Woolworths (WOW) is primarily an Australian and New Zealand supermarket company, and is widely considered among the blue chip stocks in the Australian share market.

Woolworths has branched our beyond its supermarket business and has built a massive empire which boasts an array of brand retailers and a heavy sprinkling of supermarkets throughout every major city in Australia.

On 20 October, WOW reported a 4.1% increase in first quarter sales, to $13.9 billion.

Supermarket sales increased 3.2% in the face of a tough retail environment and low food price inflation.

Big W sales fell 2.7% amid tight consumer spending and price deflation in key categories including home entertainment and toys.

WOW shares dipped 0.3% on the day.

Macmahon (MAH) is a leading contractor providing services to customers in both the mining and civil construction sectors.

The company employs more than 3,000 people throughout Australia, New Zealand and South East Asia.

MAH consists of two key business units – mining and construction – and its clients and JV partners are typically big names, including BHP Billiton and Leighton Holdings.

A continuation of the current mining boom is likely to benefit mining services providers such as MAH, so it would be considered one of the stocks to watch over the longer term.

However, on 19 October, MAH warned that its construction business has experienced issues that will impact the division’s earnings in the shorter term.

In WA, a rail contract will not deliver its forecast profit due to cost issues, and a lower number of contract wins will result in weaker-than-forecast revenue for the division.

MAH is now forecasting a breakeven result for the December half, whilst second half profit will grow $20 million more than forecast due to strength in the mining business.

MAH shares plummeted 21% on the day of the profit warning, making it the worst performer in the Australian stock market.

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Tabcorp (TAH) is a diversified entertainment group specialising in gambling and a variety of other entertainment products.

While TAH offers wagering, gaming, hospitality and media activities across Australia, it is renowned for its customer brands, which include Star City and Jupiters casinos, TAB, Keno, Tabaret and TAB Sportsbet.

TAH has been of the hot stocks in recent months, surging from a low of $6.18 in mid-August to be currently trading around $7.10.

On 18 October, TAH announced that it plans to demerge its casino and gaming operations, and launch a $430 million capital raising.

The proceeds of the capital raising will be used to fund growth initiatives and ensure both entities have appropriate capital structures.

TAH stated that the demerger is expected to be completed by 1 July, 2011, subject to regulatory approvals.

In stock market trading, TAH shares remained in a trading halt on the day of the announcement.

Bank of Queensland (BOQ) was established way back in 1874 and operates mainly in its home state of Queensland, with operations covering retail financial services and business banking.

Among the list of sectors on the ASX, BOQ is categorised as a bank stock, and like other bank stocks, it has been a weak performer in the Australian share market during recent weeks.

On 14 October, BOQ reported a 27% rise in FY10 net profit to $179.6 million, whilst cash profit improved 5% on-year to $197.1 million.

Net interest margin increased 4 basis points to 1.60%, with the group experiencing higher funding costs in the second half.

Helping to the growth in NIM was a 17% rise in net interest income, which was supported by balance sheet growth.

BOQ stated that its bad debt losses peaked in FY10, and it expects a rise in FY11 cash profit to $220m – $250m, with a 10% – 20% growth in dividends.

BOQ declared a final dividend of 52 cents, which was unchanged from a year ago, whilst its share price shed 1.1% on the day.

Bradken (BKN) is a leading supplier of consumable parts, capital equipment and associated maintenance and refurbishment services to the resources and freight rail industries.

The company’s five divisions are mining products, rail, power and cement, engineered products and industrial.

The company suffered from a volatile environment over 2008, as the commodities bubble burst and the stock market worried over demand for BKN’s services.

BKN has seen signs of improvement in 2010 on a turnaround for miners and iron ore prices, improved order intake levels and strength in its rail division.

The company is also excited over its acquisition of Almac, which will offer BKN access to new wear products in the growing Western Canadian oil sands, coal and hard rock mining market.

BKN recently impressed the market when it upgraded its FY10 underlying earnings guidance (EBITDA) to be in line with, instead of below, FY09 EBITDA.

Iron ore awe

A turnaround for miners and commodities has seen BKN showing signs of decided strength over 2009 and into 2010.

The spot price of iron ore has traded significantly above the benchmark for a while now. A shift away from the traditional benchmark pricing of ore has transpired, resulting in an indexed system that more closely reflects market movements during the year.

Demand from China and restocking in the developed world has driven the recovery seen in commodity prices.

Last week, iron ore major BHP Billiton (BHP) delivered another record in West Australian iron ore production, with the miner’s iron ore and metallurgical coal production up 16% in the June quarter from the same period a year ago.

Iron ore sector peer Fortescue Metals Group (FMG) confirmed mid-month that it ran its West Australian mines, railways and ports harder than expected last quarter to benefit from the most of near-record iron ore prices.

Boom times for iron ore and increased sector activity is beneficial for BKN, which is sure to pick up more work owing to sector strength.

BKN also stands to benefit from increased activity in the coal sector, with major miners BHP and Rio Tinto (RIO) in late May bidding on Queensland’s coal rail track network.

BHP views coal as a lucrative place to be at the moment. The miner is reportedly seeking a 10% increase in the price of coking coal for the July-September quarter, to roughly $225 per tonne.

Almac on board

A couple of months ago, BKN agreed to acquire the business assets of Canadian-based Almac Machine Works for $51 million. BKN confirmed the acquisition went through on 12 July.

Almac manufactures and supplies a range of products and services primarily to the Canadian oil sands, mining and conventional oil and gas markets. Canada has the world’s second largest proven oil reserves at 175 billion barrels, trailing only Saudi Arabia, with 96% of that being Alberta oil sands.

The new business will be managed from within the Resources division of the US based Engineered Products division and is expected to drive synergies amounting to $0.5 million per annum.

The acquisition price of $51 million represents 5.0x normalised CY09 EBITDA of $10.3 million. The acquisition is funded by a $50 million capital raising, and is expected to be approximately 3% EPS accretive in the first full year after the acquisition.

Almac is expected to report normalised revenue of $55 million and normalised EBITDA of $13.3 million for the year ending 31 December, 2010.

Recent financials

On 9 February, BKN reported its 1H10 results, impressing the market.

BKN clocked a net profit after tax for its December half of $25.7 million, a 26% decrease on the same half in the prior year.

Operating earnings were up on guidance but down 22% on last year to $70.7 million whilst EPS decreased 30% to 19.8 cents per share.

BKN declared a half dividend of 13 cents per share, up 30% on the prior year.

BKN’s Rail division delivered sales growth of 21% in 1H10 compared to 1H09 as the group saw continued strong market demand for freight wagons.

BKN worked hard over 1H10 to reduce its costs and raise its cash flow. Operating cash flow for the half of $81.8 million was 54% higher on year due to reduced working capital and lower capital expenditure.

The strong cash performance enabled a reduction in net debt of $72 million from June 2009 to $326.3 million at December 2009.

BKN’s gearing is sound, with net debt at 2.19 times EBITDA.

Improving outlook

Along with news of the Almac acquisition, BKN upgraded guidance provided at its 1H10 results in February, with FY10 EBITDA now expected to be in line with, instead of slightly below, FY09 EBITDA.

BKN’s Rail division is expected to deliver a strong performance through continued productivity improvements at the Xuzhou operations as well as ongoing purchasing gains.

All other divisions continue to improve, in line with expectations.

BKN remains comfortable with the outlook for the core business, with signs of recovery in the US-based Engineered Products Division.

Outlook

Even back when BKN forecast FY10 to be down slightly on FY09, the market was still expecting a decent full year result owing to improved market conditions.

This was confirmed by the company itself when it recently upgraded its FY10 underlying earnings guidance to be in line with, instead of below, FY09 EBITDA.

BKN stands to benefit significantly from forecast skyrocketing iron ore prices, as it is closely tied to miners and the iron ore sector.

A big boon going forward will be BKN’s acquisition of Almac, which will provide the company with access to new wear products in the growing Western Canadian oil sands, coal and hard rock mining market.

BKN has also seen order intake levels rise and expects particular strength from its rail division, which performed strongly over 1H10.

BKN may even beat its FY10 guidance, as it recently beat underlying earnings guidance for 1H10.

Therefore it will be one of the stocks to watch in coming months.

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Energy Resources Australia (ERA) is one of the largest uranium producers in the world, providing over 10% of the world’s uranium production through long-term contracts.

ERA sells its product, drummed uranium oxide, to power utilities in Asia, Europe and North America under strict international and Australian Government safeguards.

The company is majority-owned by mining giant Rio Tinto (RIO), which has a 68% stake in the company.

Since October 2009, ERA has slumped from around $27 to just $13, making it one of the shares to sell during the period.

On 13 October, ERA released its 3Q10 production report. Uranium oxide production rose 10% from the previous quarter, however was down 36% from the same period last year.

Due to the lower-than-expected production numbers, ERA has lowered its full year production guidance to 3,900 tonnes, from the previous 4,300 – 4,700 tonnes.

ERA shares sank 6.4% on the day of the announcement, making it one of the worst performers on the ASX.

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WorleyParsons (WOR) provides professional engineering and management services to the energy, resource and complex process industries.

WOR will be one of the shares to watch in coming months, as there is a good possibility its earnings are being negatively impacted by the stronger Australian dollar.

It offers a broad scope of services, from feasibility studies to design and project services.

On 13 October, WOR announced the award of a contract extension from ExxonMobil to provide engineering and project delivery services in Nigeria.

The project, scheduled to be delivered over the next four years, will involve the delivery of new unmanned wellhead platforms, 78 kilometres of pipelines, risers and associated brownfield tie-ins.

WOR shares dropped almost 2% on the day, whilst the share market fell 1.7%.

Virgin Blue Holdings (VBA) is one of Australia’s low cost (budget) airlines, whose main competitor is Qantas (QAN).

Although the majority of its operations are domestic, it has established international operations under the Pacific Blue and Polynesian Blue brands.

On October 11, VBA announced that the recent problems with its ticketing system will impact pre-tax profit by $15 million – $20 million.

VBA advised that it will actively pursue all avenues to recover the cost, and that prior to the outage, had seen trading conditions improve compared to the same period last year.

In fact, VBA has been one of the hot stocks in recent months, surging from a low of 28 cents in late August, to be currently trading around 47 cents.

VBA slumped 3.2% on the day of the announcement, making it one of the worst performers in the Australian stock market.

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Alumina (AWC) is involved in the mining, refining and smelting of aluminium. The company’s primary asset is its 40% interest in Alcoa World Alumina and Chemicals (AWAC).

Together, Alcoa and AWC produce smelter grade alumina feedstock for the production of aluminium, as well as alumina-based chemicals for supply to the alumina chemicals industry.

AWC is listed as a materials stock among the list of sectors on the ASX.

AWC has been one of the top stocks in recent months as rising alumina prices coincide with an industry shift to index based pricing for supply contracts.

On 8 October, AWC received US$41 million in dividends from its AWAC joint venture with US-based, Alcoa.

This follows Alcoa’s third quarter earnings announcement overnight, where a 21% fall in profit was offset by its bullish outlook for aluminium demand.

Arafura Resources (ARU) is an emerging rare earths producer with its sights set on bringing its world-class Nolans Project into production in 2013.

Rare earths are essential to products in markets associated with the electronics and technology industries, energy efficiency and greenhouse gas reduction.

Nolans Bore is one of the few truly world‐class near‐term supply sources, providing ARU with the means to possess a piece of the rare earths pie.

Rare earths are creating a lot of stir at present on expectations of significant future demand. China currently produces about 97% of the world’s rare earths, and has restricted world supply over the past few years – driving up rare earth prices 310% over the first half of 2010.

ARU is in the enviable position of being an Aussie rare earths contender and the group intends to become the pre-eminent supplier of rare earths to the world.  Its fortunes have seen it become one of the stock picks of many investors.

In the background ARU is exploring for other metals, including uranium, copper and gold.

Commodities have strengthened of late on global economic recovery signs, which is a positive for ARU going forward.

Rare earthly treasure

Over the last year, there has been growing market awareness that rare earths are essential components in a range of everyday products.

These products include high-demand technological equipment such as iPods, mobile phones and LCD TV screens.

Rare-earth based new technologies are being rapidly adopted across the globe as electronic media becomes an essential part of the personal apparel and business environments

Rare earths are also used in clean energy applications, such as wind farms and hybrid cars; and in energy efficiency products, such as new generation light globes.

It is now widely recognised that there will be a significant supply shortfall for rare earths in the near term.

ARU is in the enviable position of possessing one of the few major rare earth deposits in the world: the Nolans Bore deposit in central Australia.

Nothing Boring about Nolans

The Nolans Bore deposit is a very valuable, long-life and easy to exploit resource – one which any major resources company would be proud to have.

In the last four years, ARU has made a significant investment in developing a patented chemical process to extract and recover rare earths from the Nolans Bore Mine in the Northern Territory.

In September 2010, ARU announced the selection of Whyalla in South Australia as the site for its Rare Earths Complex.

This is a major milestone in the company’s history and will allow ARU to value add to resources from its Nolans Bore deposit.

The scale of the proposed plant and associated infrastructure was recognised by the South Australian Government, which has granted Major Project status for the complex.

The project is underpinned by a world-class rare earths deposit which has sufficient resources to support mining and chemical processing operations for at least 20 years.

Annual production of 20,000 tonnes of rare earth oxides from the Whyalla Rare Earths Complex, equivalent to about 10% of the world’s supply, is on schedule to commence in 2013.

The Nolans Project means ARU will in the next few years become a long-term supplier of rare earth oxides, phosphoric acid, uranium oxide and gypsum.

The Nolans Bore deposit is currently at 30.3 million tonnes of measured, indicated and inferred resources.

Exploration focus

ARU carefully balances its priority to develop the Nolans Project with the need to deliver future growth through exploration success, as well as assessing new development opportunities.

Regions ARU are currently exploring include The Reynolds Range, which is highly prospective for the discovery of base metals and uranium.

Another focus is the Hammer Hill Project, with ARU focused on the discovery and development of copper-nickel sulphide resources.

ARU’s Kurinelli project is another region of interest. Kurinelli has not been explored before using modern exploration techniques, and it represents an outstanding opportunity to discover a new gold district.

ARU also boasts gold exposure through the Mt Porter gold project, which has a Native Title mining agreement and environmental approval from the NT and Australian governments.

ARU’s exposure to these commodities provides for an extra feather in its cap at a time when commodities are making massive gains.

Gold price has repeatedly hit record highs of late, and copper is also performing strongly with a 2% gain in price last week.

Cash position

ARU has a market capitalisation of around $284 million as of 22 September 2010.

The company has cash of $23.5 million at the end of its 30 June quarter.

In its recent annual report, ARU admitted to a loss after tax for the year of $10.1 million and a net cash outflow from operating activities of $6.5 million.

Despite the yearly profit loss, ARU has sufficient cash and assets to meet its ongoing development and exploration commitments.

ARU will raise additional funds to meet working capital requirements into the future.

Outlook

ARU specialises in a lucrative commodity: rare earths. Rare earths provide environmentally friendly solutions through an array of applications aimed at achieving energy efficiency, and in developing green technologies.

Rare earths are also in increasing demand worldwide for use in devices that are central to our modern lifestyle.

As a result, ARU has been one of the hot stocks in recent months, alongside other rare earths miners such as Lynas Corporation.

ARU’s vision is to be the pre-eminent supplier of rare earths to the world, and once Nolan production is online the company will be in the lucrative position of possessing a “green” commodity that is increasing use in modern technology.

In the background ARU is exploring for other metals, including uranium, copper and gold. Commodities have strengthened of late on global economic recovery signs, which is a positive for ARU going forward.

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