Stock of the Week from the Australian Stock Report.
Share to buy – Toll Holdings Ltd
Toll Holdings (TOL) will sell five underperforming businesses, estimated to raise around $100m. We hail this as an improvement for operations and we’re now more confident the company can achieve its potential. Toll has an under geared balance sheet and as there is no need to reduce debt. As such, we suspect that there could be a capital return on the top of monetising the company's Singapore oil & gas supply base. On the technical front, TOL is displaying all the characteristics we would want to see. We have a solid bullish structure place, with the shorter-term EMAs crossed higher and the price action above the longer-term EMA filter, which is positive. Momentum is strong and amid an environment where yield plays are attractive, Toll Holdings fits the bills and should press higher. We’re targeting a move towards $6.80.
Share to buy – Austral Limited
Austal Limited is a global defence prime contractor. The Group supplies vessel platforms such as the Littoral Combat Ship and the Joint High Speed Vessel to the United States Navy, an extensive range of patrol and auxiliary vessels to defence forces around the world, and installs and maintains military communications, radar and command and control systems. Late last month, Austal (ASB) reiterated FY15 revenue guidance of $1.2bn from its $2.6bn order book at its AGM. We see further upside to this number however, given a 5c fall in the A$ since the guidance was set. ASB is increasingly becoming involved in the maintenance phase for its vessels which could develop into a material annuity style business over time. ASB will be debt free by end-FY15 through boat sales, providing capacity for acquisitions. On the technical front, we have a solid bullish structure in place for ASB, with the shorter-term EMAs crossed higher and the price action above the longer-term EMA filter, which is positive. The stock is not yet in overbought territory, suggesting that momentum is still building and there remains room for the price action to move higher. Yesterday’s signal was a bullish pin bar (candle with a long lower shadow highlighting the bulls’ willingness to bid up lower prices) providing us an opportunity to be buyers. Whilst $1.40 appears to be a significant resistance level, longs can be initiated ahead of this region due to the strength of the aforementioned momentum in the price action.
Share to buy: Investa Office Fund (IOF)
Investa Office Fund (IOF) Investa Office Fund is a real estate investment trust. The Fund is an owner of investment grade office buildings and receives rental income from a tenant register comprising predominantly of Government and blue chip tenants. IOF has investments located in CBD markets throughout Australia and select offshore markets in Europe. IOF's clean balance sheet, attractive valuation and prospects for a commercial property market recovery are some of the reasons behind our favourable view on the stock Commercial Property Market The commercial property sector hasn’t seen much love in recent times, due to its underperformance relative to residential property. Australian commercial property has been plagued by persistently high vacancy rates and falling rents due to concerns of excess office space relative to demand. However, 51% of IOF’s Aussie portfolio is in the Sydney/North Sydney market, with a further 20% in the Melbourne market. These two cities are expected to lead a commercial property market recovery if, as expected, business conditions continue to improve. IOF anticipates leasing markets to stabilise and improve towards the end of 2014. The group’s acquisition of the Piccadilly Complex in Sydney late February is ideally timed to take advantage of this recovery. Piccadilly is comprised of two office buildings totalling ~42,000sqm located on Pitt and Castlereagh Streets, The complex has a long weighted average lease expiry (WALE) of 5.3 years, 93% occupancy and fixed annual increases in office rents. Property Assets IOF has a healthy balance sheet. 1H14 net debt to equity ratio was 29%; the lowest among its peers in the A-REIT sector. The look-through gearing ratio of 23.8% was also below management’s 25% - 35% target, providing financial flexibility for the group to increase capital investments. In 1H14 IOF had a high occupancy rate of 96% with a WALE of 5 years. Net profit rose 4% to $56 million whilst funds from operations (FFO) climbed 8%. Following the likely sale of the Bastion Tower in Brussels this year, IOF will have an Australian-only portfolio. Management can therefore focus exclusively on developing assets like 567 Collins Street Melbourne and 800 Toorak Road Melbourne. Portfolio refurbishments are likely to boost FFO and drive a 4.2% increase in the FY14 distribution to 18.5 cents – equating to a healthy yield of ~5.8%. Valuation IOF’s 1H14 net tangible asset (NTA) per share was $3.24, and its last price of $3.33 represented only a 3% premium to NTA. The median premium among its peers in the A-REIT sector was 10.2%, highlighting a big discrepancy. Such a discount is unjustified in our view given our belief the commercial property market is near cyclical lows and a recovery is expected. In 1H14, there was a 3.4% increase in the book value of IOF’s domestic portfolio, despite the generally weak state of Australia’s commercial property market and the sale of its Dutch Office Fund asset. We anticipate an improving commercial property market to lead to greater asset revaluations over 2014, boosting IOF’s NTA in the process. The stock trades on a 12-month blended forward P/FFO ratio of just 12.9x. This makes IOF one of the cheapest A-REITs among its peers, representing good value around its current levels in our opinion.
Fairfax Media (FXJ) On The Way Back
Fairfax Media Limited (FXJ) is an Australian multi-platform media group with a broad range of activities including news publishing, information and entertainment, advertising sales in newspaper, magazine and online formats, and radio broadcasting. FXJ conducts its core activities throughout Australia and New Zealand. Its major newspaper brands are The Sydney Morning Herald, The Age and The Australian Financial Review. Additionally, FXJ owns a range of business magazines, websites, and regional and community newspapers. Stayz sale part of restructure This week FXJ announced the sale of Australian holiday rentals site, Stayz, to HomeAway for $220 million. The sale is part of a focus on restructuring the business in response to an ongoing deterioration in advertising revenue. Earlier this year the group consolidated its Australian publishing businesses under the Australian Publishing Media division in an effort to drive efficiencies and simplify its business model. Also, the Domain and Digital Ventures businesses were separated into standalone divisions, allowing the group to devote increased resources and management attention to areas of the business likely to drive its future growth. FY13 results FXJ’s FY13 results revealed a net loss of $16.4 million and a 5.9% slide in revenue to $2.2 billion. On an underlying basis, net profit fell 28.6% 108.3 million. This accounts for the divestments of Trade Me Group, US Agricultural and Victorian Community Publications, as well as continued impairments of mastheads, goodwill and licenses. The asset sales and impairments were needed, however, to streamline the business and repair the balance sheet. Net debt to EBITDA fell from 1.8x in FY12 to 0.4x in FY13. Also, interest cover increased from 4.5x to 6.4x. On both measures, FXJ is comfortably ahead of its debt covenants. Outlook Following the Stayz sale the balance sheet is in even stronger shape. FXJ said it is on track to achieve cost savings of $1.6 billion in FY14. This will help alleviate pressure on the Metro and Regional businesses, which were suffering falling revenue at the start of FY14. In a positive, however, the group is expanding its digital footprint, with The Sydney Morning Herald and The Age experiencing strong growth in digital subscriptions. So it appears the FXJ is growing by shrinking, shedding non-core assets and driving cost efficiencies to offset weak revenue. At the same, the investment into its digital capabilities is yielding early success, helping to improve sentiment towards the stock.
Good News Gets Better For Rio Tinto
Rio Tinto (RIO) is an international mining company listed on both the Australian Stock Exchange and the London Stock Exchange. The group is an industry leader in most of the major commodities, including aluminium, coking and thermal coal, copper, manganese, iron ore, uranium, nickel, silver and titanium. Rio also has sizable interests in oil, gas and natural gas. China manufacturing growing again Iron ore makes up the most significant component of RIO’s business, around 44% of its overall revenue. Not only have iron prices risen around 19% since the end of June, but the outlook for the mineral appears to be improving. The iron ore recovery has coincided with data showing a return to growth for China’s manufacturing sector. On Monday, the HSBC Final PMI returned a reading of 50.8 for September, representing a slight acceleration in manufacturing growth from October’s 50.4 reading. It was also the third month in a row where China’s manufacturing sector expanded, adding to signs the economy is regaining its footing after a year slowing growth. Outlook Following a poor 1H13, RIO is generating a healthy dose of momentum and is ahead on a number of some of its strategic goals. Last week, RIO announced that iron ore production capacity will rapidly increase towards its targeted 360 million tonnes a year (MT/a), and at significantly lower cost than originally estimated. From a base run rate of 290Mt/a, RIO expects to reach its target between 2014 and 2017, with the majority of the increase to be delivered in the next two years. The miner expects to achieve this by expanding production at existing mines and securing productivity gains. The costs savings works both ways for RIO – helping to alleviate margin pressures in a weak commodity environment and increase earnings leverage to rising commodity prices. For all of our latest australian share tips and trading ideas sign up for FREE 7 Day Trial and gain full access our research files. Read more: http://www.australianstockreport.com.au/share-tips/#ixzz2nKRlceAE
Suncorp Group (SUN) Share To Buy
>> General Insurance, which offers personal and commercial insurance products in the motor, home and contents, travel, boat, and workers’ compensation segments. >> Suncorp Bank, which offers banking services to personal, agribusiness, small business and commercial customers. >> Suncorp Life, which offers life insurance and superannuation products.
Share To Buy – Bank Of Queensland (BOQ)
Bank of Queensland (BOQ) is a financial institution, with services spanning retail and commercial banking, wealth management, insurance and equipment finance. As its name implies, BOQ predominantly caters to the Queensland market but has branches throughout Australia. FY13 results Much of BOQ’s recent strong share price performance has come on the back of its FY13 results. Cash profit surged to $250.9 million, from $30.6 million a year earlier. The bottom line turnaround was driven by a major decline in impairment charges from $401 million in FY12 to $112 million in FY13. This reflected a dramatic improvement in asset quality (by exiting weak and impaired assets). Net interest margin (NIM) grew from 1.65% to 1.7%, continuing a positive trend from FY09 when NIM was 1.6%. FY13’s NIM growth came on the back of a more favourable funding mix, which has also positioned BOQ to boost lending volumes in what remains a highly competitive mortgage market. There was also good cost control, with the cost-to-income ratio falling to 44.3%. This exceeded the initial guidance of 45% due to the successful implementation of efficiency and effectiveness programs. Outlook Management has targeted return on tangible equity (ROTE) of 13%+ by FY15. FY13 ROTE was 11.9%, well in excess of the ~10% initial guidance. Due to a combination of falling impairments, rising net interest income and disciplined cost control, we think the 15% ROE target will be achieved by management. The one area of concern was the retail lending growth of 0.6x system growth during FY13, this below the 1.2x target aimed for by FY15. Yet, as we mentioned before, the rise in NIM and dramatically improved asset mix gives the group flexibility to boost lending volumes ahead of FY15. The FY13 result was robust in nearly all areas, and expectations for a continuation of this momentum into FY14 are likely to provide a further boost to BOQ’s share price. 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 24/11/2013
As featured in the Herald Sun on November 24th 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. Buys Challenger Limited (CGF) – CGF’s profit will drop in FY14, but super low P/E, demand for annuities and rebounding stockmarket make it good value. Ingenia Group (INA) – Retirement property manager is a turnaround play after exiting loss-making US business and cleaning up its balance sheet. Expect strong growth in next two years. Holds Woodside Petroleum (WPL) – Most recent quarter saw higher production offset by lower prices. Prospects for Browse project improving, but would like to see more strength in LNG prices. Crown Resorts (CWN) – Record gambling revenue in Macau driving Macau JV’s fortunes. Sydney Crown also offers huge upside but hype has pushed stock past value levels. Sells UGL Limited (UGL) – Property services demerger could unlock value, but otherwise under pressure from shrinking margins, weakening order book and struggling Engineering division. PanAust Limited (PNA) – Cash costs on the rise and metals prices don’t look headed higher. Further weakness in operating cash flow could see dividend cut. For all of our latest share tips and trading ideas sign up for FREE 7 Day Trial and gain full access our research files.
NIB Holdings (NHF) Share To Buy
NIB Holdings (NHF) is a health insurance company, providing health cover primarily to Australia and also to New Zealand following last year’s acquisition of Tower Medical. Established over 50 years ago, NHF is Australia’s only ASX-listed health insurer. The company offers a wide range of policies suitable for customers across the board, but its focus on the youth market has helped it to achieve the fastest growth among the major players in the sector. Recent results NHF is a company enjoying healthy growth. Since FY08, net premium revenue has risen at a compound annual rate of 11.2%. Return on equity was also a healthy 21.3% in FY13. One concerning aspect of the FY13 results was a fall in net profit margin from 5.9% to 5.1%. The group blamed higher claims costs without a commensurate increase in premium rates. The group was relatively sanguine about FY14, downplaying earning growth expectations amid higher marketing and branding costs. Nonetheless, the company negotiated a 6.5% increase in premium rates, effective April 1st 2013, which is expected to support profit margins in FY14. Medibank shapes longer-term outlook Following the Federal election, Prime Minister Tony Abbot’s government has begun the process of privatising Medibank as a way to streamline the government and cut costs. The government is awaiting results from a scoping study, expected in February 2014, before deciding when to float the insurer. Medibank has a ~30% share of the health insurance market, so a privatisation would shake things up for the industry. Bupa is the next biggest player with a 27% share, followed by HCF with 11% and then NHF with around 8%. A privatised Medibank means the potential for consolidation as the smaller companies look to stay competitive in a growth industry. NHF would be ripe for the picking in our view, given its strong fundamentals and attractiveness as a target for Medibank or Bupa. For all of our latest australian buy shares and trading ideas sign up for FREE 7 Day Trial and gain full access our research files.
Share To Buy Telstra Limited (TLS)
Telstra Corporation Limited (TLS) is a full service domestic and international telecommunications provider and is without question the dominant telco in Australia. The company provides telephone exchange lines to homes and businesses, supplying local, long distance and international telephone calls and supplying mobile telecommunications services. TLS also provides data, internet, on-line services and directory services. TLS has five key business segments:
>> Telstra Consumer and Country Wide, which is responsible for servicing metropolitan, regional, rural and remote parts of Australia with a full range of products and services. >> Telstra Wholesale, which provides a wide range of wholesale products and services to the Australian domestic market. >> Telstra Business is responsible for serving the unique needs of Australia’s small to medium enterprises (SMEs). >> Telstra Enterprise and Government unit is responsible for providing innovative Information and Communications Technology (ICT) solutions to large corporate and government customers in Australia and New Zealand. >> Other, which includes all division that are not covered above and includes; Telstra Operations, Sensis and Telstra International Group. >> Revenue over the year grew by 1.9% to $26 billion. >> Net profit for the year came in at $3.9 billion a 12.9% increase on the prior year’s result. The profit increase was ahead of consensus estimates of $3.69 billion. >> The strong results continue to be driven by a lead mobile growth with revenue rising by six per cent to $9.2 billion. >> The mobile division added 1.3 million subscribers for the year, which is likely the result of glitch-plagued Vodafone Australia whose network infrastructure has become overstretched. >> Telstra continued to build momentum in its Network Applications and Services (NAS) portfolio, with revenue increasing 17.7% for the year. >> The group returned a dividend of 28 cents per share fully franked dividend for FY13.
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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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