Chris Batchelor, Spotee Connect
PURCHASE RECOMMENDATIONS
Nine Entertainment Co. Holdings (NEC)
Nine’s diversified media business comprises television, newspapers, radio and streaming services. He also owns 55 percent of the Domain real estate advertising business. The company’s diversity leaves it shielded from the volatile advertising industry. The company is attractive as it is listed with an undemanding price/earnings ratio and an attractive dividend yield.
Australian Clinical Laboratories (ACL)
The pathology service provider benefited from providing testing services during the pandemic. COVID-19 revenue grew 205% in fiscal year 2022, while non-COVID-19 revenue grew 8%. COVID-19 revenue is expected to decline from here, but this has been factored into expectations. The forward price/earnings ratio and dividend yield paint a bright outlook.
BOOK RECOMMENDATIONS
Magallanes Financial Group (MFG)
The fund manager experienced net outflows of $2.5 billion in July. It has been a difficult year, with funds under management declining significantly in the last 12 months. In our opinion, the company looks cheap with an undemanding forward price/earnings ratio and a recent dividend yield of 12%. We recommend holding until funds under management have clearly stopped declining. The author’s related parties have interests in MFG.
BlueScope Steel (BSL)
The steelmaker reported an after-tax net profit of $2.81 billion in fiscal 2022, an increase of 135 percent on the previous corresponding period. BlueScope generates about half of its profit from its operations in the United States. There are concerns that US steel prices will start to decline amid disruption to Australian energy markets. We suggest waiting to see how these factors play out over the next several months.
SALES RECOMMENDATIONS
James Hardie Industries PLC (JHX)
The global supplier of building materials recently announced a downgrade in earnings expectations for fiscal 2023. The company is under pressure from higher energy, freight and pulp costs, which are eating into margins, according to our analysis. Rising interest rates are likely to affect demand in the housing sector.
Split Payments (SPT)
This buy now, pay later company allows customers to pay for their purchases in multiple installments. The stock price has fallen from 51.5 cents on August 19, 2021 to close at 22.5 cents on August 18, 2022. While earnings have improved, the company reported a loss in the full year of 2021. The Buy Now, Pay Later industry is fiercely competitive. Other stocks attract more at this point in the cycle.
Peter Day, Sequoia Wealth Management
PURCHASE RECOMMENDATIONS
South32 (S32)
We expect solid results for the full year driven by strong performance from its coal division. Based on our forecasts, S32 is expected to generate strong cash flows in the near term, which will support growth and additional shareholder returns. The shares rose from $3.40 on July 19 to $4.14 on August 18.
Shared computer (CPU)
This financial management company reported management revenue of $2.6 billion in the full year of 2022, up 12.2 percent from the corresponding period. Revenue margin of $186.5 million increased 74.3%. The company has a solid balance sheet. The share price has enjoyed a strong run in the last 12 months. We maintain our recommendation of superior performance.
BOOK RECOMMENDATIONS
Telstra Corporation (TLS)
The communications giant reported total revenue of $22 billion for the full year of 2022, down 4.7 percent from the previous corresponding period. It raised its final dividend to 8.5 cents a share. It is the first time the company has increased its dividend in seven years. The company forecasts total revenue of between $23 billion and $25 billion in fiscal 2023.
News Corporation (NWS)
The company raised its media segment EBITDA to $217 million in fiscal 2022, up from $52 million a year earlier. It was helped by growth in digital ad revenue. Net income for the full year was $760 million, an increase of 95% from the prior year. The company is positioning itself to increase revenue in the future. We maintain a neutral recommendation at this point.
SALES RECOMMENDATIONS
Bank of Bendigo and Adelaide (BEN)
The company reported total cash income of $1,709.9 billion in fiscal 2022, an increase of 0.4 percent on the previous corresponding period. Operating expenses of $1.0163 billion fell 1.1 percent. However, inflationary pressures are building. Given the strong performance to date, BEN’s valuation is stretched, in our opinion.
Commonwealth Bank of Australia (CBA)
We expect earnings performance to improve in 2023, supported by higher interest rates. Medium-term headwinds include deposits and mortgage competition. In our view, the company trades at a high premium compared to its history. We struggle with CBA valuations. Investors may want to consider taking a profit.
Arthur Garipoli, Seneca
PURCHASE RECOMMENDATIONS
DGL Group (DGL)
The company is engaged in the manufacture, storage and distribution of chemical products. Since going public in May 2021, the company has outperformed prospectus forecasts and has continued to grow aggressively through organic acquisitions. All acquisitions are, or have the potential to be, cumulative earnings per share, adding growth to the company in the future.
Galileo Mining (GAL)
The base metals explorer has homes in Western Australia. In early May, GAL announced a major discovery of palladium and platinum, which has since resulted in a soaring share price. The company recently completed a placement at $1.20 per share, with core investments from major shareholders Mark Creasy and IGO Limited. We believe that the company is prepared for a prolonged and uninterrupted period of drilling, testing and results.
BOOK RECOMMENDATIONS
Oz Minerals (OZL)
This copper and nickel company has rejected a conditional and non-binding takeover proposal from the BHP Group at $25 a share. OZL’s board believes that BHP’s proposal significantly undervalues their company. We believe that BHP will have to offer a higher price to achieve this agreement. Or another suitor may emerge and start a bidding war.
CSL (CSL)
The blood product company reported net profit after tax of $2.255 billion in fiscal 2022, down 6% at constant exchange rates from the previous corresponding period. The company forecasts higher net profit after tax of between $2.4 billion and $2.5 billion in constant currency in fiscal 2023. We expect CSL to be able to extract synergies from the recent acquisition of Vifor Pharma. We are also seeing an increase in blood plasma collections after difficult times during COVID-19.
SALES RECOMMENDATIONS
Application (APX)
A challenging operating environment has led this AI data provider to slash underlying unaudited EBITDA by 69% to $8.5 million in the first half of 2022. Weaker digital ad demand and customers reduced their expenses contributed to the reduction. In our opinion, there is too much uncertainty regarding ad spending in the second half.
Commonwealth Bank of Australia (CBA)
Cash earnings of $9.595 billion in fiscal 2022 were up 11 percent over the corresponding period and beat expectations. Fundamentals and loan volume growth remain strong. There is room for a rebound at the margins. However, it remains the most expensive bank in the sector, trading at significantly higher price/earnings multiples compared to its peers. The company’s valuation is behind our recommendation.
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