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18 Share Tips - 29 October 2018

18 Share Tips - 29 October 2018

By Anthony Black 29.10.2018



Jabin Hallihan, Morgans

BUY RECOMMENDATIONS

Macquarie Group (MQG)
Chart: Share price over the year

This global diversified financial group appears to be tracking well so far in fiscal year 2019. We feel earnings risk is most likely to the upside in the near term. MQG shares have fallen recently, making our $130.72 valuation more attractive. We retain our add rating for MQG. The shares closed at $110.13 on October 25.

Senex Energy (SXY)
Chart: Share price over the year

Remains one of our key sector picks. It holds corporate appeal given its demonstrated scalable gas reserves linked to east coast infrastructure. These gas reserves could ultimately overtake SXY’s Roma North and Cooper Basin operations as the company’s most valuable. Should this happen, expect sizeable consensus upgrades along the way. We retain our add rating for SXY.

HOLD RECOMMENDATIONS

Brambles (BXB)
Chart: Share price over the year

At its core, we believe Brambles is a strong business with dominant global market positions, high barriers to entry and relatively defensive characteristics. However, in the short term, we believe the operating environment remains challenging, particularly in the US. In our view, ongoing cost pressures are likely to limit earnings growth for this logistics company. But, we view the company’s valuation as fair and, therefore, retain our hold rating. 

Challenger (CGF)
Chart: Share price over the year
 
We downgrade earnings per share between 4 per cent and 6 per cent for fiscal year 2019/20 on forecasts of lower sales and margins. But we continue to like the CGF story longer term. We note fiscal year 2019 growth guidance for net profit before tax of between 8 per cent and 12 per cent. This is impressive compared to most other financial stocks. However, we believe this investment management firm is fairly valued given pressures currently facing the business. 

SELL RECOMMENDATIONS

ASX Limited (ASX)
 
Chart: Share price over the year

The ASX remains a quality franchise. But with large near term investments planned, we think the ASX is likely to deliver low to mid single digit earnings per share growth over the next few years. That makes it difficult for us to justify the company’s recent fiscal year 2019 price/earnings multiple above 25 times, so we retain a reduce call.

Santos (STO) 
Chart: Share price over the year

On August 22, the company announced the acquisition of Quadrant Energy for $US2.15 billion, plus potential contingent payments related to the Bedout Basin. We like the addition of Quadrant assets, but it means committing STO’s repaired balance sheet, while also seeking to support its share of Papua New Guinea expansion and possibly an acceleration of development and output at the Gladstone LNG upstream project. In our view, the combined capital expenditure burden, in addition to the load already on STO’s balance sheet, may stretch capital resources. We retain a reduce rating.

Justin Klimas, Wilsons

BUY RECOMMENDATIONS

Monadelphous Group (MND)
Chart: Share price over the year
 
The outlook for this engineering contractor is positive, as the company is well placed to benefit from favourable market conditions in the resources and energy sectors. Major project approvals involving iron ore in Western Australia and coal in Queensland will act as catalysts for the share price. We expect increasing opportunities in base metals, lithium and infrastructure projects to provide further upside.

Amcor (AMC) 
Chart: Share price over the year

This global packaging company’s recent trading update confirming earnings guidance highlight that the headwinds experienced in financial year 2018 are temporary. We believe the acquisition of US based rival Bemis will generate long term value for AMC shareholders.

HOLD RECOMMENDATIONS

Orora (ORA) 
Chart: Share price over the year
 
At its recent annual general meeting, this tailored packaging solutions company revealed it was trading in line with internal expectations. First quarter trading was up on the previous corresponding period. The company also reiterated full year guidance for underlying earnings growth. The company has a strong balance sheet and announced the acquisition of Texas based Bronco Packaging Corporation in late August.

NextDC (NXT)  
Chart: Share price over the year

This data centre operator has made an unconditional on-market takeover offer for Asia Pacific Data Centre Group (the landlord of one of their data centres) for $2 a share. This transaction will resolve a long dispute between tenant and landlord. We see merit in NXT’s longer term strategy to own data centres. Rent cost savings should be achieved from the acquisition. 

SELL RECOMMENDATIONS

Domino’s Pizza Enterprises (DMP) 
Chart: Share price over the year

We believe the company will need to focus more on franchisee profitability to ensure sustainable outlets over the long term. However, this is likely to have a negative impact on margins.

Silver Chef (SIV) 
Chart: Share price over the year

This hospitality equipment financier has commenced discussions with potential subordinated lenders for much needed capital. The outcome of these discussions will paint a picture about the company’s financial health going forward. We’re concerned about the company’s bargaining position and dwindling positive catalysts.

Julia Lee, Bell Direct

BUY RECOMMENDATIONS

ANZ Bank (ANZ)
Chart: Share price over the year

The shares are the most oversold that we’ve seen since 2016 and are due for a bounce. Recently trading on a dividend yield of 6.3 per cent, or 9 per cent on a fully franked basis, the shares are looking relatively cheap. While the banks face many headwinds, including slowing mortgage growth and rising regulatory and compliance costs, the market, in our view, has over-reacted to these factors. With ANZ due to go ex-dividend in November, this stock should be well supported to the end of the year.

Vocus Group (VOC)
Chart: Share price over the year

Markets love a recovery story and this company is obliging. This is a transitional year and new management is setting the stage for earnings growth over the next three to five years. Also, the tilt back to growing interest in defensive sectors should see the telecom sector outperform during the next 12 months. One of the most highly leveraged plays in the telecom space is Vocus.

HOLD RECOMMENDATIONS

QBE Insurance Group (QBE)
Chart: Share price over the year

QBE’s strategy to maintain operations in all key insurance markets means its diversification strategy helps to manage risk. The tailwind of rising US interest rates should boost earnings from its investment portfolio. QBE is a hold here and should hover around $11. The shares closed at $11.17 on October 25.

CYBG PLC (CYB)
Chart: Share price over the year

While earnings uncertainty has hit the stock due to a potential Brexit, the market is overlooking the recent merger with Virgin Money. With synergies yet to be extracted, this is one to hold in the bottom drawer over the next few years. Synergies and growth from the Virgin Money merger should start to factor into this banking stock’s valuations and opportunities.

SELL RECOMMENDATIONS

Nick Scali (NCK)
Chart: Share price over the year

A softer housing market has hit this furniture retailer. With a housing recovery between 18 months to 24 months away, we believe much better value can be found elsewhere. Also, the value added from retail companies is generated via the rollout of stores while sales are expanding. The softness in housing related products means the old strategy of expanding through store rollouts will need to be put on hold, or, in our view, the company could see an increase in risk measures.
 
Perpetual (PPT)
Chart: Share price over the year

With the growing popularity of passive funds together with added volatility in markets, Perpetual, in our view, needs to change or shrink. With a new CEO and CFO, this diversified financial services company needs to adapt quickly to a rapidly changing and competitive environment. Weaker markets make change more difficult due to the costs involved and rising costs are unpopular in a softer growth environment.
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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New vehicle sales fell 5.5 per cent in September nationally, compared to the same time a year ago. Remarkably, passenger car sales slumped 20.5 per cent year on year.

House-price dip puts the brakes on car sales

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