Australian Financial News from the Australian Stock Market.
Iinet Limited – Pullback Offers Opportunity
iiNet Ltd. (IIN) is the second largest Internet Service Provider (ISP) in Australia and currently listed in our traders report as a share to buy. IIN has built its own network (the iiNetwork), boasts the largest Voice over IP network in the country, abolished monthly phone line rental with Naked DSL and has released wireless modem-and-phone-in-one BoB to the world. The group’s strategy is to increase value both organically and inorganically, with the acquisitions of TransACT in 2011 and Internode in 2012 two examples of the latter. 1H13 results 1H13 was a breakout period for IIN, which more than doubled its net profit from 1H12 to $31.9 million. This was delivered on the back of a 30% surge in revenue, with IIN experiencing sales growth in its major product categories in addition to a full six month inclusion of TransACT and Internode revenues. Another major highlight of was a 73% on-year increase in EBITDA. This translated to a 35% improvement in EBITDA margin as network cost savings were achieved and synergies were realised from the Internode acquisition. The completion of the TransACT and Internode acquisitions are expected to deliver further cost savings in the next few halves, boosting profitability further. Valuation attractive once more The telco sector has come under heavy selling pressure in recent weeks. Concerns of an upcoming end to global central bank monetary easing have coincided with rising government bond yields. This in turn has diminished the attractiveness of traditionally defensive sectors like utilities, banks and telcos. However, we believe the recent pullback has a fair bit to do with simple profit taking following a year of strong gains. The pullback has also meant many stocks have become more attractively valued. IIN’s one year forward P/E is now just 14.3x. This represents a discount to its closest peers, Telstra (14.95x), TPG Telecom (16.3x) and Amcom Telecom (17.3x). In our view, IIN’s growth potential hasn’t altered in the past few weeks and as such believe it should be trading on a higher multiple. Outlook IIN is on track for another record profit when it reports its FY13 results. Its recent pullback has been overdone in our view, and the forward P/E estimate of 14.3x implies good value around current prices. We expect valuation support to lift the share price higher in coming weeks. Iinet was listed as a share to buy for our members on June 18th. For all of our latest share tips and trading ideas sign up for FREE 7 Day Trial and gain full access our research files.
Rio Tinto (RIO) Stock To Sell
Rio Tinto (RIO) is an international mining company, which is listed on both the Australian Stock Exchange and the London Stock Exchange. The group is an industry leader in most of the major commodities markets, including aluminum, coking and thermal coal, copper, manganese, iron ore, uranium, nickel, silver and titanium. On top of this, Rio has sizable interests in oil, gas and natural gas. China slowdown impacts iron ore prices Since the February 2013 high of US$159.9 per tonne, the price of iron ore has decreased around 27%. The main contributor to the weakness in iron ore markets has been the slowing growth in China. China, which accounts for approximately 60% of global iron ore demand, is facing slowing growth as evidenced by recent economic data. The HSBC Flash Manufacturing PMI revealed the Chinese manufacturing sector entered contraction territory in May for the first time in seven months. Weekend data showed Chinese export growth of just 1% in the year to May, down sharply from the 14.7% expansion in the year to April. Economists were expecting export growth of 7.4%, but a combination of a deteriorating trade environment and a weaker Chinese economy suggests conditions are much worse than currently estimated. While demand for iron ore is expected to remain weak due to economic growth concerns, an influx of supply is likely to heap further pressure on prices. Earlier last month, China Iron and Steel Association (CISA) and Brazilian iron ore miner, Vale, warned of an impending supply glut that may see an extra 30 to 40 million tonnes or ore hit the market this year. Asset sales need to repair balance sheet RIO’s FY12 gearing ratio (net debt to equity) stood at 34%, a significant jump from the 20% ratio a year earlier. This was largely due to a 53% slide in operating cash flow from FY11. Unfortunately for RIO, its global iron ore shipments slid 14% between 4Q12 and 1Q13, and its coal shipments fell 15% in the same period. As mentioned, iron ore prices have come under severe pressure in the year to date, all of which implies the group’s operating cash flow has continued to dry up in FY13. Whilst a gearing ratio of 34% isn’t exactly a reason for panic, the negative trend in this metric lowers the likelihood of initiatives like a strong dividend increase or another share buyback. When taking into account the company’s diminished growth potential, the prospect of higher dividends may become a crucial a reason for holding the stock. Amid these concerns, RIO has flagged asset sales including its diamonds assets, its 80% stake in the NSW-based Northparkes copper mine and 59% its stake in Iron Ore Company of Canada, as well as its Australian-based Pacific Aluminium business. However there are questions on how long it will take to offload these assets and the price RIO can achieve from any sale. Outlook The deterioration of China’s economy comes at a bad time for RIO. Operating cash flow is under pressure amid declining output and a sharp fall in iron ore prices. The group is sensibly considering asset sales to strengthen its balance sheet. However, timing uncertainty and the prospect of weaker iron ore prices is expected to result in further share price declines. Rio Tinto was listed as a share to sell for our members on June 12th. For all of our latest share tips and trading ideas sign up for FREE 7 Day Trial and gain full access our research files.
Buy, Sell, Hold Recommendations – Herald Sun 9/6/2013
As featured in the Herald Sun on June 9th 2013 here are the latest buy, sell and hold recommendations from Geoff Saffer Equity Analyst & Educational Facilitator at the Australian Stock Report. Geoff has over 10 years’ experience researching and analysing Australian shares, with a passion for fundamental analysis and specialty in identifying undervalued companies – particularly at the smaller end of the market. Buy Shares Next DC (NXT) – Data-centre company is now approaching profitability. The sale-leaseback of its properties will provide NXT with the cash to pursue opportunities in this high-growth industry. Ardent Leisure Group (AAD) – Expect FY13 results to surprise to the upside, driven by strong growth and margins in the US and at its local Health Clubs division. Hold Shares Regional Express (REX) – Facing rising costs, but this solid performer remains the pick of the airline sector. Trades on a P/E of just 8x and a div yield of almost 6%. Iluka Resources (ILU) – Experiencing a tough FY13, with demand and pricing soft. However potential sale of iron ore royalties a positive and will strengthen the company’s financial position. Sell Shares Beach Petroleum (BPT) – Mid-tier energy producer is struggling under increasing costs. Potential stagnation by Chinese economy could overshadow BPT’s recent supply deal with Origin Energy. Invocare Limited (IVC) – Acquisitions have driven growth and investment portfolio has appreciated but stock looks significantly overvalued at current prices. For all of our latest share tips and trading ideas sign up for FREE 7 Day Trial and gain full access our research files.
Newcrest Mining Limited Nosedives (NCM)
Newcrest Mining (NCM) is Australia's largest gold producer and one of the world's top five gold mining companies by production, reserves, and market cap. NCM’s main operations are in Australia, Indonesia, Papua New Guinea, Fiji and West Africa. The group’s flagship mine is PNG-based, Lihir, with the other offshore operations being Gosowong in Indonesia, Hidden Valley (50%-owned) in PNG and Bonriko in Ivory Coast. NSW-based Cadia Valley and WA-based Telfer make up the company’s domestic operations. Gold price plunge Gold holdings at exchange traded funds (ETFs) have fallen significantly in 2013, with the drop in bullion holdings reflecting a dramatic fall in investment demand. The plunge in gold prices has encouraged China and India, as well as the US and Perth Mints, to ramp up their physical purchases of bullion. However we believe the surge in ETF-related supply is overwhelming any physical demand for the precious metal. The spot gold price has plunged 16% in the year to date amid a sharp deterioration in sentiment towards the precious metal. Global inflation remains low whilst the US central bank has flagged an end to its monetary stimulus measures sometime this year in response to a strengthening US economy. We expect these headwinds to persist for a while yet, resulting in an environment where any short-term gain in gold prices is met by even stronger selling. Higher cost mines threatened by gold NCM is one of the higher cost gold producers in Australia. Cash costs were $1086 an ounce (oz) for the March 2013 quarter, with a number of its mines plagued by operational issues. Telfer, which accounts for a quarter of overall production, had cash costs of $1162 an ounce. This was 27% higher than the previous quarter due to weaker copper output, planned mill shutdowns and the sourcing of ore from higher cost open pit sources. The group’s offshore mines, Gosowong, Hidden Valley and Bonriko, contribute around 20% of overall production. Cash costs at these mines were $806/oz, $1790/oz and $930, respectively. With gold prices currently trading around $1400/oz, Hidden Valley has become uneconomical and Telfer’s cash margins are very tight, magnifying the threat of impairment charges at these mines. Outlook A major problem for NCM and other higher cost gold producers is the impact plunging gold prices are having on mine profitability. Mine shutdowns and weaker output contributed to a big rise in quarterly cash costs at Telfer, whilst Hidden Valley has become uneconomical given how much cash costs exceed current gold prices. We believe there is more weakness in store for gold prices, raising the threat of write-downs at NCM’s high-cost mines. Newcrest was listed as a sell share for our members on June 5th. For all of our latest share tips and trading ideas sign up for FREE 7 Day Trial and gain full access our research files.
Fortescue Metals (FMG) Drop In Ore
Fortescue Metals Group (FMG) is the third biggest iron explorer and producer in Australia. Its operations are located in WA’s Pilbara region, which also hosts mining giants BHP and Rio Tinto. FMG’s holdings in the region cover close to 85,000 sq km, with resources estimated at 13.2 billion tones. Iron ore outlook In the last three months of 2012 the price of iron ore soared over 70%. The move was the result of increased demand from China and several high-cost Chinese miners shutting operations. The chart above shows the price of iron ore prices since the start of this year. Since the February 2013 high of US$159.9 per tonne, the price of iron ore has decreased around 30%. The main contributor to the weakness in iron ore markets has been the slowing growth in China. China, which accounts for approximately 60% of global iron ore demand, is facing slowing growth as evident by the recent manufacturing sector data. The HSBC Purchasing Managers Index (PMI) returned a reading of 49.6 this month, worse than the 50.4 expected by economists. A reading below 50 indicates that the sector is contraction rather than expansion. Outlook FMG has a strong long-term production outlook, with the company planning to triple its production over the next few years. The problem with this is that Brazil-based Vale – the largest iron ore miner in the world – is also expanding along with Rio Tinto and BHP. There is going to be a major amount of new supply entering the market over the next few years, and with the China demand story not as compelling as it once was, we could easily see a structural surplus in the iron market. This is likely to further pressure iron ore prices, leading to further share price deterioration for FMG. Fortescue Metals was listed as a sell share for our members on May 30th. For all of our latest share tips and trading ideas sign up for FREE 7 Day Trial and gain full access our research files.
Sell Share Boart Longyear Limited (BYL)
Boart Longyear (BLY) provides contract drilling services to the mining, environmental, infrastructure, and energy industries. The Drilling Services business provides drilling services to the mineral exploration, development and production, environmental, infrastructure and energy markets. The Drilling Products business designs, manufactures and sells drilling equipment such as drills and support systems, as well as bits, rods and all requisite tooling. Industry conditions worsening The mining services sector has been battered in recent times amid concerns over China’s slowing economy. Chinese GDP rose just 7.7% in the year to March – weaker than economist estimates. Industrial production also grew a less-than-expected 8.9% annual rate in March. Furthermore, Chinese manufacturing activity slowed in April, signalling the weak economic growth in the first quarter is continuing into the current quarter. A slowdown in our resources sector will have negative consequences for related industries such mining services. Indeed, these fears are being realised with engineering services providers, UGL and Sedgman Limited (SDM) downgrading profit guidance today. Amid difficult trading conditions SDM specifically pointed to delays in mining investment approval and underutilised assets. SDM’s downgrade followed similar profit warnings from Ausdrill (ASL) and Emeco Holdings (EHL) last month. Although BLY is one of the more established drilling services providers in the market it is by no means immune to the currently challenging operating environment. Outlook Following a positive start to FY12, BLY was buffeted in the second half of the financial year by a sharp slowdown in the mining cycle. Conditions have worsened since the end of 2012, with commodity prices plunging in April and no let up in sight as concerns over China mount. Roughly two third of BLY’s drilling services revenue is linked to gold and copper. Bullion prices have eased considerably in recent months, squeezing cash margins of explorers and mid-to-small tier producers. Copper prices have also taken a hit, down around 12% in the past three months. Lower profit margins will likely force copper and gold producers to curtail capex spending. The implications for BLY include another weak first half result, characterised by lower revenue and earnings. Borat longyear was listed in the traders report as a sell share for our members on May 15th. For all of our latest share tips and trading ideas sign up for FREE 7 Day Trial and gain full access our research files.
News Corporation (NWS) Buy Share
News Corporation (NWS) is a diversified media conglomerate with interests all over the world and in most facets of media. NWS is broken up into six main segments: >>Cable Network Programming, which includes names like the FOX News Channel, FOX Business Network, FX, STAR and many other popular pay-TV channels. >>Filmed Entertainment, which includes Fox Filmed Entertainment, Twentieth Century Fox Television and Fox Television Studios. >>Television, which includes the FOX Broadcasting Company, the 27 stations in the Fox Television Stations group, and various television operations throughout the world. >>Publishing, this includes over 150 newspaper brands and book publisher HarperCollins. >>Director Broadcast Satellite Television, which includes several pay TV providers, such as Australia’s FOXTEL. >>Other, is a broad segment that pretty much covers any other assets don’t fit into any of the above categories, such as a JV with NBC and Disney to create an online video site. By the end of June, News Corp. plans to split its giant entertainment businesses, which include its 20th Century Fox film studio and Fox television assets, from its publishing division to create two separately listed companies. 2Q24 Results NWS' second quarter results were solid. The company’s revenue was $9.43 billion, up 5% on the same period in 2012. The group's underlying operating income was $1.66 billion, a 5% increase on the second quarter of the prior year. Double-digit revenue growth in the Cable and Television businesses, along with improvements in the Publishing segment, drove group revenue and earnings growth. Fox Sports NWS announced its plans to launch a new USA sports network, Fox Sports 1, on August 17. The new network will be available in around 90 million homes, according to the company. The new channels are being launched through a rebranding of Fox's existing Speed network, a niche cable channel dedicated to motor sports. Offerings on the channel include; Major League Baseball, Primetime Basketball, Primetime Football, NASCAR events; and soccer games including UEFA Champions League and Europa League, as well as the FIFA Women's World Cup in 2015/2019 and the FIFA Men's World Cup in 2018/2022. Speed currently charges 22 cents per subscriber. We would expect this fee to be significantly higher given the wide variety of coverage, but we don’t see this being nearly as high as ESPN’s charge of $5. Outlook NWS' 2Q13 results were solid and we expect more of the same in the upcoming 3Q results. We expect the publishing division to perform strongly with independent data released showing NWS’s flagship product, The Wall Street Journal, maintaining its position as the USA's largest newspaper by average weekday circulation. The paper had an average weekday circulation of 2.4 million, including print and digital subscribers, as of March 31, up 12% from a year earlier. We believe this, coupled with the optimism surrounding the new Fox Sports 1, will see continued share price appreciation for NWS in the near-term. For all of our latest asx share market trading ideas sign up for FREE 7 Day Trial and gain full access our research files.
Super Retail Group Limited (SUL)
Super Cheap Auto (SUL) is Australasia’s leading retailer of automotive and boating, camping and fishing products. The company boasts a number of brands, including Super Cheap Auto, BCF Boating/Camping/Fishing, GoldCross Cycles, Ray’s Outdoors and Rebel Sport. 1H13 Results The group’s recent 1H13 results were a solid improvement on the 1H12 results. Revenue rose 37% to $1.04 billion, helped by strong Like-for-like (LFL) sales. LFL sales for SUL’s Supercheap Auto division were up 5.2% while its Leisure and Sports divisions sales rose by 2.8% and 8.3% respectively. The group's underlying earnings EBIT and NPAT increased 35% and 30% respectively compared to the prior corresponding half. On the back of the strong result, the group was able to increase its interim dividend by 31% to 17 cents per share, fully franked. Operating metrics SUL has a history of delivering healthy returns, with its return on equity (ROE) averaging 19.2% since 2008. The group has also grown its half-year revenue by an average rate of 18% over the last five halves. Moreover, while many retailers have been suffering margin contraction, SUL’s EBIDA margin has risen over 140 basis points. These are extremely impressive results given the tough retail-operating environment over the last few years. Looking ahead Going forward, we expect SUL to deliver more robust revenue and earnings growth. The company has shown solid same stores sales growth, with an ability to control costs through supply chain initiatives. We believe SUL’s good supply chain management will be essential, especially given the company long-term aim to open another 40 Super Cheap Auto stores, 44 more stores in Leisure and 59 more stores in Sports. Overall, we see continued growth for SUL's business, which should translate to further gains for SUL’s share price. Super retail group was issued as a share to buy to our members on March 25th, if you would like further information you can sign up for FREE share recommendations and access all our research files on not only SUL but all our current trading ideas. Simply click here and starting trading today, free for 7 days.
Sims Metal Management (SGM) – Scraping Sims
Sims Metal Management (SGM) collects, sorts and processes scrap metal materials that are recycled for resale. The company's divisions include ferrous recycling, non-ferrous recycling, secondary processing of non-ferrous metals and plastics, international trading of metal commodities and the merchandising of semi-fabricated steel products. SGM has operations in Australia, New Zealand, the United Kingdom, North America, Asia and Europe and is the world’s largest listed metal recycler with approximately 270 facilities and 6,600 employees globally. The company is currently in a global search for a new CEO after current CEO Daniel Dienst announced he would retire when his contract concludes on June 30 2013. 1H13 Results The group's 1H13 results were disappointing to say the least. Revenue came in at $3.4 billion, a 25% decline on the prior corresponding half, due to a reduction of intake shipments in North America. SGM reported a 1H13 net loss of $295.5 million, 53.3% better than the prior corresponding period’s $633.2 million loss. The result was attributed to goodwill impairments and inventory writedowns totalling $291.3 million. On an underlying basis, the group did record a $10 million profit, although the rest was down from $42 million a year earlier. Given the poor result, management decided not to declare a dividend for the first half – the first time the company has not paid an interim dividend since listing. US and UK Businesses On 21 January 2013, SGM announced that it will form a special committee to investigate the inventory valuation issues in the company’s UK business. The result of the committee's investigation was a $78 million write-down of inventory, of which $16 million was allocated to 1H13 and the remaining balance resulted to a restatement of prior period results. The write-down represents a massive 29% of the value of inventories in its UK business. That trouble does not stop in the UK. SGM’s US division, which contributes around 60% f the group’s overall sales, also suffered impairment charges in the first half. The company recorded a goodwill impairment charge of $291 million in the 1H13. Excluding the write-downs, the US business barely made a profit, reporting an underling EBIT of $2.1 million--a 30% drop from the prior corresponding period. Looking ahead The outlook does not look pretty for SGM, at least in the short-term. The $78 million writedown on its UK inventory is extremely alarming because it shows the company’s lack of adequate financial controls in relation to its inventory reporting. It also brings into question the company’s financial controls in other regions and raises the possibility of further write-downs. Poor management has led to the decision not to distribute a dividend for the first time since it listed, which does not bode well for shareholder confidence. Moreover, the group downgraded its guidance three times in 2012. Without a significant pickup in US economic activity, we cannot see this year being any different. As such, we feel there is more downside to SGM’s share price in the near-term. Seek Limited was issued as a share to buy to our members on March 22nd, if you would like further information you can sign up for FREE share recommendations and access all our research files on not only SGM but all our current trading ideas. Simply click here and starting trading today, free for 7 days.
The Westfield Group WDC Share To Watch
Westfield Group (WDC) is the world’s largest listed retail property group. The group has a global portfolio, comprising 105 shopping centres across five countries. It also manages all aspects of shopping centre development, from design and construction through to management and marketing. FY12 results Today WDC reported an 18.3% rise in FY12 net profit to $1.7 billion. Funds from operations – which strip out asset revaluations – climbed 6% to $1.5 billion. Net property income rose 7%, with the UK contributing a large part of the growth as the London Olympics led to an increase in shopping centre traffic. There was positive 2H momentum in the US, with net operating income growth exceeding previous guidance as specialty sales rose due to a record number of shops opened. Another highlight was the high occupancy rates. Global occupancy was 97.8%, up 30 basis points on-year with most of the growth coming from the US portfolio. Buyback extended WDC declared a final distribution of 24.5 cents, bringing the full year distribution to 49.5 cents. This was a 2.3% increase on FY11’s distribution. The group forecast an FY13 distribution of 51 cents, representing a yield of 4.5% at current prices. Although this is not as high as some other high yielding stocks in the market, WDC did extend its share buyback for another 12 months, a move likely to provide a good degree of support for the share price. Outlook WDC commenced $1.4 billion in new projects during 2012, and forecast another $1.25 - $1.5 billion in new projects during 2013. The overall development pipeline now stands at $12 billion, providing plenty of scope for WDC to continue delivering steady profit growth. With the US economy continuing to heal from the GFC, we expect stronger retail activity in the group’s largest market. In our view that will help drive the share price higher in the near-to-medium term. This article was distributed to our members on February 27th, if you would like further information you can sign up for FREE 7day recommendations and access all our research files on not only WDC but all our current trading ideas. Simply click here and starting trading today.
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Nov 2014 - Nov 2016
Our short-term focused Trading Report returned 30.03%, outperforming the ASX/200 Accumulation Index by 23.58%*
DISCLAIMER: *Performance is derived from recommendations provided by Australian Stock Report’s Trading Report, opened on or after date of acquisition in Nov 2014 *Return figures are gross returns and do not take into account fees or brokerage costs. *Returns are calculated based on a $50,000 hypothetical portfolio, risking 2% of the overall portfolio balance ($1,000) as a starting point for each trade. *Due to slippage and gapping, losses can sometimes exceed $1,000 on an individual trade. *Opening and closing prices for trades (and therefore the prices used for determining aggregate profit/loss) will be those published on the Australian Stock Report website and will be determined by the price at which they could realistically be executed in the market at the time the recommendation is published. *ASX 200 Accumulation Index Return is calculated based upon the price of the index at the start of the session on the day the first ASX 200 trade was placed, i.e. 24.11.2015
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