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Share Tips
Broker Recommendations 19 May - 6 to BUY, 6 to SELL and 6 to HOLD
Anthony Black - May 19, 2008
 HUGH WALLACE-SMITH
BELL POTTER
BUY RECOMMENDATION
Oxiana (OXR)
This diversified company is poised to deliver superior growth and become a significant global mineral producer. It offers high quality assets, combined with solid cash flows, a strong balance sheet and a top record for bringing new mines into production. The Zinifex merger looks to be a great add-on for this historically opportunistic company. It is committed to exploration and continually sets achievable expansion targets. The share price is more than 15 per cent below recent highs.
Kingsgate Consolidated (KCN)
A Thailand-based gold producer set to become a significant growth story. It’s waiting on government approvals and is likely to get them. The Chatree mine, producing for seven years, expects to expand production to 300,000 ounces per year. It has reserves of 1.6 million ounces using Chatree North and total resources of 3.4 million ounces. With $45 million cash and no debt, shareholders won’t have to “put in” and will probably see this company becoming an “asset in the ground story” for majors looking for quality gold assets.
HOLD RECOMMENDATION
Qantas (QAN)
This stock is way below its recent high of $6.06, reflecting concerns over rising oil prices and a slowing global economy squeezing profits. But it has a strong credit rating, and a more efficient Qantas should emerge from modernising its fleet. This year’s dividend yield will be almost 10 per cent.
Independence Group (IGO)
This stock is trading at a healthy discount to its $9.40 high and investors should hold for recovery. Nickel prices seem to be stabilising after significant falls. Robust operating cash flow from its Kambalda mine is complemented by low costs. Excellent exploration results continue to flow from the Tropicana joint venture with Anglo Ashanti.
SELL RECOMMENDATION
Santos (STO)
The shares surged on the back of record crude oil prices and reached a high of $18.75. Notwithstanding this strength, Santos production over the next few years will be subdued. New gas projects, coming on stream over the medium term, may only offset declining profiles from mature fields. Also, it offers only one new oil project and there is little overall growth. While high oil prices are here to stay., Santos investors should consider seeking a more dynamic alternative.
Tabcorp Holdings (TAH)
Tabcorp has been a most disappointing performer in recent years. The new gaming industry structure announced by the Victorian Government means TAH will no longer enjoy a duopoly with Tattersall’s beyond 2012 (and will receive no compensation). This announcement had a negative impact on TAH valuations. Also, the possibility of further Victorian Government changes to the gambling industry could unsettle investors.
 MICHAEL HEFFERNAN
AUSTOCK
BUY RECOMMENDATION
Incitec Pivot (IPL)
This fertiliser and chemical company has been a sharemarket stand-out and investors have been duly rewarded. The share price has almost tripled in the past 12 months, but the company still has a lot to offer. It owns a critical raw material supply and a dominant wholesale distribution arm. A bulging pipeline of opportunities will boost growth. Its recent solid interim was in line with expectations.
The Reject Shop (TRS)
A sharply focused and well-managed niche retailer targeting the lower price end of the market. Attractive margins, a sound balance sheet, constant new store openings and a strong Australian dollar are just some reasons to buy. Selling affordable product cushions it from any downturn in the Australian economy.
HOLD RECOMMENDATION
Bradken (BKN)
Supplies mining and rail equipment to the booming resources sector. The share price of this former market darling has been hammered after its recent profit report failed to meet expectations. If anything, the selling was over done, and astute investors moved in to pick up a bargain. But there’s more left. Future earnings growth looks bright.
Hastie Group (HST)
This air conditioning and refrigeration company recently posted a good result and an encouraging outlook. Keep holding, as we expect this company’s share price to rebound further after it was over sold in the March sharemarket correction. Solid company fundamentals can weather volatile times.
SELL RECOMMENDATION
Boom Logistics (BOL)
Investors have slashed the share price of this crane operator and it’s difficult to picture any upside at this point. Its latest first-half result showed profit was down 22 per cent on the previous corresponding period after the company experienced difficulties in digesting acquisitions. The all-important outlook was subdued. Move on.
Boral (BLD)
A building materials company suffering from a housing downturn here and in the US during the past 12 months. The prospect of a slowing economy under higher interest rates paints an uncertain outlook and the market hates uncertainty. Profit growth is likely to remain under pressure.
 SEAN CONLAN
MACQUARIE PRIVATE WEALTH
BUY RECOMMENDATION
Gunns (GNS)
Australia's biggest forestry company is primed for growth in what is expected to be a woodchip boom. All construction permits have been secured for its new Tasmanian pulp mill, which should be operating by July, 2010. The pulp mill will be using proven technology operated by an experienced team. The key is financing the mill. Negotiation of this funding is progressing with its banking group.
Felix Resources (FLX)
Felix has operating projects in Queensland and NSW, producing semi-soft coking and thermal coals. It also operates an ultra clean coal pilot plant in the Hunter Valley. Its March production statistics were better than expected, and it has been taking advantage of the under-utilised Gladstone Port. Strong demand from Asia, and, in particular China and India, paints a strong pricing outlook for the next few years. Felix Resources has corporate appeal.
HOLD RECOMMENDATION
David Jones (DJS)
Management has noted an economic slowdown starting to impact sales growth from waning consumer confidence. But DJS has successfully built cost flexibility into its asset base and expanded market potential for the brand. While DJS expects to maintain credible net profit-after-tax growth across the cycle, investors should factor in slower sales if the economy stalls.
JB Hi-Fi (JBH)
The electronics giant has opened another 16 JB H-Fi stores and two Clive Anthonys outlets in the 2008 financial year. Expect even more expansion in 2009. The possibility of softer retail spending is an issue and may impact JB Hi-Fi’s premium multiple, despite the company’s strong growth outlook. However, JB Hi-Fi remains a preferred medium-term exposure.
SELL RECOMMENDATION
Boral (BLD)
The US housing disaster flowing from the sub-prime meltdown has hit this building and construction company particularly hard. Its US bricks and tile businesses are suffering in line with the housing downturn. And poor building weather on Australia’s east coast has exacerbated the damage. While the stock looks cheap, the macro-economic environment looks difficult for the next six to 12 months.
Amcor (AMC)
In February, the packaging giant acknowledged short-term challenges included slowing economic conditions, rising raw material costs and inflationary pressures. These negative factors appear to be playing out. Amcor has not given actual guidance for the year, reflecting uncertainty in Europe and the US. Restructuring is welcome and there is good internal momentum, but related benefits are largely offset by negative external factors.
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:
Share Tips: Broker Recommendations 19 May - 6 to BUY, 6 to SELL and 6 to HOLD
Alternative Investments: Weird and wonderful investment ideas
Stock Picks: Stock of the week – Coal of Africa
Trading: April Makes a Fool out of Traders
US Analyst on inflation: The Fed Reserve: The Engine of Global Inflation
Market Reports: Top Ten CFD stocks for the week
Finance: Stevens' speech sparks rate rise talk
Companies: Fortescue wants to stay Australian
Finance: Westpac says Gail Kelly a 'great asset'
Sub-Prime: Crisis end getting closer: Deutsche CEO
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