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18 Share Tips - 21 May 2018

18 Share Tips - 21 May 2018

By Anthony Black 21.05.2018



Ishan Dan, Wattle Partners

BUY RECOMMENDATIONS

Orora (ORA)
Chart: Share price over the year

Good organic growth should deliver higher earnings this year. The packaging giant is benefiting from positive momentum in Australia. Tougher conditions in North America should be cushioned by US tax cuts. The outlook is bright and we believe investors could find value in ORA.

Seven Group Holdings (SVW)
Chart: Share price over the year

SVW upgraded guidance earlier this month. Its operations are doing better than expected due to heightened mining production and east coast infrastructure activity. Unseasonably dry weather has given an extra boost in fiscal year 2018. SVW expects fiscal year 2018 underlying EBIT to be 20 per cent to 25 per cent above pro-forma fiscal year 2017 EBIT of $376.9 million. 

HOLD RECOMMENDATIONS

Bapcor (BAP)
Chart: Share price over the year

Distributes automotive aftermarket parts. Demand for auto parts is growing steadily. BAP has a strong position in the retail space and is on track to lift net profit after tax by 30 per cent in fiscal year 2018. The total number of vehicles will continue to grow at a steady pace. 

ARB Corporation (ARB)
Chart: Share price over the year

Designs, makes and distributes 4WD accessories. Its business model and expertise in product innovation have made it an industry leader. ARB reported a 12.4 per cent increase in first half sales revenue to $208.1 million. Net profit rose marginally to $23.4 million. The global 4WD market is booming and we think there’s strong upside potential even from here. 

SELL RECOMMENDATIONS

Link Administration Holdings (LNK) 
Chart: Share price over the year

The shares were hit hard following Federal Government Budget measures to transfer inactive superannuation accounts to the Australian Tax Office, which will endeavour to reunite accounts with their owners. The plan affects accounts with a balance of less than $6000 and where no contribution has been made for 13 months. The plan has the potential to significantly impact LNK’s revenue in 2020. These headwinds could have a lot further to run. 

TPG Telecom (TPM)
Chart: Share price over the year

Shares fell after rival Telstra posted an earnings downgrade and TPM announced six months of free data service in a bid to attract more mobile customers to its new 4G network. In our view, the unlimited mobile plan is risky as customers may move on after the free period expires. 

Ian Dorrington, Argonaut

BUY RECOMMENDATIONS
 
Otto Energy (OEL)
Chart: Share price over the year

The oil producer is on the cusp of substantially increasing its cash flow from a 50 per cent share in South Marsh Island operations (SM71) in the Gulf of Mexico. We don’t believe the good news is reflected in the company’s current valuation. The shares closed at 7 cents on May 16.
 
Hazer Group (HZR)
Chart: Share price over the year

This technology company is undertaking commercialisation of the Hazer process – a low emission hydrogen and graphite production process. Mineral Resources (MIN) is becoming more involved in company development and now has a board member. Historically, MIN has a good track record in developing and commercialising innovative technologies. We feel an increased focus by MIN on HZR is positive and retain our speculative buy recommendation.
 
HOLD RECOMMENDATIONS
 
Evolution Mining (EVN)
Chart: Share price over the year

We moved our target price up from $2.66 to $3.01 for this gold miner. It follows revisions to our model factoring in recovery improvements at the Cowal mine and performance improvements at Mt Carlton and Ernest Henry. We retain a hold recommendation.  The shares closed at $3.19 on May 16.  
 
Regis Resources (RRL)
Chart: Share price over the year

We believe the stock is fully priced at current levels. The gold producer trades on a fiscal year 2018 enterprise value/EBITDA ratio of about 8.5 times versus a peer group of around 7 times. We believe RRL trades at a premium due to its quality portfolio, strong cash flow generation and organic growth prospects.
 
SELL RECOMMENDATIONS
 
Independence Group (IGO)
Chart: Share price over the year

We believe the diversified miner’s March quarterly report revealed mixed results from the group’s assets. Nova achieved nameplate throughput of 1.5 million tonnes and generated $52 million in free cash flow. However, it’s trending below the lower end of production guidance. Argonaut retains a $4.25 target price and sell recommendation. The shares finished at $4.86 on May 16.
 
BHP Billiton (BHP)
Chart: Share price over the year

The global miner’s share price has moved considerably higher in the past six months on improving iron ore and crude oil prices. On November 17, 2017, the shares were priced at $27.12. The shares closed at $34.01 on May 16. It may be prudent to consider taking part profits on share price strength. 

Tony Paterno, Ord Minnett

BUY RECOMMENDATIONS

Incitec Pivot (IPL)
Chart: Share price over the year

The company is entering a period of strong operational performance and earnings growth. Earnings at the Waggaman facility in the US and stronger explosives demand are expected to drive growth, although volatile fertiliser pricing and currency remain headwinds. Productivity benefits from the business excellence program have recently supported divisional margins, which along with the announced share buyback, are expected to generate earnings per share growth. We note valuation support exists at these levels.

Ansell (ANN)
Chart: Share price over the year

Improving economic indicators, a portfolio of growth brands we believe are gaining traction and a number of distributors signed across Europe and the US underpin our outlook for modest organic growth. Earnings in this protection solutions company are further underpinned by cost reductions we expect to be delivered by the business transformation program.

HOLD RECOMMENDATIONS

Perpetual (PPT)
Chart: Share price over the year

The stock has de-rated significantly and is trading on a forward price/earnings multiple of less than 14 times re-based earnings and is delivering a fully franked dividend yield of more than 6 per cent. We see less downside risk to the share price relative to other listed fund managers.

Coca-Cola Amatil (CCL)
Chart: Share price over the year

The $40 million reinvestment plan is designed to drive revenue growth and low, single digit EBIT growth in Australian Beverages. Indonesia remains an attractive long term growth opportunity, although near term challenges exist. Alcohol and coffee are performing well and management is exploring growth opportunities. Valuation support is limited at the current share price, although the dividend yield can be seen as attractive.

SELL RECOMMENDATIONS

TPG Telecom (TPM)
Chart: Share price over the year

We believe above average growth has ended and expect TPG to grow at a rate closer to the industry average. With NBN migration underway, the company now faces higher wholesale costs. The potential margin headwind from NBN migration is too much of a risk to brush aside at this point. We’re also cautious about the potential move into the Singapore mobile market.  Also, as a fourth operator in Australia, it will be competing in arguably mature markets.

Medibank Private (MPL)
Chart: Share price over the year

Australians are ditching their private health insurance and MPL has been losing share. There’s also increasing political pressure to continue with very low rate increases in future. In this environment, we believe valuation support is lacking and there’s a risk earnings may suffer.  

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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