Julia Lee, Burman Invest
BlueScope Steel (BSL)
Australia’s largest steel maker is a global leader in coated and painted steel products. Housing is a key driver of steel demand. Detached housing starts in Australia were up 5 per cent in July. Government support for the building industry provides stimulus. Steel spreads appear to have found a bottom in key markets, suggesting an improvement for BSL moving forward.
ALS Limited (ALQ)
ALS Limited is one of the world’s biggest testing companies. Testing minerals and life sciences are core activities. Lead indicators for miners are looking good. Total financing by mining juniors and intermediaries was up 44 per cent in August. In particular, gold exploration is a strong performer. Life science revenue has improved since the first quarter.
The telecommunications giant has remained relatively defensive in a time of great instability. Expect more revenue streams going forward, as the company’s 5G technology attracts new products related to automation and the internet of things. Telstra is a relatively low risk hold at these levels.
Macquarie Group (MQG)
Uncertainty caused by COVID-19 has resulted in a first half downgrade, with profit forecast to fall by 35 per cent. However, this diversified financial services giant has a strong balance sheet, and has proven it can adapt to changing market environments. Macquarie hasn’t provided full year guidance.
Computershare offers mortgage services, employee equity plans and issuer services. A part of its business earns interest on huge cash deposits. The possibility of another interest rate cut in Australia is a concern, as it could impact the company’s outlook. There’s a risk it may struggle to meet full year guidance.
China is a key market for this vitamins and supplements company. COVID-19 has impacted the daigou, or personal shopper trade between Australia and China. In my view, there are also risks surrounding a lack of product registration in China. The company’s reported fiscal year 2020 net profit after tax fell 66 per cent on the prior year to $18.1 million.
David Thang, Sequoia Wealth Management
Flight Centre Travel Group (FLT)
The travel agency is a play on global economies re-opening. It has a strong balance sheet of about $1.1 billion in available liquidity. The company has transformed to an ultra lean cost base in response to the pandemic. The key driver of an earnings recovery is tied to the profitability of the corporate travel business.
Coles Group (COL)
Coles holds a market leading position in the supermarket, liquor and convenience sector. Both operating profit and sales margins have increased. Further, strong sales growth is expected to continue until 2022. A sustainable fully franked dividend yield of about 3.8 per cent is attractive to income investors.
Bravura Solutions (BVS)
This global software products and services provider to the wealth management and funds administration industries enjoys a mostly recurring revenue stream. Typical contract terms are up to 10 years. BVS is in a strong position, with net cash of $100 million. BVS is likely to retain its customer base in the medium term.
Macquarie Group (MQG)
MQG is a diverse financial services business operated by a strong management team. An added bonus is the company’s recent dividend yield of about 3 per cent, which is franked at 40 per cent. A proven performer, and we expect this to continue for the long term. MQG can be considered a core holding in any balanced portfolio.
The A2 Milk Company (A2M)
Falling infant formula sales in September is expected to continue during the first half of fiscal year 2021. The company says disruption to the corporate daigou reseller channel and Victoria’s lockdown are behind the revenue downgrade. The company’s top executives collectively sold millions of shares in August after A2M reported its financial results on August 19. The shares have fallen from $19.49 on August 18 to finish at $14.02 on October 1. From a technical perspective, support is indicated at $12.57 if the bears remain in control in the near term.
Insurance Australia Group (IAG)
The share price of Australia and New Zealand’s biggest general insurer has fallen from $7.58 on January 2 to finish at $4.50 on October 1. Breaching the September 2015 low of $4.84 suggests further downside ahead. A zone of support is indicated around $4.11. In the absence of positive catalysts, we believe the risk remains to the downside.
Peter Moran, Wilsons
The share price of this medical device company has fallen since its quarterly results, most likely due to investor concerns that people have delayed sleep apnoea treatment due to COVID-19. This is despite an increase in ventilator sales. Although the short term impact is uncertain, the company’s underlying business should return to solid growth in the medium term. We retain an overweight rating.
Costa Group Holdings (CGC)
After several difficult years, this fruit and vegetable company is benefiting from more favourable growing conditions. We expect tomato and berry yields to improve in the second half of calendar year 2020. Strong growth in the company’s international division should continue. First half revenue grew 6.8 per cent on the prior corresponding period to $612.4 million. We retain an overweight rating.
This accounting and advice business has a solid balance sheet and is well placed to continue growing over the longer term. However, in our view, the near term is likely to be challenging due to a difficult economic environment and regulatory changes potentially having a negative impact on advice fees and adviser numbers. We retain a market weight rating.
Eagers Automotive (APE)
Recent half year results showed this automotive retail group cut costs, and its truck retailing business is growing. However, in our view, Australia’s new car sales outlook is subdued given a challenging economy. The shares have performed well since July 1 to close at $9.42 on October 1. We retain a market weight rating.
Breville Group (BRG)
This kitchenware company is well managed and offers a quality product range. In our view, the share price is trading at a premium and leaves little or no room for error. Although the company is likely to grow solidly, we find it difficult to justify a price/earnings multiple of around 50 times on October 1. We retain an underweight rating.
Bravura Solutions (BVS)
Bravura is a leading provider of software to the wealth management and funds administration sectors. In our opinion, a most competitive environment makes it increasingly difficult to continue growing profitability to levels that are historically expected. Fiscal year 2021 net profit after tax could be similar to fiscal year 2020, according to a company update in late August. We retain an underweight rating.