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Share Tips
Broker Stock Recommendations 8 September – 6 to BUY, 6 to SELL and 6 to HOLD
Anthony Black - September 08, 2008
 SEAN CONLAN
MACQUARIE PRIVATE WEALTH
BUY RECOMMENDATION
CSL (CSL)
This blood products company has agreed to acquire Talecris, the third biggest fractionator in the US. This acquisition places CSL in an even stronger position within the plasma industry, enabling it to have better control of supply.
Woodside Petroleum (WPL)
Expect Australia’s biggest oil and gas producer to outperform as development projects, such as Pluto progress towards production. Volume growth from the Stybarrow oil field and North West Shelf Train 5 will allow Woodside to take advantage of the high energy price environment.
HOLD RECOMMENDATION
Wesfarmers (WES)
Coles and coal will drive earnings and investment themes. All company communications suggest Coles is a five-year turnaround. Right now, we believe the company, and that means short-term out-performance is unlikely.
Aristocrat Leisure (ALL)
Recent share price weakness does not improve the risk/reward of this poker machine stock. We remain neutral pending stronger evidence that its Viridian cabinet and associated games are performing.
SELL RECOMMENDATION
Allco Finance Group (AFG)
AFG is speculative at this point and not investment grade. Class shareholder actions are being prepared against AFG. It’s difficult to see AFG generating new business in this environment, with the focus largely on asset sales and management of its remaining assets.
Harvey Norman (HVN)
Expect earnings to decline during 2009 due to a lower franchising operations margin, losses in Ireland and the absence of significant property revaluation increments. Electrical goods margins may be pressured if the relationship between volume growth and price deflation in audio visual and information technology continues to break down.
 MICHAEL HEFFERNAN
AUSTOCK
BUY RECOMMENDATION
BHP Billiton (BHP)
Australia’s biggest listed company recently posted a very impressive result, with net profit up strongly and its dividend increasing by almost 50 per cent on the equivalent period last year. Its prospects remain very sound, as the global economy has remained resilient despite structural weaknesses in developing countries.
Centennial Coal (CEY)
This thermal coal producer delivered a significant net profit increase in its recent result. A substantial rise in thermal coal prices, continuing export growth, and, with cost increases expected to be relatively modest, the profit outlook for Centennial is strong.
HOLD RECOMMENDATION
Woolworths (WOW)
Australia’s leading retailer produced a very sound 2007/2008 result, delivering a 24 per cent increase in earnings per share. Expect net profit after tax growth of between 11 per cent and 14 per cent next year. In a tough environment, Woolworths continues to deliver.
WorleyParsons (WOR)
This engineering services provider to the resources and infrastructure sectors has been a strong sharemarket performer over recent years. It continues to produce great results and the future remains very sound. Market turmoil, particularly in financial stocks, had minimal impact on company performance. Recent share price softness may well represent a buying opportunity.
SELL RECOMMENDATION
Babcock & Brown (BNB)
There is no love left for this former market darling given the huge asset write-downs. Last year, this company was trading above $34. It’s now bouncing around $2.50 levels. On Friday, September 5, the share price was $2.35 in morning trade. Until the economy shows signs of improving and interest rates decline further, both of which will lower the cost of Babcock’s insidious debt, other stocks in the financial sector are preferred.
Perpetual (PPT)
Has stumbled against substantial headwinds in this difficult market environment. Its immediate prospects are unfavourable given a slowing economy and growing unemployment that will reduce the flow of funds to Perpetual’s superannuation business. Again, there are better options available.
 CAREY SMITH
ALTO CAPITAL
BUY RECOMMENDATION
Independence Group (IGO)
Its Kambalda nickel miner had a very respectable 2008, producing 9275 tonnes of nickel, profit after tax of $51.5 million and a net cash position of $145 million. The company has commenced a share buy-back on management’s belief the group is under valued at current market capitalisation of $370 million. This has merit when the group’s 30 per cent share of the 4 million ounce Tropicana Gold project is taken into account.
Tabcorp Holdings (TAH)
The gambling giant’s share price was decimated earlier this year when the Victorian Government decided not to renew its gaming licence post 2012. The decision to write-down the licence value by $750 million last year has cleared the books, and we now believe all the downside has been factored into the group’s share price. Expect TAH to trade back above $10 a share in next 12 months. On Friday, September 5, the shares were trading at $8.60 levels.
HOLD RECOMMENDATION
Tianshan Goldfields (TGF)
This China-based gold explorer is conducting a pre-feasibility study on its 2.6 million ounce Gold Mountain Project. Initial plans include producing 100,000 ounces of gold a year, utilising low-cost heap leaching technology. With $19 million cash in the bank and market capitalisation of $60 million, this explorer offers huge leverage to the gold price.
Telstra (TLS)
Good old boring Telstra offers predicable cash flows, a high dividend payout ratio and an almost monopoly position. What better way to ride out the current sharemarket turmoil? The 6.4 per cent fully franked dividend yield (equivalent to over 9 per cent from a bank account) more than justifies the current share price.
SELL RECOMMENDATION
Flinders Mines (FMS)
This penny dreadful hit pay dirt when Fortescue Metals announced a large iron ore resource on leases adjacent to Flinders’ own diamond leases. A review of the company’s strategy and a change to iron ore exploration resulted in its share price jumping from 1¢ to an all-time high of 25.5¢. Although the share price has drifted back to 12c on September 5, we suspect the overall downward trend to continue over the coming months
Campbell Brothers (CPB)
One the biggest benefactors of the resources boom by providing analytical testing services to the mining and exploration industries, which has seen earnings more than triple over the past five years. This great earnings record has resulted in the market pushing up the company’s price/earnings ratio to more than 25 times 2008 earnings, which we believe is unsustainably high. Any disappointment is likely to result in a big share price fall. The risk/reward ratio is just too high to continue holding this company.
http://www.altocapital.com.au/
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 8 September – 6 to BUY, 6 to SELL and 6 to HOLD
Forex trading for beginners: You don’t need a million dollars to trade the foreign exchange markets
Stocks: Top Ten CFD stocks for the week
Commodities: Gold bull not over yet
Stocks: Stock of the week – Macmahon Holdings
Recession: Recession risk is not zero: RBA chief
Inflation: RBA 'yet to see evidence' of falling CPI
US Finance: US govt moves to ease finance crisis
Takeover: ACCC to look into bid for BB Communities
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