Stock Trading Recommendations for the Australian Stock Market.

  • Share to buy – APN Outdoor Media (APO)

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    The evolution of Billboards from static to digital has presented significant growth opportunities for APO.

    The company, since IPO (Nov 2014), has secured both existing Static Billboards as well as development options to develop Digital Billboards.

    Given the ability to modify advertising on-demand using sophisticated yield management techniques for digital formats, the potential revenue uplift is significant.

    This can be observed by recent revenue trends whereby revenues have far exceeded the company's and market's expectation.

    Given the scalability of digital formats, this translates strongly for profitability.

    At their most recent update, the company has also upgraded guidance due to acquisitions, increased market share and an increase in penetration of digital formats.

    The company also confirmed the renewal and expansion of key Airport related contracts, in particular with Sydney Airport.

       

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  • Share to buy – Rio Tinto (RIO)

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    Since bottoming out near $38 in December, iron ore has rallied to presently be trading above $48.

    • Overnight, the bulk commodity jumped 3%.
    • The bounce in iron ore, unsurprisingly, has coincided with a bounce in Rio Tinto which has completed a basing pattern and now appears poised to push higher.
    • We are looking for a short-term rally in Rio and active traders can consider being buyers.

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  • Share to buy – Magellan Financial (MFG)

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    MFG's recent numbers speak for themselves:

    • 41% increase in profit
    • 38% increase in dividend
    • exceptional net inflows and a reduction in employee expense to income

    Technically, after a sharp pullback the stock found support around $20 and has bounced strongly.

    The recent bullish candle was a confirmation candle and a signal that traders should be happy to buy into.

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  • 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. Toll Holdings graph   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.  

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  • Share to Buy: Tassal Group Limited (TGR)

    Tassal Group (TGR) is Australia’s largest Atlantic salmon producer. Tasmanian-based, it is involved in the hatching, farming, processing, sales and marketing of salmon. The group has supply agreements with the big supermarkets Coles and Woolworths, but also distributes to fresh fish shops. It also exports its salmon to overseas markets. TGR’s fresh water and seawater operations assist in the salmon aquaculture and farming process. This includes two hatcheries, six marine farms, and three processing facilities. Focus on domestic TGR has focused its strategy recently on growing its share of the domestic salmon market. It’s a strategy that boosted TGR’s EBIT margin from 17.2% in FY12 to 19.6% in FY13. In FY13, it was able to grow sales revenue per kilogram sold via a combination of price increases and a marketing campaign that boosted domestic per capita consumption. Domestic sales revenue surged 16%, offsetting strategic reductions in export and contract growing volumes. In fact, domestic sales comprise 98% of total revenue, compared to 87% a year earlier. The company has minimal exposure to volatile global salmon prices, and the undersupply of salmon in the domestic market means TGR maintains a degree of pricing power in negotiating supply agreements. TGR’s balance sheet is in healthy shape, with a net debt to equity ratio of just 18.4% in FY13. Earnings quality was also very high, with operating cash flow as a percentage of operating income at over 100% in FY13.

         

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  • Share to Sell Cabcharge Australia Limited (CAB)

    Cabcharge Ltd (CAB) is a diversified Australian technology, financial services, taxi payments and a land transport company. Its business is predominantly a taxi charge account system allowing customers to pay via credit card for their tax trips for a servicing fee. CAB also has two affiliate businesses; UK-based account, booking and dispatch services provider, Cityfleet (49%-owned), and Australian-based commuter bus operator, ComfortDelGro (49%-owned). Regulatory uncertainty In a major blow for the company, Victoria’s government announced in late May 2013 that it intended to limit the industry credit card servicing fee from 10% to 5%. CAB’s FY13 taxi service fee income came in at $90.7 million, with Victoria representing around half of total revenue. A 5% reduction in the servicing fee therefore takes a huge chunk out of Victoria’s contribution to taxi service fee income. Policy uncertainty is another issue impacting the outlook, with NSW and Queensland saying they too will consider a 5% cap on servicing fees. If these two states follow Victoria’s lead it would result in a greater hit to taxi service fee income, further eroding CAB’s profitability. Competitive Threats CAB is facing increased competitive threats from Uber, which is a private car hire booking app. Uber’s UberTAXI service (currently available in Sydney) connects passengers with licenced taxi drivers who are also using Uber. UberTAXI is also a cheaper way to book a taxi. The only fees involved are a $2 booking fee and no credit card surcharge, undercutting CAB, which charges a 5% fee. Uber is backed by major international companies like Google and Goldman Sachs. It can therefore invest in technology to help it win market share, and leverage existing systems to operate at lower cost than CAB.

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  • Share To Sell Coca Cola Amatil Limited (CCL)

    Coca-Cola Amatil (CCL) is an Australasian bottler for US-based The Coca Cola Company, with operations spanning Australia, New Zealand, Fiji, Indonesia and Papua New Guinea. CCL manufactures, sells and distributes Coca-Cola products, including carbonated soft drinks, mineral waters and other non-alcoholic beverages, plus packaged fruit via its SPC Ardmona business. The company also sells and distributes the premium spirits portfolio of Beam Global Spirits and Wines. Profit squeeze Earlier this year CCL admitted that it was facing increased competitive pressures from rival Pepsi’s new low-sugar drink, Pepsi Next, launched in 2012. This has magnified the pressure on the domestic beverage business, which was already contending with weak volume growth but now has to deal with aggressive competitor pricing activity. The disparity in price between Coca-Cola and Pepsi Next was as much as 50%, enough of a difference for consumers to switch their cola allegiance. A combination of weak volume growth and limited ability to raise prices is likely to squeeze CCL’s margins and harm profitability. Also, the SPC Ardmona business continues to be a drag on earnings. CCL is seeking government support for co-investment with SPC Ardmona, a tacit admission that it simply cannot compete with the cheaper importation of private label packaged fruit and vegetables. Outlook Today data showed confidence among Australians during December slid at the fastest pace in seven months. The Westpac Consumer Confidence Index returned a reading of 105, almost 5% weaker than the 110.3 recorded in November. Confidence took a dive this month as consumers became more pessimistic about the outlook for the jobs market and the broader economy. CCL has cited consumer caution as a key factor behind the slowdown of its domestic business and today’s Westpac survey is likely to make them even more nervous about the outlook. In November the company guided for a 5% - 7% fall in FY13 underlying EBIT (the financial year ending this month). With the Australian beverage business comprising around 70% of group revenue, the recent economic data trends suggests the weakness in CCL’s business is likely to persist into FY14.

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  • Good News Gets Better For Rio Tinto

    rio tinto logo 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

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  • Webjet (WEB) Share To Sell

    webjetWebjet (WEB) is an online travel website, specialising in both domestic and international online flight bookings, accommodation, car rental, and insurance. WEB is Australia’s largest independent online travel site, competing mainly with companies offering similar leisure-related services, such as Jetset (JET), Flight Centre (FLT), Wotif.com (WTF), Expedia, and Bestflights.com.au. Earlier this year, the company acquired rival Zuji and launched business-to-business hotel aggregation platform, Lots of Hotels, for the Middle Eastern and African markets. The company derives its revenue primarily through booking charges and fees, with its main customers being the general public and tourists. Weak FY13 results WEB’s FY13 results weren’t that impressive for a company that traditionally trades on a high P/E multiple. Revenue of $66.5 million represented a rise of 15% on the prior year’s result. Underlying net profit was only 5.6% higher on FY12’s result, missing previous guidance of 15% growth. EBIT margin contracted 10 basis points to 32.4%, continuing a worrying trend where profit margins have fallen for three straight years. Business momentum is also heading in a negative direction, with Total Transaction Value (TTV) and flight booking volumes both declining from 1H12 to 1H13. Outlook WEB trades on a forward P/E of 13.5x, which is a discount to other online service providers, including closest rival, Flight Centre (FLT). The trend of shrinking profit margins is a worry, suggesting that WEB is losing market share to FLT and not getting enough return for each dollar spent on marketing and advertising. WEB followed up its disappointing results by offering relatively subdued guidance earlier this month. It warned that FY14 EBITDA was likely to be unchanged from a year earlier, at $21.5 million. The group admitted that the Australian market had been flat over the past year, but that it would still push on with plans to spend $3 million on marketing and technology, which was expected to weigh on the bottom line. This is a big worry given how important Australia is to WEB’s business. Moreover, the increased marketing and ad spend comes on top of the resources needed to integrate Zuji and support the launch of Lots of Hotels. Although the longer-term outlook appears more promising, FY14 is shaping up to be another disappointing year for FLT. The prospect for further margin erosion will be a key factor behind continued share price weakness in our opinion. 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.

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  • Suncorp Group (SUN) Share To Buy

    suncorpSuncorp Group (SUN) is one of the largest general insurance groups in Australia, and one of the biggest regional banks in Queensland. The group is split up into three main divisions:

    >> 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.
    Recent Results SUN revealed a 32.2% drop in FY13 net profit, but that was due to losses booked from the sale of its non-core bank. Underlying earnings were up 19.3%, driven by strong growth from General Insurance. This division saw its underlying insurance margin jump from 12.1% in FY12 to 13.5% in FY13. This occurred amid price and volume growth in the motor and home insurance product categories. Importantly, the group has flagged further premium increases in FY14, which should help support further underlying margin growth. Suncorp Bank’s net profit was unchanged at $289 million, but in a positive, the net interest margin of 1.89% was above the 1.75% - 1.85% target range. FY14 interest margin was likely to be impacted by the consolidation of the remaining non-core assets into the core bank. However we expect a significant improvement in FY15 once these legacy issues are fully resolved. A key concern remains Suncorp Life, which reported a 76.1% slide in FY13 net profit. Higher claims and policy lapses weighed on the division, but as with AMP, these problems are affecting the entire industry. Outlook SUN appears attractive on a valuation basis, trading on a forward P/E of 12.5x. This is cheaper than its rivals Insurance Australia and QBE, which trade at 13 times forward earnings. Whilst the discount is not too great, we think SUN should be trading on higher multiples given the potential capital return on offer for shareholders following its non-core asset sale. A final dividend of 30 cents was declared in FY13, along with a special dividend of 20 cents. With the group looking to reduce its surplus capital, more special dividends are expected to follow over FY14 and FY15. 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.

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Exceptional Performance

Nov 2014 - Nov 2016

Our short-term focused Trading Report returned 30.03%, outperforming the ASX/200 Accumulation Index by 6.45%*

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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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