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Share Tips
Stock Broker Recommendations 15 September – 6 to BUY, 6 to SELL and 6 to HOLD
Anthony Black - September 15, 2008
 PETER RUDD
CARROLL, PIKE & PIERCY
BUY RECOMMENDATION
Industrea (IDL)
This Queensland-based mining services and products supplier reported a 61 per cent increase in underlying profit on last year. Company directors expect another record profit next time provided there are no negative changes in current trading patterns or economic conditions.
Billabong International (BBG)
A surf wear and accessories distributor and retailer, it lifted latest year profit by 7 per cent. The Americas contributed the bulk of revenue (46 per cent), followed by Australasia (31 per cent) and Europe (23 per cent). This year, the company looks to further profit increases between 8 per cent to 12 per cent.
HOLD RECOMMENDATION
OneSteel (OST)
Among only a handful of global, fully integrated steel makers. Buoyant engineering and infrastructure sectors ensure strong demand for its product. Last year’s acquisition of Smorgon Steel has increased market share.
VDM Group (VMG)
This medium-sized engineering and consulting group’s exposure to the resources sector was boosted after winning a major haulage contract for BHP Billiton’s nickel operations in central Australia. This has increased activity in its 2009 order book to the highest level in the company’s history.
SELL RECOMMENDATION
AMP (AMP)
Continuing market volatility presents a challenging outlook for this superannuation and life insurance company. Dividend yield is falling as the payout ratio reduces from more than 100 per cent last year to a more sustainable 85 per cent in future.
Transurban Group (TCL)
This toll road infrastructure group is now paying distributions more in line with underlying operating cash flows. As a result, this year’s distribution guidance of 22 cents a share is well below the 57 cents paid last year.
 PETER RUSSELL
INTERSUISSE
BUY RECOMMENDATION
Data #3 LIMITED (DTL)
Data #3 enjoyed its sixth record year in 2008. The IT sector is strong as it brings productivity and market gains to users. Data #3 installs and services IT applications nationwide. With surplus cash, the franked dividend is yielding more than 7 per cent.
Neptune Marine Services (NMS)
Neptune aims to rule the underwater business of engineering, welding, repairs and maintenance. It has rapidly built a leading position in offshore Australia, the US and North Sea waters. Its sound strategy and execution is yet to be recognised.
HOLD RECOMMENDATION
Computershare (CPU)
The only truly global share registrar, it offers a unique platform for long term growth. Trading at December 2006 levels, Computershare is now much stronger and enjoys more market share. Number one or two in each market, it has major prospects in new growth economies and is an active acquirer. Accumulate for long-term out-performance.
Transfield Services (TSE)
TSE’s robust growth is set to continue on the back of reliable earnings streams from long-term integrated services contracts and infrastructure projects. Back at prices of more than two years ago, but now with proven credentials and global reach. It also has exposure to Canadian oil sands growth.
SELL RECOMMENDATION
Insurance Australia Group (IAG)
Australia’s biggest insurer is a disappointment. New management plans to reverse poor performance, but this will take a long time and IAG is capital-constrained. IAG booked a $261 million loss after tax for the year to June 30. Sell and switch to QBE Insurance.
Telecom New Zealand (TEL)
The high dividend yield has been the big attraction for retail investors. Unfortunately, this has been under-mined by performance and a falling share price. We see no upside. Telstra (TLS) is a bigger and stronger player in an economy performing much better than New Zealand’s. Make the switch.
 CAMILLA DAVEY
ORD MINNETT
BUY RECOMMENDATION
Incitec Pivot (IPL)
Incitec Pivot is an integrated fertiliser business, involved in making, distributing and selling fertilisers. IPL makes about 50 per cent of its fertiliser needs and imports the rest. It has nitrogenous fertiliser plants at Gibson Island in Queensland and Kooragang Island in New South Wales. It has the only Australian urea plant at Gibson Island. IPL has a 50 per cent market share of Australian fertiliser sales and a 65 per cent market share of business in eastern and southern Australia. IPL has operating scale and the lowest delivery costs per tonne due to advantages in manufacturing, purchasing, shipping, port handling and distribution. Spot fertiliser prices continue to trade at levels materially above our 2009 forecasts. If we factored in these prices, we would see about 26 per cent upside to our current forecasts. The stock was trading below $140 on September 12. Our target price is $195 a share.
AJ Lucas Group (AJL)
Perhaps the greatest challenge currently facing AJL is managing exceptional growth of its business. The company reported a doubling of sales in 2008. Growth in underlying EBITDA was 134 per cent, driven by 228 per cent growth in pipeline earnings and 95 per cent growth in drilling. Beyond the strong growth of its core operations, the basis of our positive view is the company potential to realise significant embedded shareholder value through the spin-off of its coal seam gas acreage, which we expect in the short-to-medium term.
HOLD RECOMMENDATION
Ten Network Holdings (TEN)
Ten announced in July an on-market buyback of up to 10 per cent of its issued stock, or about 92.8 million shares. While the on-market buyback is a positive step, we are disappointed that TEN has not yet committed to a larger and more definitive capital management plan, such as a special dividend and/or off-market buyback. TEN will continue to face earnings headwinds and management will suffer several short term credibility issues in light of its recent earnings downgrades.
Westfield Group (WDC)
WDC’s earnings result for the 2007/2008 financial year was about 3 per cent above our expectations, but continues to track well below distribution levels. WDC trades on an “expensive defensive’’ price/ earnings ratio of 18 times, but we believe it deserves the mantle – the consistent strong forward planning of the management team has outdone its peers. That has seen WDC side-step many of the issues that have crushed a number of competitors.
SELL RECOMMENDATION
Centro Properties Group (CNP)
Distribution lock-ups in a number of CNP investments have eaten into available cash, now propped up by a mere $60 million of available liquidity. Leverage was reported at 74 per cent on a look-through basis, equating to about 77 per cent gearing ex-intangibles. The next re-financing date is the end of September. In an environment where asset sales are very slow due to bidder resistance and lack of available capital – do the banks want to own CNP assets? We continue to think not. Will there be anything left for equity holders when the work-out is completed to the satisfaction of lenders, and the class action claims have been dealt with? It looks unlikely right now.
Babcock & Brown Power (BBP)
Its 2007/2008 result was below our expectations. The results announcement included several initiatives aimed at boosting BBP’s share price. These initiatives included terminating the services of the CEO and CFO, board changes, a review of governance arrangements, including an assessment of the management agreement with Babcock & Brown. We have downgraded our December 2009 price target to 15 cents.
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.
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Share Tips: Stock Broker Recommendations 15 September – 6 to BUY, 6 to SELL and 6 to HOLD
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Commodity of the Month: How to profit from trading frozen orange juice
CFDs: Top 10 CFDs for the week
Stocks: Stock of the week – New Zealand Oil & Gas
Economy: US in once-in-a-century financial crisis
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Recession: Leaders say Britain nearing recession
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