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18 Share Tips - 04 September 2017

18 Share Tips - 04 September 2017

By Anthony Black 04.09.2017



Matthew Felsman, APP Securities

 

BUY RECOMMENDATIONS

 

Healthscope (HSO) 

Chart: Share price over the year

Substantial share price falls in the past 12 months bring Australia’s second biggest private hospital operator into attractive valuation territory. I see growth on 16.9 times estimated 2018 earnings. Take advantage of an investor overreaction after recent reports. Invest for an ageing Australian population and increasing demand for health care.

 

Telstra (TLS) 

Chart: Share price over the year

Investors recently dumped the stock following a big cut to its dividend. Reported earnings were a slight miss, but not big enough to justify current valuations. Technically, the stock recently looked to have formed a low. Trading on a recent fully franked dividend yield of 5.71 per cent still adds decent income.

 

HOLD RECOMMENDATIONS

 

BHP Billiton (BHP) 

Chart: Share price over the year

Resources are very bullish. Stronger commodity prices have led to positive capital management and the market likes it. But we shouldn’t forget that sector volatility is just around the corner. But with no strong sell signals, hold for now.

 

 

Alumina (AWC) 

Chart: Share price over the year

Great earnings results recently and a dividend that exceeded forecasts. I expect further upgrades and optimism going forward. AWC is the most leveraged Australian metals and mining company to alumina and aluminium, and it should also benefit from Chinese supply rationalisation.

 

 

SELL RECOMMENDATIONS

 

Qantas (QAN)

Chart: Share price over the year

With the share price up by 600 per cent since 2013, valuations are looking stretched. I find it difficult to pinpoint where further substantial growth is going to emerge. At this price altitude, any uncertainty from a potential upcoming management shake-up could see selling.

 

Insurance Australia Group (IAG) 

Chart: Share price over the year

A negative technical view sees this stock retreating closer to $5, in my view. The insurance sector is out of favour. IAG’s underlying insurance margin fell from 14 per cent in fiscal year 2016 to 11.9 per cent in fiscal year 2017. The shares were trading at $6.37 on August 31.

 


Tony Paterno, Ord Minnett

 

BUY RECOMMENDATIONS

 

The Star Entertainment Group (SGR)

Chart: Share price over the year

Offers a stable and domestic revenue growth profile. Investing in Sydney, Gold Coast and Brisbane casino properties will drive gaming spending. VIP turnover is volatile, but this is priced into the stock. Asian tourism remains a medium term driver.

 

AMP (AMP)

Chart: Share price over the year

Cost savings should result in improving short term growth. Adverse issues on claims and life insurance lapses should start to improve following industry reforms and AMP rectifying claim trends and policy design. 

The contemporary wealth division, the growth engine of AMP, can grow by up to 6 per cent a year on our estimates.

 

HOLD RECOMMENDATIONS

 

Mirvac Group (MGR)

Chart: Share price over the year

This property group offers an attractive pipeline of projects with strong residential pre-sales and office pre- commitments. But medium term concerns around apartment settlement risk are likely to persist while lending conditions remain tight.

 

Wesfarmers (WES)

Chart: Share price over the year

Earnings from its Coles supermarkets business are under pressure from improving rival Woolworths. The Bunnings hardware division is a strong performer, but it’s dealing with management changes and expansion challenges. Kmart continues to perform well, but among challenges in the company’s retail division is increasing competition.

 

SELL RECOMMENDATIONS

 

Challenger (CGF)

Chart: Share price over the year

We expect margin pressure and increasing capital requirements to be a drag on return on equity. An uncertain investment environment increases risk to reported earnings and its capital position. Demand for annuities is expected to increase, but, in my view, product costs are likely to limit their attraction.

 

Tabcorp (TAH)

Chart: Share price over the year

Tabcorp has defensive cash flows and a consistent history of returning capital to shareholders. Digital migration is positive for margins. But the company is exposed to declining wagering yields from competitive pressures and corporate bookmakers. These factors were a challenge in the first half of fiscal year 2017 and are expected to remain.  

 


Michael Wayne, Medallion Financial Group

 

BUY RECOMMENDATIONS

 

Bapcor (BAP)

Chart: Share price over the year

This automotive aftermarket parts provider is arguably one of the brightest prospects in the consumer discretionary space. The business recently delivered an impressive report, which highlighted strong margin growth, same store sales and cash generation. Although debt levels remain relatively high after a series of acquisitions, impressive free cash flow generation ensures it can comfortably service debt. For a business with an impressive earnings profile and strong competitive advantage, the valuation multiple appears attractive at only 17 times 2018 earnings.

 

Janus Henderson Group (JHG)

Chart: Share price over the year

The most recent result delivered funds under management, fund flows and investment returns beyond market expectations. The recent merger brings together two asset management businesses (Janus and Henderson) with enviable reputations and track records. The merger also enables the new entity to cut costs.  It has cut $57 million so far.

 

 

HOLD RECOMMENDATIONS

 

Trade Me Group (TME)

Chart: Share price over the year

Delivered a better than expected fiscal year 2017 result after a recent investment delivered strong earnings growth. Management flagged that earnings growth is likely to slow in 2018 as the company looks to re-invest in the business. Trade Me has strong brand equity in New Zealand.

 

A2 Milk (A2M)

Chart: Share price over the year

A2M continues to power ahead, with strong price momentum supported by solid earnings growth. Recently trading around 43 times earnings, the company isn’t cheap by conventional standards. But with rapid expansion into China, the US and the UK, A2M can continue to deliver outstanding growth going forward. The primary risk facing the business is emerging competition from companies looking to capitalise on the apparently healthy A2 protein.

 

SELL RECOMMENDATIONS

 

Myer Holdings (MYR)

Chart: Share price over the year

Being among the most shorted stocks on the ASX doesn’t always mean a company is set for failure. However, in MYR’s case, I feel the short sellers have got it right. Although currently changing hands at just 8 times trailing earnings, MYR, in my view, has been a value trap for investors. The company has again downgraded full year guidance and it’s difficult to see things improving with the inevitable arrival of Amazon.

 

Insurance Australia Group (IAG)

Chart: Share price over the year

IAG delivered a result that slightly missed expectations. It was recently trading on 17 times one year forward earnings, a premium that’s hard to justify for a mature business with declining margins and minimal room for growth across its consumer and business divisions.

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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