Share Tips 

Arrow Energy (AOE) is one of Australia’s largest coal-seam gas producers, with operations primarily based in Queensland, and is one of the stocks to watch at the moment.

In addition to supplying locally, AOE’s alliance with Royal Dutch Shell allows it supply gas to the major Asian markets.

With natural gas reserves depleting, interest from energy consumers like China and India is shifting to coal-seam gas.  With Australia’s abundant reserves of coal-seam gas, AOE is in a good position to benefit from this.

AOE yesterday received a joint takeover proposal from Royal Dutch Shell and PetroChina.

The $3.26 billion cash offer values Arrow Energy at $4.45 a share, which represents a 28% premium over Friday’s last trading price of $3.48.

The bid is for Arrow Energy’s international business, which Arrow had already flagged as a potential public float on the Singapore or Hong Kong stock exchanges.

The interest shown by international giants, Royal Dutch Shell and PetroChina, suggests there is good value in the Arrow’s assets, and as such it is currently one the key energy stocks to watch.

Our stock of the week is Ramsay Health Care (RHC).

RHC is Australia’s largest private hospital operator, with approximately 30% of the market share, and is currently one of the stocks to watch.

RHC facilities cater for a broad range of health care needs from day surgery procedures to highly complex surgery, as well as psychiatric care and rehabilitation.

RHC’s recent FY profit upgrade – to guidance of 18%-20% growth from previous guidance for a rise of 12%-14% – is a sign that its Australian business is performing well and that its UK operations have benefited from internal cost restructuring.

RHC has confirmed that its Australian operating performance has been slightly ahead of expectations and overall interest costs have been lower than expected as a result of proactive interest rate management.

RHC has an excellent portfolio of assets and is operating in the defensive healthcare industry, which is arguably the most immune from global bear market movements.  Stocks to watch in periods of market volatility are usually in defensive sectors.

In stock market news, Gloucester Coal and Macarthur Coal this week confirmed an off-market takeover of GCL is likely, with Gloucester recommending the deal to its shareholders.

MCC is offering 0.84 MCC shares for each GCL share, or $8 cash for each GCL share.

The merged entity will have attributable reserves and resources of 194 million tonnes and 1.2 billion tonnes, respectively, to support future production growth throughout the Bowen and Gloucester Basins.  The new entity also stands to become one of the bigger companies in the stock market.

Recent heavy rains in Queensland have helped drive spot prices for coking coal to $US220 per tonne, opening up a $US13 billion annual revenue gap on contract prices set almost a year ago.

There are now expectations that contract coking coal prices will rise over 70% in the Japanese FY starting April 1.  Coal companies in the stock market will also benefit significantly from this.

MCC’s offer represents a total equity consideration of $669 million.

Western Areas has been a hot stock in the news lately. WSA is a sulphide explorer and producer in the Australian Stock Market and owns one of the highest grade nickel deposits in the world.

Western Areas today announced it is looking for a partner to develop zinc, copper and nickel projects in Finland.

WSA already owns part of the project with Finland-based Magnus Minerals, and has enlisted UBS to help with its search for a partner

WSA finished Wednesday up 3.5% at $4.68. It is certainly one of the hot stocks to watch.

Tatts Group provides gambling services and products. It currently owns a number of business units which operate in the gaming and lotteries division.

Tattersalls announced today that it will acquire NSW Lotteries for $850 million.

Although the acquisition is expected to double TTS’s underlying earnings by 2014, analysts are querying whether the price paid for the acquisition was too high.

The all-cash purchase represents 13 times one-year forward earnings, yet gaming companies usually trade around 9-10 times.

The purchase of NSW Lotteries will aim to build up for the loss of TTS’s Victorian state slot machine license expiring 2012 which was the main contributor to their earnings last fiscal year.

The high price tag has seen TTS punished in today’s session, with the group finishing the day down 7.3% at $2.30.

Learn more with the Australian Stock Report.

Rio Tinto (RIO) is an international mining group, whose main activities involve mining and processing mineral resources such as aluminium, copper, diamonds, energy, gold, and iron ore.

RIO is a combination of London-based Rio Tinto plc, and Australian-based Rio Tinto Ltd.

RIO is one of the biggest companies in the Australian stock market, and operates in a booming industry thanks to strong commodity demand from the Asian region.

Recently, RIO completed the sale of its Alcan Packaging Food Americas division to Bemis Company for US$1.2 billion.

RIO acquired Alcan packaging as part of its disastrous takeover of Canadian-based Alcan in 2007. The Alcan deal was financed entirely with debt, and this proved to be a heavy burden for RIO when financial markets collapsed shortly after.

RIO has attempted to reduce its debt through significant divestments of its existing businesses. The sale of RIO’s Alcan Packaging business has seen the proceeds from its divestment program exceed US$10 billion.

The recapitalisation of its balance sheet is providing RIO with plenty of ammunition to make some strategic acquisitions in the near future. All this has the potential to make RIO one of the best performers in the Australian stock market.

The switch to resources saw the financials struggle last week with Westpac Bank (WBC) the worst hit of the big banks.

In Australian stock market news, Suncorp (SUN) has bucked the trend among the financials, gaining ground after saying its underlying banking business is sound and there is no need to carve up the company.

This week kicked off to a flyer with solid gains across the board on Monday. However, most of these gains were given up on Tuesday with a sell-off across the board.

The sell-off was mainly on fears that the emissions trading scheme (ETS) will cost Australia more than initially thought.

There was a quick turn around on Wednesday as a top central bank official commented that the 18-year run of positive economic growth in Australia is expected to continue for a few more years at least. This piece of stock market news helped to bolster the market.

With base metals all higher, the miners are the best performers of the week. In the Aussie share market, gold stocks have trekked higher on the back of record high gold prices. Looking at the big diversified miners, BHP Billiton (BHP) and Rio Tinto (RIO) have both posted gains.

National Australia Bank (NAB) is one of Australia’s big four banks, with a focus on regional banking, wealth management operations, international capital markets and institutional banking.

Slower loans growth and rising bad debts have given our banks headaches of late, as part of a hangover from the global economic downturn.

Whether the world has emerged from global economic toughness or not is still a point of contention, though indications tend to be in favour of a cautious recovery.

National Australia Bank Group has made some small acquisitions over the year, indicating that it has enough cash to splash out and expand its business into regions it feels are capable of fantastic growth prospects.

Some of these strategic acquisitions include Aviva PLC’s Aussie business for $825 million in cash, to bolster its wealth management business.

National Australia Bank shares have had an impressive run of late, with the stock breaking out above the $23.62 area in late July.

From its March lows of around $15.85, NAB shares are currently up nearly 80%.

NAB has warned that any further loan delinquencies could peak around March 2010, depending on how the key Christmas trading period pans out, though the FY results demonstrate that NAB’s UK business is turning around, and that the group’s Aussie banking business is driving positive revenues.

BHP Billiton (BHP) shares have enjoyed a solid run since bottoming out in November last year.

BHP is the world’s largest diversified resources company, with a global portfolio of high quality assets and more than 100 operations in 25 countries. It is an industry leader in most of the major commodities markets, including aluminium, coking and thermal coal, copper, manganese, iron ore, uranium, nickel, silver and titanium. On top of this, BHP has sizeable interests in oil, gas, natural gas and diamonds.

Despite the fall in sales and profits due to the global financial crisis, BHP dividends increased by 17% to 82 US cents for FY09. In the latest BHP news, first quarter iron ore production rose to 30.1 million metric tonnes, a company record but still slightly below market hopes for a big leap.

Looking ahead, BHP forecasts Chinese government stimulus policies to support short-term economic growth, but its long-term remains uncertain. BHP Billiton also confirmed restocking of commodities in China is now complete, and forecasts Escondida’s production in FY10 to rise by 5%-10%.

The improvement in demand has seen BHP Billiton shares rise over 100% over the past 12 months from a low of $20.

Australian blue chip stocks can be defined as stocks with an established record of stable earnings power over a long period.

Most investors also consider stocks as blue chips if they have a lengthy record of uninterrupted dividend payments to common stock holders coupled with a strong balance sheet.
An example of Australian blue chip shares is AMP Limited (AMP). AMP is a leading wealth management company with more than 3.4 million customers across Australia and New Zealand.

It is Australia’s largest retail and corporate superannuation provider, and one of the region’s most significant investment managers, with more than $117 billion in assets under management.

AMP has consistently grown earnings and dividends since listing in 1998 and is one of Australia’s leading financial institutions. Clearly, as a top 20 stock with established history, AMP shares count as blue chip Australian shares.

It has expanded through a series of acquisitions to cover a wide range of financial products and services, including: retirement savings and income; investments; superannuation; financial planning; insurance; and banking. Its two business units are AMP Financial Services (AFS) and AMP Capital Investors (ACI).

Stocks like AMP also enjoy high credit ratings in the bond and commercial paper markets. They enjoy a competitive advantage in the market place due to cost efficiencies, franchise value or distribution control.

Other examples of blue chip Australian shares include the big banks, BHP and RIO, and Woolworths. With a long history, growing dividends, and strong management, these stocks are clearly included in the list of Australian blue chip stocks.