|
|
 NEWS |
|
|
|
|
Share Tips
Broker Stock Recommendations January 29 – 6 to BUY, 6 to SELL and 6 to HOLD
Anthony Black - January 29, 2009
 Alex Beer
STATE ONE STOCKBROKING
BUY RECOMMENDATIONS
CALTEX (CTX)
Although a potential fuel inventory write-down is a short-term negative for calendar year 2008, a weaker Australian dollar against the US greenback will have a positive effect on Caltex Australia's refining earnings this year. Replacement cost operating profit was upgraded to $185 million on January 14. Consensus earnings of $1.27 a share for calendar year 2009 puts the stock on an attractive forward price/earnings multiple of 6.25 times at $8 a share.
GOODMAN FIELDER (GFF)
This food producer is enjoying increasing sales of bread and spreads - up 12 per cent in the past four months. But first half profits will be about 15 per cent lower than the previous corresponding period due to time lags in recovering an additional $100 million in higher commodity input costs. Nonetheless, GFF has confirmed a net profit after tax of $200 million for the 2009 financial year and a dividend of 13.5c, yielding an attractive 9 per cent partially franked at $1.50 a share.
HOLD RECOMMENDATIONS
BLUESCOPE STEEL (BSL)
BlueScope Steel recently completed a $300 million institutional placement to strengthen its balance sheet amid weaker industry conditions, increasing credit market uncertainty and the Taharoa Iron Sands sale collapse. However, BlueScope is still likely to maintain its dividend at a 50 per cent payout ratio level, despite an increase in inventories due to raw material cost increases. This should enable investors to realise a healthy dividend yield of 9.3 per cent in 2009.
WESTPAC BANK (WBC)
Despite challenging economic and business conditions, WBC continues to experience strong demand for credit from commercial and institutional sectors. The bank recently raised $2.5 billion at $16 a share. A retail share purchase plan will raise another $500 million. This should increase the bank’s Tier 1 capital ratio to about 8.3 per cent. Given this strong capital position, Westpac continues to be a worthwhile hold.
SELL RECOMMENDATIONS
BORAL (BLD)
Economic signals indicate that Boral's key US and Australian housing markets are continuing to deteriorate in 2009. Boral does have a commanding position in the bricks and clay tile markets, but its concrete roof tile division is struggling. With little, or no light at the end of the tunnel, its best to avoid direct exposure to this unique housing slowdown.
JAMES HARDIE INDUSTRIES (JHX)
Strong management will not be enough to shelter this building materials group from the US economic downturn. The company’s core fibre cement markets are deteriorating faster than expected. First half 2009 revenue was down 16.7 per cent to US$544 million when compared to last year’s corresponding period. And, on another front, the company has agreed to settle a tax liability with the ATO for $153 million.
 Peter Russell
INTERSUISSE
BUY RECOMMENDATIONS
Leighton Holdings (LEI)
Concerns about falling commodity demand in the mining industry and at oil-funded Gulf projects have made Leighton cheap. As Australia’s leader in construction and infrastructure, it’s in a strong financial position, with plenty of work ahead in Asia and the Gulf. Leighton faces years of strong growth.
Redflex Holdings (RDF)
A world leader in red light traffic camera and speeding enforcement systems. It’s built strong annuity income through its contracts to provide long-term services to more than 230 cities across the US. The company is continuing to grow rapidly - it leads in contract wins and system installations in a very big market.
HOLD RECOMMENDATIONS
CSL (CSL)
The blood plasma industry has only a few integrated global suppliers. Control of supply, scale of operations and integration of services puts CSL at a major advantage. It expects approval to acquire US-based company, Talecris. CSL generates significant royalty revenues from cervical cancer vaccine Gardasil. Other product developments add upside in a defensive investment.
Incitec Pivot (IPL)
This integrated fertiliser company acquired complementary explosives group Dyno Nobel last year, and is well placed to expand both established franchises. Fertiliser prices have slumped from record levels, but world food demand will ensure this is only temporary. A good opportunity to steadily build a position.
SELL RECOMMENDATIONS
Commonwealth Bank (CBA)
While the banking sector is a vital and powerful lifeline for Australia, it faces tough times. Expect more capital raisings and dividend cuts. Lighten CBA holdings, as we anticipate more price pressure as it prepares to report to the market in mid February. Generally, banks remain a hold for long-term recovery.
Ten Network Holdings (TEN)
It’s a tough time for traditional media. Although Ten shares AFL rights with the Seven Network, its market share is relatively weak – and the sector will come under further pressure. Ten’s majority shareholder CanWest appears to have debt pressures.
 Mark Goulopoulos
TOLHURST
BUY RECOMMENDATIONS
Incitec Pivot (IPL)
Since reaching its ultimate low price in December – reflecting a 76 per cent fall from its June peak – Incitec Pivot has started to rally. This positive price momentum is probably a response to a stronger outlook for potash and fertiliser prices from US competitors, and increasing prices for agricultural commodities. The long-term outlook for agricultural commodity demand continues to be strong, providing a further driver for the share price.
Telstra Corporation (TLS)
Concerns over Telstra’s exclusion from the National Broadband Network’s tender process have been overdone. With credit remaining extremely tight, doubts exist as to whether the remaining bidders can get the necessary finance to construct the network. In addition, Telstra’s existing broadband network is strong in capital cities, therefore it remains in a position of strength should the Federal Government award the contract to a competitor. Telstra’s strong and sustainable dividend yield is also attractive in today’s environment.
HOLD RECOMMENDATIONS
Orica (ORI)
Speculation about a potential and considerable fall in mining services revenue is driving short-term negative sentiment. While this commercial explosives and chemical company is yet to experience a slowdown, it’s likely to happen this year, But this is already reflected in the current share price. In addition, the consumer products division has been steady, making today’s share price a fair reflection of the current earnings outlook.
CSL (CSL)
The CSL business continues to display its resilience in the current economic environment, with earnings forecast to increase strongly in 2009 and 2010. While this is a very positive outlook, it’s reflected in the price - already on a higher relative rating to the sharemarket than historical levels. Therefore, notwithstanding its defensive qualities, buyers should look for an entry opportunity for this blood products group below $30.
SELL RECOMMENDATIONS
Brambles (BXB)
This CHEP pallet and Recall business company generates most of its earnings in under-performing regions, such as the US and Europe. This puts earnings and margins at considerable risk, yet it still trades at a premium to the market. While earnings exchanged from US dollars to Australian dollars may provide an artificial boost in the short-term, there are more attractive options to consider over the medium term.
Harvey Norman (HVN)
A weaker economy means the discretionary retail sector is likely to suffer as consumers cut spending. Harvey Norman sales figures in the first three weeks of 2009 have been disappointing. Switching to a lower end retailer, or exiting the entire sector may be appropriate in the short-to-medium term.
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:
Reporting Season: Stocks that might surprise and disappoint this reporting season
Stocks: Broker Stock Recommendations 29 Jan – 6 to BUY, 6 to SELL and 6 to HOLD
Property: The bursting of the Aussie housing bubble
Expert Panel: What are dividend reinvestment plans, and what are the advantages of taking up the offer of a DRP?
US: Inflation is coming to the US, big-time
Stocks: Stock of the week – IMF Australia
Global Crisis: Crisis could claim 50 million jobs: ILO
Global Crisis: Global economic growth 'to slow to 0.5%'
US: Fed to use all tools to help US economy
Companies: Tabcorp takes $11.5m hit from dud cheque
Global Crisis: Inflation fall 'opens way for rate cuts'
Companies: Lend Lease warns of further write downs
 Email to a friend
 Print this article
|
|
