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Share Tips
Broker Stock Recommendations 1 September – 6 to BUY, 6 to HOLD and 6 to SELL
Anthony Black - September 01, 2008
 ANDREW DOHERTY
MORNINGSTAR
BUY RECOMMENDATION
Billabong International (BBG)
This clothing maker’s lifestyle brands are becoming increasingly popular. The business enjoys very high levels of profitability because costs are modest, and attractive designs encourage customers to keep returning. A series of acquisitions have contributed to international growth. The stock has been beaten down in the general market sell-off, paving an opportunity for longer term investors.
Iress Market Technology (IRE)
Iress provides information and order input, management and routing services to sharemarket participants like brokers and fund managers. Customers tend to stick for the long term due to the attractive product features and limited alternative suppliers. This is a high margin business with limited exposure to a broader slowing of the economy.
HOLD RECOMMENDATION
Corporate Express (CXP)
This office products supplier has a large and reasonably well diversified base of big and mid-sized corporate customers. Despite low margins, this is a cash generating business, with an ungeared balance sheet and low capital requirements. The rate of earnings growth has declined in recent years, but the rising dividend yield is welcome.
David Jones (DJS)
This exclusive brands retailer is somewhat cushioned to the general consumer downturn because the target demographic is primarily upper-end income earners. Though top line growth is modest, earnings growth stems from cost efficiencies. A planned credit card could generate significant earnings growth after 2009. The stock offers a blend of moderate growth and an above-average dividend yield.
SELL RECOMMENDATION
CFS Retail Property Trust (CFX)
Offers terrific property assets, including premier shopping centres along the eastern seaboard. Chadstone in Melbourne, Chatswood Chase in Sydney and the Myer Centre in Brisbane are included in this low-risk property trust. It also has interests in more than 20 other shopping centres. But the high share price means this stock is likely to under-perform.
Spotless Group (SPT)
This mixed business will probably deliver more uninspiring results. Facilities Services is a reasonably strong business, likely to produce a mildly growing earnings stream over time. The coat hanger logistics business is, however, highly fragile, internationally complex and exposed to weak apparel demand and rising costs. We look to sell above $3.55 a share.
 BEN POTTER
ABN AMRO MORGANS
BUY RECOMMENDATION
BHP Billiton (BHP)
The full-year 2008 result highlighted the benefit of having a diverse production base. The impact of rising costs in mining operations was offset by an increase in petroleum and coal earnings. BHP, which posted another record result, remains our number one pick in the resources sector.
Iress Market Technology (IRE)
A high quality profit result confirmed various organic growth options and the resilience of IRE's business in a tough market. Highly regarded CEO, Peter Dunai, has announced his intention to step down in May 2010, but has indicated he may look at other IRE roles.
HOLD RECOMMENDATION
AGL Energy (AGK)
AGK has been a strong performer and we believe the trend will continue for the rest of 2008. Good prices for non-core asset sales have contributed to recent share price strength, and an under-geared balance sheet places it in a strong position for future acquisitions.
Toll Holdings (TOL)
The transport giant’s decision to divest its stake in Virgin Blue is a positive, allowing it to focus on its core logistics business. The removal of earnings volatility, and concern over a capital injection should be positive for sentiment.
SELL RECOMMENDATION
Aristocrat Leisure (ALL)
The macro environment in the key North American and Australian markets has deteriorated further in recent months and we cannot see any change in the short term. The share price of this poker machine maker appears expensive based on earnings forecasts.
Corporate Express (CXP)
Sales growth for this office products supplier, particularly from large customers, fell significantly in May and June. We believe gross margins are unlikely to improve from here, meaning slowing sales could have a greater impact on operating earnings.
 CLEO NANNI
NOVUS CAPITAL
BUY RECOMMENDATION
Sims Group (SGM)
Recently, I recommended SGM as a hold. But due to the company’s recent profit guidance upgrade, this stock is now a buy. Profit is now under-pinned by a fourth quarter surge in scrap metal prices and opportunistic margin expansion. There is potential for further corporate activity and a possible share buyback.
CSL (CSL)
Recently acquired Talecris, a US-based leading manufacturer of plasma derived products. Talecris has 56 centres and two manufacturing facilities generating $1.4 billion in revenue and EBITDA of $290 million. CSL will pay $3.5 billion, funded by an institutional placement of $1.7 billion, a share purchase plan of $600 million in extra debt and the rest from cash reserves. This acquisition fits well into CSL’s existing businesses, including new product development activities. CSL’s strong industry position means it’s one of our best businesses.
HOLD RECOMMENDATION
Wesfarmers (WES)
WES is a major Australian corporate success. Operations include Coles supermarkets, specialty department stores, fuel, liquor outlets and the Bunnings hardware chain. It’s also involved in coal mining, gas processing and distribution, power generation and chemicals and fertilisers. This company is a cash-generating machine that funds expansion without recourse to shareholders. It focuses on creating shareholder wealth. An ideal stock for patient, long-term growth and income investors.
Rio Tinto (RIO)
Treasurer Wayne Swan has given the green light to Chinalco lifting its stake in RIO to 11 per cent. What is the motivation for Chinalco? Do they want to block the BHP/RIO merger, or do they just want a seat at the table in the merged group? Remember, Chinalco is down about 20 per cent on its initial investment in Rio. Even if Chinalco buys more, it doesn't mean Rio will see sustained strength. You have to hold and patiently wait for this to unfold.
SELL RECOMMENDATION
National Australia Bank (NAB)
I am still sticking with NAB as a sell. Long-term funding costs remain high and deposit costs are strained. The bank's total cost of funds is about 57 basis points above the official cash rate, compared to an average of just 17 basis points before the credit crisis began last year.
ANZ Bank (ANZ)
I retain a sell after the ANZ released findings of its securities lending review. The bank's institutional arm has long been seen as its biggest weakness, with a number of risk management failures. While the review noted weaknesses in exposure reporting, we must question how such exposures as Opes Prime could escape the attention and due diligence of the board.
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 1 September – 6 to BUY, 6 to HOLD and 6 to SELL
Tips & Tricks: What news, indicators and events move stocks the most?
Resident Trader: A Day’s Index Trading
Stocks: Top Ten CFD stocks for the week
Commodities: Gold enters season of strength
Stocks: Stock of the week – Sunland Group
Profits: Companies rake in profits despite gloom
Companies: BHP evacuates staff from Gulf of Mexico
Stocks: Inflation gauge up 0.1 per cent
Companies: City Pacific books net loss of $140m
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