balance sheet as reasonably strong.  Share price is currently trading at about 1.25 times book value. 

James Samson from Lincoln has a Buy on BLY and thinks the outlook is clear. "Interim results in August showed revenue and margin growth in its drilling services and product operating segments...it also upgraded guidance for financial year 2011," he said. "Recent sample volumes, analysed by laboratory services company Campbell Brothers, suggest drilling levels remain high despite the weaker macroeconomic environment."

Upgrades

Reckon (RKN)

Share Price: $2.28

Price target: $2.78 (Merrill Lynch)

Broker Calls: Merrill Lynch - Low Risk Buy

P/E: 16.54

Market Cap: $304 million

A drop in Reckon's share price over the past few weeks presents an opportunity, according to some brokers. In times such as these, most investors are looking for low-risk stocks and Merrill Lynch believes that Reckon (RKN) fits the bill, placing a "low-risk buy" on the financial software firm. It has a $2.78 price target on the company, a 22% premium to Thursday's closing price. However it must be noted that this was place before the joint-development software deal with Intuit fell through - the catalyst for the recent share price decline. 

With several companies conducting a fierce bidding war earlier this year for Australia's other software titan MYOB, Reckon could well be next on the list. Private equity firms Bain, Kohlberg Kravis Roberts (KKR) and Sage battled it out in a bid to gobble up MYOB for $1.3 billion. Bain won the battle, leaving Sage's new CEO Guy Berruyer with empty hands. And a fat acquisition wallet. With RKN's market cap at just $304 million, Sage - or KKR - could easily pick up the company.

Takeover speculation aside, RKN's numbers and outlook look good, according to analysts. A few months back it announced earnings growth of 8% for the 6 months to June 30, 2011, despite being adversely impacted by weak economic conditions in the UK and NZ, adverse exchange rates and a sluggish retail sector in Australia. “It is pleasing to see solid organic revenue growth in our core businesses, and that the continual push for further efficiency gains is bearing fruit,” said Clive Rabie, Reckon’s Group CEO. “Within the constraints of difficult market conditions, and the consequential delays in decision making, we continue our historical strong new product sales growth which in turn adds to our maintenance revenue base by adding new clients to the business each year.”

Some analysts believe that RKN is already sitting at fair value and as a result have a hold on the stock. James Samson, Lincoln Indicators says that despite the somewhat defensive nature of its business and a reasonably solid 2011 financial report, he believes the shares are fully priced at current levels. Morningstar did have a hold on it, but given the recent share price weakness the broker has upgraded it to Accumulate as it believes the stock is worth $2.60.

Buys

Iluka Resources (ILU)

Share Price: $16.68

Price target: $25.00 (Citi)

Broker Calls: Merrill Lynch - Buy, ThinkTechnically - Hold

P/E: 14.63

Market Cap: $6,984 million

The analyst community sees a bright future for Iluka Resources.  One reason for their optimism is the company’s recent performance:

NPAT (Net Profit after Tax) in 2011 was $145.9 million, compared to a loss of $6.6 million in 2010.

Net Operating Cash Flow for HY 2011 was $240 million, compared to only $49.9 million in 2010.

FCF (Free Cash Flow) went from a negative ($47.3) million to a positive $167.7 million.

CAPEX (Capital Expenditures) went down from $94.9 million in 2010 to $48.7 million in 2011.

Total Debt went down from $439 million in 2010 to $171 million in 2011.

Debt to Equity (Gearing) was reduced fro 28.8% in 2010 to 12.2% in 2011.

ROC (Return on Capital) rose from 6.1% in 2010 to 32.4% in 2011.

ROE (Return on Equity) in 2011 was 25.3% compared with .6% in 2010.

While these numbers represent a snapshot of a relatively brief moment in time, taken together they are what investor dreams are made of.  Expenses, debt, and gearing all went down.  Profit, cash flow, and shareholder return all went up.

One of the bullish brokers is RBS's Clive Briggs, who is confident that zircon prices will increase between $US200 and $US250 a tonne in the December quarter. "The company will receive higher royalty payments from iron ore produced at specific parts of BHP Billiton’s mining area C in Western Australia," he notes, adding that Iluka remains one of his top picks in the resources sector. There are a host of other brokers who are also positive about ILU's outlook - Credit Suisse has a $20.00 price target, while Citi is even more bullish with a $25.00 target.

Meanwhile Mark Lennox from Think Technically placed a hold on ILU. "The company expects its strong position in zircon and mineral sands to remain unaffected by any downturn in China’s growth," he says. "Iluka reported a 10 per cent increase in mineral sands production for the September quarter and holds a third of the world’s market share for zircon, which is used in ceramic tiles."

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