|
|
 NEWS |
|
|
|
|
Stock Tips
Broker Recommendations 26 May – 6 to BUY, 6 to SELL and 6 to HOLD
Anthony Black - May 26, 2008
 SCOTT MARSHALL
SHAW STOCKBROKING
BUY RECOMMENDATION
AXA Asia Pacific (AXA)
We remain cautious about the investment market outlook, particularly in the short term. This is due to a deteriorating local economy. But we see value in this well managed insurance and investment company with a history of solid earnings. Its exposure to the booming Asian economies provides long term growth.
Coeur d'Alene Mines (CXC)
The merger of Coeur d’Alene Mines, Bolnisi Gold and Palmarejo Gold late last year has created a company that is the world’s biggest silver miner. The expanded company has an impressive growth profile driven by three new quality projects.
HOLD RECOMMENDATION
Rio Tinto (RIO)
Investors should stick with Rio as it offers quality operating assets and the outlook for commodities is bright. RIO has flatly rejected BHP Billiton’s takeover offer on the basis it significantly under values its assets and prospects. This begs the question: What price is acceptable to RIO? Based on our analysis, we believe RIO may consider a scrip offer in the range of 3.6 to 3.9 BHP shares for each RIO share.
Woolworths (WOW)
Expect WOW to continue using its strong cash flow to put pressure on Coles and Foodstuffs in New Zealand. The company remains a beneficiary of a relatively weak Coles supermarket division, and, until this is rebuilt by Wesfarmers, WOW will continue to invest in increasing the gap while it has the chance.
SELL RECOMMENDATION
AMP (AMP)
For the first quarter of the year, AMP’s net fund flows were down 83 per cent to $129 million. This is disappointing, but the first quarter is seasonally AMP’s weakest and we expect AMP's corporate superannuation to report stronger inflows in the next six months. With volatile equity markets continuing, we see better risk/ return in other stocks.
Virgin Blue (VBA)
The airline has downgraded its outlook, with full-year profit forecast to retreat by at least 35 per cent to $140 million. This reflects higher fuel costs, now comprising more than 32 per cent of operating expenses. An 18 per cent increase in capacity in this year’s second half is not matched by increasing demand. This reflects increasing capacity for Qantas/Jetstar and Tiger. Profit guidance was significantly below market consensus of $200 million. Expect these problems to persist next year.
 COLIN CAMPBELL
WILSON HTM
BUY RECOMMENDATION
Whitehaven Coal (WHC)
Despite downgrades to 2009 production forecasts, we have upgraded WHC to a buy. In a white hot coal sector, WHC offers a cheap entry opportunity. There are operational challenges, and the company is dependent on access to the Newcastle coal port. But we expect new capacity to be available in 2009, stronger coal prices to remain for the immediate future and new management to overcome operational hurdles.
Molopo Australia (MPO)
A junior producer and explorer with exciting prospects in gas and coal seam gas in Australia and overseas. We expect production and reserves to increase significantly in coming years. The company is currently producing coal seam gas in the Gloucester Basin. The big sleeper in value is the company’s 80 per cent holding of 1.85 million acres in potential shale gas exposure in Quebec, Canada. Discoveries in neighboring holdings highlight the potential.
HOLD RECOMMENDATION
Macquarie Group (MQG)
Macquarie Bank is a leveraged play on credit and equity markets. The 2008/09 year is shaping up as a mixed bag. With 15,000 staff, it is no longer a small operation and higher growth rates are getting harder to obtain. While it never pays to underestimate the company’s capability, it’s hard to see where out-performance will come from. The stock was trading below $60 a share on May 23 and our target price is $65.
Invocare (IVC)
This funeral stock is truly a “defensive” business. A cold winter may see higher funeral rates, but investors should also monitor the component of prepaid services. Sales growth is up 10.4 per cent to the end of April. But this is really a longer term story, with a strong business model and management team.
SELL RECOMMENDATION
Boral (BLD)
The building materials company confirmed that recent wet weather in NSW and Queensland will hurt its 2008 performance. It earns 52 per cent of its revenue from these two states. The US remains soft, with its brick business under pressure. Cost pressures in Australia are rising and it will need to pass these on in a slowing residential market. Expect 2009 to be flat and, with no turnaround in sight, we feel there are better opportunities elsewhere.
Incitec Pivot (IPL)
The very strong run for IPL has continued on the back of stronger global ammonia and fertiliser prices, the Dyno Nobel (DXL) corporate activity and the China story. We recommend taking part profits at this level as the market is pricing the company for perfection. Our valuation for IPL is closer to $100 a share, but acknowledge that sentiment may take the stock higher in the short term.
 BEN POTTER
ABN AMRO MORGANS
BUY RECOMMENDATION
Oxiana (OXR)
The likely marriage of Zinifex's strong cash position and OXR's project pipeline has the potential to deliver significant long term value. With both boards supporting the transaction, the merger looks a formality. The resources boom has a long way to go and this merger will boost earnings in times of strong demand. The gold price is marching higher and a strong zinc price is likely to rise.
QBE Insurance Group (QBE)
This global insurer has a strong balance sheet that enables it to continue its acquisition strategy despite shelving the IAG takeover bid. That doesn’t mean it won’t be back to take another crack at IAG and it could even land it at a cheaper price. QBE does not over pay for acquisitions - management is astute.
HOLD RECOMMENDATION
Australian Wealth Management (AUW)
AUW sets itself apart from its peers in this difficult wealth management environment as it’s flexible on operating costs and has a proven track record of making value acquisitions. It recently bought a 70 per cent stake in retail stockbroker Ord Minnett. Hold for further upside.
Wesfarmers (WES)
While a tight coal market is serving WES well, a likely turnaround of the Coles Group will be the impetus for future earnings growth. Coles is coming off a low base compared to Woolworths, so there is plenty of room for improvement. And it also has wonderful assets. The Bunnings hardware business continues to provide solid growth.
SELL RECOMMENDATION
James Hardie Industries (JHX)
This building materials group is up against an uncertain US housing outlook and rising input costs. The full effects from the sub-prime crisis are yet to flow through and the US building sector is likely to get worse before it gets better. While we acknowledge the appeal of the JHX business model, we see future earnings growth remaining under pressure in the short-to-medium term.
Perpetual (PPT)
Further weakness in PPT's funds under management figures and softer US economic data has resulted in us downgrading our forecasts again. This company does not appeal in tougher times and the recent share price rebound seems overdone. Take part profits.
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:
Stock Tips: Broker Recommendations 26 May – 6 to BUY, 6 to SELL and 6 to HOLD
Investing: Energy Stocks – Buy or Sell
Stock Picks: Stock of the Week – CSL Ltd
Commodities: Traders get hot and bothered over silver
Companies: IAG boss Michael Hawker resigns
Commodities: All eyes on oil as price surge continues
Economy: Buffett says US is already in recession
Report: Almost 150,000 in NZ could lose homes
 Email to a friend
 Print this article
|
|
