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Stock Tips
Broker Stock Recommendations – 6 to BUY, 6 to SELL and 6 to HOLD
Anthony Black - May 05, 2008
 Jarrod Daffy
WILSON HTM
BUY RECOMMENDATION
BABCOCK & BROWN (BNB)
AN investment bank generating management fees from listed and unlisted funds and a diversified portfolio of assets. The share price, like other financials, has been punished as a result of the credit crunch. But it has confirmed 2008 earnings guidance of $750 million, representing 15 per cent growth on last year’s profit. The broker’s 12-month share price target is $24.
CABCHARGE AUSTRALIA (CAB)
THIS taxi charge company offers a strong business model and is a market leader. The core Cabcharge business is delivering good margins and generating strong cash flow. The group’s relatively low debt levels and sustainable earnings growth underpins our recommendation.
HOLD RECOMMENDATION
Woolworths (WOW)
THE supermarket giant has cemented its position as the dominant player in the Australian retail sector and should continue to benefit from a buoyant domestic economy and relatively defensive earnings stream. It should continue to post solid results, but the stock appears to be fully priced on our valuations.
Whitehaven Coal (WHC)
A COAL miner and explorer recently granted development approval for its Rocglen coal project. This news is positive for future long-term growth. But, in the short term, we remain cautious given earnings uncertainty due to its fixed price coal contract position.
SELL RECOMMENDATION
Insurance Australia Group (IAG)
IAG has again downgraded its insurance margin forecast for 2008, citing higher costs from storm damage and wider credit spreads. Today’s share price, supported by a cash and scrip offer from QBE, is significantly higher than our 12-month target of $3.25. Superior opportunities exist elsewhere.
Bank of Queensland (BOQ)
THE bank’s net interest margin fell significantly in the first half of the 2008 financial year. It’s difficult to see this position improving in the short term with credit spreads remaining under pressure. We have downgraded our earnings forecast for the 2009 financial year by 1 per cent and the following year by 5 per cent. Sell above our 12- month share price target of $14.
 Brendan Fogarty
ALTO CAPITAL
BUY RECOMMENDATION
Mincor Resources (MCR)
THIS nickel miner recently released an outstanding quarterly report, producing 4100 tonnes at a cash cost of A$6.12 a pound, equating to a cash margin of A$7.50 a pound. It’s forecasting a long-term production target of 20,000 tonnes of nickel a year for 20 years.
Lihir Gold (LGL)
LIHIR is Australia’s second biggest gold producer, with a 2008 production forecast of 800,000 ounces. After closing its hedge book position earlier this year, investors can expect a significant improvement in profit. It is now more appealing as a takeover target.
HOLD RECOMMENDATION
Alumina (AWC)
THIS aluminium company has bounced nicely off its lows in mid-January due to take-over rumours in a consolidating mining sector. The fully-franked dividend yield of 4 per cent is very attractive for a resource company.
Aristocrat Leisure (ALL)
THE poker machine maker has been unfairly sold down to multi-year lows after the Victorian Government announced it would end the Tabcorp and Tattersall’s gaming machine duopoly in 2012. A growing presence in Asia and the US should more than offset any decline in the Australian market.
SELL RECOMMENDATION
Equinox Minerals (EQN)
THIS copper mine developer has just started commissioning its US$800 million Lumwana copper mine in Zambia. While we applaud the company for an outstanding job in financing the project, the commissioning stage often presents greater risk. It’s hard to justify market capitalisation of more than $3 billion given the challenges ahead.
Ausenco (AAX)
THE share price of this construction and engineering firm has run too fast after increasing 1500 per cent during the past two years. Australian building approvals fell 5.7 per cent in March, which was more than five times market forecasts. This paints a bleak outlook for major construction players. Expect Ausenco to reveal further profit downgrades as weakness unfolds in the sector.
 Raimond Aide
SHADFORTHS
BUY RECOMMENDATION
Toll Holdings (TOL)
THIS integrated supplier of transport and logistics services in Australia has grown strongly in recent years due to multiple acquisitions. Toll has been sold off due to its exposure to Virgin Blue and the airline’s recent profit downgrade. At current valuations, TOL offers value and long-term growth.
QBE Insurance (QBE)
RECENTLY launching an audacious bid for IAG, a merger of QBE and Insurance Australia Group would push the enlarged group into the top 15 global general insurers. The merger is expected to be earnings per share positive in the first year for QBE. In the meantime, QBE recently reaffirmed its 2008 growth targets.
HOLD RECOMMENDATION
BHP Billiton (BHP)
RECORD iron ore shipments and a strong jump in oil production were highlights in the recent production update. Higher coking coal and oil prices are further positives for the world’s biggest diversified miner in its quest for Rio Tinto.
Goodman Fielder (GFF)
THE staple foods maker and distributer is heavily exposed to sharp increases in agricultural commodity prices. Pricing power is limited due to the duopolistic supermarket industry. The stock is more a yield proposition, with earnings growth restricted to product innovation, bolt-on acquisitions and internal efficiencies.
SELL RECOMMENDATION
Oil Search (OSH)
THIS Papua New Guinea-based oil and gas producer is reviewing its 2008 production forecast due to slower PNG drilling. The market is concerned about OSH’s ability to contain costs in difficult operating and inflationary environments. Better value and growth opportunities can be found elsewhere in the oil sector.
Equinox Minerals (EQN)
A COPPER and uranium explorer that is developing a major copper deposit in Zambia. The Zambian Government has ratified new taxes and royalties, thereby eroding future potential expansion options. Investors should consider reducing their exposure due to high sovereign risk.
Anthony Black is a long-standing journalist, having worked in newspapers for more than 20 years. He was the Sunday Herald Sun’s finance editor for eight years and his reports were published in News Limited papers across Australia.
More articles from this edition of CompareShares:
Stocks: Retail Stocks – Buy or Sell
Stock Tips: Broker Stock Recommendations – 6 to BUY, 6 to SELL and 6 to HOLD
Carbon Trading: The Carbon Market – The Essential Guide Part 2
Stocks: Stock of the week – Otto Energy
Markets: Volatile Aussie shares to deliver 10% this year
Companies: Optus, Telstra bicker over broadband bid
Companies: BHP to lodge Rio Tinto bid with EC
Stocks: Junior iron ore stock prices skyrocket
Companies: Failed Chartwell head expecting charges
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