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Share Tips
Broker Stock Recommendations 7 July – 6 to BUY, 6 to SELL and 6 to HOLD
Anthony Black - July 07, 2008
 RAIMOND AIDE
SHADFORTHS
BUY RECOMMENDATION
AED Oil (AED)
This emerging oil producer seems to be finally back on track after securing a joint venture partner and welcome cash injection. AED is confident of producing 30,000 barrels a day by early 2009 from its Puffin project in the Timor Sea. It plans to drill a production and appraisal well in the next six months. However, until all technical issues are resolved on its problem oil well, the stock remains a speculative buy.
Brambles (BXB)
The logistics giant has just issued a robust earnings outlook after reporting a 13 per cent rise in sales for the 11 months to the end of May. BXB seems to be absorbing the rising oil price well and consequent increase in transport costs. The current share price understates BXB’s long term prospects.
HOLD RECOMMENDATION
Origin Energy (ORG)
The UK’s BG Group has finally launched a hostile $15.50 a share off-market takeover bid for ORG. The all cash bid values ORG at $13.8 billion. The market views this latest offer as unlikely to be the last. Shareholders should continue holding their ORG shares pending the outcome of this latest skirmish.
Transurban Group (TCL)
The leading toll road operator has been savaged by the market in response to cutting its 2009 distributions and raising $659 million in capital. TCL has announced it will no longer fund distributions from debt, rather operating cash flow. Such a move increases transparency and is a positive in the longer term. TCL still has growth options and should eventually be able to increase its distributions.
SELL RECOMMENDATION
Coffey International (COF)
This multi-specialist engineering firm has disappointed the market with recent disclosure and accounting problems. Further downgrades to earnings are possible until these issues have been resolved. Risk averse investors should consider selling.
Telecom Corporation of New Zealand (TEL)
Changing industry conditions and downward pricing pressure are beginning to crimp margins. Capital expenditure is also rising with investment in new technology. The dividend may be cut next year, reflecting these challenging conditions.
 ANDREW DOHERTY
MORNINGSTAR
BUY RECOMMENDATION
Commonwealth Bank (CBA)
Part of a banking oligopoly, CBA has a powerful retail and business franchise. It has the strongest retail deposit base, providing it with a cost-of-funds advantage. The loan book is conservatively managed and provisioning is adequate. The branch network and the universally recognised brand are significant competitive advantages. The fully-franked dividend yield of almost 7 per cent is attractive.
Leighton Holdings (LEI)
LEI dominates Australia's heavy construction and engineering services market with a $30 billion order book. It’s very well positioned to benefit from a large volume of government and private investment in infrastructure and heavy construction work for at least the next few years. LEI is also well positioned in the Gulf region of Dubai, Qatar and particularly Abu Dhabi for further growth.
HOLD RECOMMENDATION
InvoCare (IVC)
Funeral arranger and provider of ancillary services IVC enjoys predictable, high quality and steadily growing earnings supported by a strong industry position. Volume growth is largely via acquisition. Scale facilitates continual investment in already strong brands.
Computershare (CPU)
CPU is the only global share registrar administering more than 80 million shareholder accounts for over 13,000 corporations across 12 countries on five continents. With its scale, expertise, strong balance sheet and low capital requirements, CPU should grow earnings at a high rate for the foreseeable future.
SELL RECOMMENDATION
ABC Learning (ABS)
ABS is the dominant player in a still fragmented market and seeks expansion internationally. Supportive legislation and the trend for more parents to use childcare facilities underpin organic growth domestically. Despite the sell-down of US assets, international growth remains on the longer term agenda, meaning further risky debt and equity issues would not surprise.
Coffey International (COF)
COF is a multi-specialist in niche engineering and infrastructure fields. It’s well positioned to benefit from continuing strong activity in the infrastructure and resource sectors. Recent disclosure and accounting problems have hurt management’s credibility and will dampen confidence until the issues are fully resolved.
 STEVEN HING
NOVUS CAPITAL
BUY RECOMMENDATION
Citadel Resources Group (CGG)
A mining company focusing on gold and base metals in the Arabian Shield. The company holds interests in copper, gold, nickel and zinc projects. The stock has rallied from a low of 20 cents in February and recently hit a high of 40.5 cents. It was trading at 33 cents on July 4. Melbourne fund manager Portfolio Partners has become a substantial shareholder and Andrew Thompson has just been appointed chairman. I believe the company will move towards 50 cents as more information emerges about their mining projects.
Paladin Energy (PDN)
Paladin is a uranium exploration and mining company, with projects in Africa and Australia. PDN is currently focusing on its African projects by developing the Langer Heinrich in Namibia and Kayelekera in Malawi. PDN also holds 81.8 per cent in Summit Resources (SMM). Uranium stocks have been quiet, as oil, gas and coal seem to be the flavour of the month. The stock has improved from $5 and was trading above $6.50 on July 4. After examining charts, a break higher could see the price move to about $7.50. Strong demand for energy from China and India means uranium will again be seen as an alternative fuel source, and Paladin is well placed to supply it.
HOLD RECOMMENDATION
Westpac Banking Corporation (WBC)
The banking sector remains under pressure from the global sell-off of financial stocks following the sub-prime crisis. Domestic banks have been hit hard, falling by up to 40 per cent from all time highs last November. But the stocks remain the darlings of the fund management arena as they continue to offer attractive dividend yields. Westpac appears to be the best of the banks to make the most rapid rise if it can consummate its planned merger with St George. Its dividend yield is about 7 per cent. Expect synergies from an SGB merger that will make it the biggest bank and the most compelling of the sector.
Computershare (CPU)
Computershare operates share registry services in numerous countries, including Australia, the US and Canada, making it the biggest in the world. The company has again forecast 40 per cent earnings per share growth and the price has rallied from $7.60 to trade above $8.50 on July 4. The stock has been higher in recent times and, despite the global downturn in sharemarkets, you would suspect a company offering services related to share trading would continue to deliver strong revenue.
SELL RECOMMENDATION
Wesfarmers (WES)
WES is a diversified giant that owns Coles Group and the Bunnings hardware chain. It’s also involved in generating electricity, coal mining, gas processing and distribution, insurance (OAMPS), chemicals and fertilisers. I believe the recent Coles acquisition is not a particularly good fit. Wesfarmers may have paid too much for Coles, and, in the process, acquired too much debt. The stock has been struggling to break $40 and, despite a successful rights issue, appears to be heading back to March lows around $32.
Westfield Group (WDC)
The shopping mall operator recently announced it has suspended its dividend reinvestment plan. While the stock initially rose on the news, the outlook for the company and the sector in general remains bleak. Sell on share price rallies as the stock looks like retreating to $15, then possibly $14 levels.
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 Stock Recommendations 7 July – 6 to BUY, 6 to SELL and 6 to HOLD
Commodities: Cattle and hogs – a decade long boom on the cards
Stock fundamentals: How can share investors pick the best buy in any sector of the market?
Stocks: Stock of the week – Indo Mines
Gold Bullion Winners: Winners of the CompareShares Gold Giveaway
Survey: Building industry woes continue
Jobs: Job advertisements fall across the board
Business: Business to tackle its carbon footprint
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