Watpac (WTP)

By Jason Fittler

Watpac is a listed construction company and property developer in Queensland.

The company operates across the country, with offices in Brisbane, Townsville, Perth, Adelaide, Sydney, and Melbourne, and an international office in Vietnam.

It consists of the following divisions, Construction, Civil Infrastructure, Mining, Property, and Specialty Services. Watpac spans construction across all of QLD, with an operational base in Townsville. The portfolio includes well-known landmarks such as Suncorp Stadium, Brisbane Cricket Ground and Seaworld Nara Resort.  

WTP's interim result gave no cause for concern, with FY10 guidance provided with the result pointing to strong growth.

We currently forecast FY10 profit of $26.8m and assume no profits from property sales.

The company remains well positioned given its strong balance sheet ($71m in surplus cash), property pipeline (book value $381m) and growing workbook (approx. $1bn with new project wins likely to be announced in the short-term - management indicated at the result there are around $350m in potential near term project wins).

We expect acquisitions will focus on civil businesses with a NSW focus.

In our view, the key swing factors relate to construction margins and timing on property sales. The stock is trading on attractive fundamentals including a PE of 8 times and a 7% fully franked dividend yield. As at 31 December NTA stood at $1.46. We expect little value is being attributed to the group's property book.

For more information on Watpac (WTP) please call us on 07 4771 4577.

Spark Infrastructure (SKI)

By Jason Fittler

SPARK is the CKI/Reef-managed infrastructure vehicle.

The group’s current assets include 49% interests in Victorian electricity networks Powercor and CitiPower, and in South Australian electricity network, ETSA.

SPARK’s objective is to invest in regulated utility infrastructure, both within Australia and overseas. This includes electricity, gas distribution and transmission, regulated water, and sewerage assets, which offer relatively low risk and stable cash flows. This facilitates the payment of relatively predictable distributions to investors and offers the potential for long-term capital growth.

SKI reported a solid interim result, underpinned by steady organic growth and a good performance from unregulated services. SKI continues to exert financial discipline, and we believe funding concerns are overdone.

However, we do concede that the stock is facing some headwinds at the moment. With the market bracing itself for roughly 150-200bp of rate hikes over the next year, market sentiment towards geared defensives like SKI has turned negative.

Throw in uncertainties around funding of capex, and there’s another excuse for investors to stay away. But if the company maintains its discipline, we think it will win back the market’s favour. With CKI also on the acquisition trail, we believe SKI.s 18% FCF yield is one best value acquisitions out there.

The stock is paying a 12% yield with a forecast for this to increase to 13% by 2011.

If you are looking for good blue chip shares paying high dividends (and you should be) make sure you add this to your portfolio. The stock has recently gone ex-dividend making it cheap right now.

By the way you should also see 20% growth in the stock as well.

What more could you want!

For more information on Spark Infrastructure (SKI) please call us on 07 4771 4577.

1300SMILES

By Jason Fittler

1300SMILES is truly a home grown success story.

They have proved over the past 5 years that hard work and sensible approach to business will yield fanatics results.

For those who do not know the company 1300SMILES Limited (ONT, formerly be known as Townsville Family Dental Pty Ltd) provides dental surgeries, practice management and other administrative services to self employed dentists.

It also provides general dentistry services to patients. The services provided by the company allow dentists to focus on the delivery of dental services rather than on the administrative aspects of carrying on their businesses.

In 2009 1300SMILES produce a stellar result, our concern at the time is how will they improve on it. Last week they released their half yearly results up to December 2009 and again exceeded market expectations.

They announced a 15.5 percent increase in net profit before tax to $3.1 million and an 8.6% increase in net profit after tax of $2.3 million, this resulted from a 5 percent increase in revenue. They also announced a 20 percent increase in their dividend to 6.5 cents per share.

This stock is currently trading at $2.85 which is a 5% increase since the results were announced. They are paying a 4.5% fully franked dividend giving the stock a gross yield of 6.4%.

The only question is how long will you wait until you add this stock to your portfolio?

For more information on 1300SMILES please call us on 07 4771 4577.

Newcrest (NCM)

By Jason Fittler

NCM was formed in 1990 from the merger of Newmont Australia and BHP Gold. A significant proportion of NCM's gold production is sold as gold in concentrate and the company benefits from copper credits derived from concentrate sales.

Newcrest's concise strategy is to develop large, long-life operations that are low on the cost curve.

We base our target price on the long-term share price premium of 40% to our NPV for NCM and we raise our target price to A$41.49 from A$41.28ps.

We see potential upside to our earnings forecasts and valuation based on the potential project development pipeline, but we have chosen to take a relatively conservative approach until feasibility studies are completed.

The CFO indicated that NCM finished 2009 with about 0% gearing. Combined with cash flow from existing operations and a US$600m undrawn debt facility, we believe this leaves the company well placed to develop existing mines.

Our modeling of the site costs appears to show that the changes have been gradual and sustainable rather than one-off items. The A$ is having a positive impact on consumable costs but in other areas a small amount of capex on plant appears to be delivering increased throughput and a reduction in tail grades (improved recoveries).

At below $32 Newcrest is a good short term trading buy chasing a 10% bounce or a great long term hold stock look to extract full value if the stock hit $40.

Is Newcrest an opportunity for you? To find out, call us on 4771 4577.

Texon Petroleum (TXN)

By Jason Fittler

TXN is an Australian-based oil and gas Exploration Company with operations located in the Gulf Coast of Texas, USA. The company's key assets include: 7 productive wells; 13 prospects already leased and ready to drill.

Texon’s objective is to expand as a profitable oil and gas producer by initially focusing on the development of the Leighton oil field, in which it now has five wells in production, 14 proved undeveloped locations and 10 probable well locations. It will also test the Mosman and Rockinham prospects where previous drilling indicates the presence of the Olmos reservoir, now producing at Leighton.

It will also evaluate the underlying Eagle Ford shale in the 4,549 acres now leased. Texon intends to farm down other prospects generated under the terms of its exclusive arrangement with Wandoo and Seitel (a seismic-acquisition company).

Texon has access to over 150 3D seismic surveys covering 16,000 square kilometers, and to other surveys acquired by Seitel, extending until 30 April 2014. The 3D seismic surveys are interrogated and the technical characteristics of producing wells are used as analogues to generate prospects in nearby areas. The success rate to date is above 80%.

This is a more speculative stock, but if you are chasing a speculative stock in the energy sector this would be my pick.

PS. For more information on Texon Petroleum (TXN) please call us on 07 4771 4577.

The Top 10 Share Picks in the Market Right Now

By Jason Fittler

Investing for Income – time to let go of your term deposits.

Below are my top 10 share picks in the market right now, some of you may hold some of these shares already. If so continue to hold them as they will produce you a great return, but take a look at the ones not currently in your portfolio and consider if they suit your investment style.

I have also included a PDF of a $100,000 portfolio made of my top 10 picks, in summary the portfolio is spread across the below sector (see pie chart) and will provide growth of 11.6% and income or 8.4% in the coming 12 months. That is a total return of 20% for the year. If you have funds currently sitting in interest bearing deposits you may consider achieving a far superior return through this portfolio. All stock are large blue chips stocks.


10 Ten Stock picks

APA Group (APA) - owns, or has an interest in, over 10,000km of gas transmission pipelines in Australia. APA has a significant presence in all mainland states & territories. Being an infrastructure stocks it is undervalued at present, as such, we should see 6% growth in the stock and a 9.77% gross yield.

Goodman Fielder Limited (GFF) - is Australia's leading listed food company, with a range of grocery products including bread, milk, margarine, dressings, mayonnaise and flour. This is a recession proof stock, currently paying an 8.57% yield and a price target 15% above the current price.

General Property Trust (GPT) - is one of Australia's largest AREITs with total assets of $13.87bn at June 2008, being a stapled security comprising a unit in the trust and a share in the management company. GPT has three inter-linked businesses, each based on investment property, being ownership, development and management with assets in Australia, New Zealand, Europe and the USA. Company has under gone a major restructure over the past 12 months and although we do not expect much growth in the coming years the 6.5% yield will make up for it. It is also a key takeover target with Stockland holding a large holding. Expected take over price is 0.71c. The stock is currently trading at 0.55c.

Healthscope Limited (HSP) - is a provider of hospital and related health services to public and private sectors. This sectors is also recession proof, they have had high occupancy rates in their hospital and a strong cash flow. On a yield of 6.84% and expected growth of 6.9% this is my key pick in the health care sector.

National Australia Bank (NAB) - is a large financial services group providing a comprehensive and integrated range of financial products and services throughout Australia, New Zealand and parts of the United Kingdom. We all know this stock with a yield of 9.21% and growth of 21% buying now makes long term sense.

QBE Insurance Group (QBE) - is a leading provider of general insurance and reinsurance services in Australia, the Pacific, Asia, the Americas and Europe. The Australian General Insurance operation provides insurance cover for both the private and commercial sectors. Again the largest in the sector, currently buying IAG to get a better foot hold in Australia, paying a 6.36% yield and potential growth of 5% it is a must have.

Tabcorp Holdings Limited (TAH)  - offers a wide range of gambling and entertainment products. The stock has re-grouped after losing the betting business in Victoria, now expanding the casino business, paying a whooping 11.33% yield and expected growth of 16% it is a must have.

Telstra Corporation Limited (TLS) - is a provider of telecommunications and information products and services. The principal activities are provision of telephone lines; national local and long distance, and international telephone calls, mobile telecommunications, data, Internet and on-line, wholesale, telephone directories and pay TV. Looks like all of the bad news is out on this stock and we should start to hear some positive news regards the same of clients to the government, in the meantime for the next couple of years you will benefit from a 12.28% yield. That is correct 12.28%; we also expect growth of 16%. Love or hate them Telstra is a stock to have and hold.

United Group Limited (UGL) - is a broad based infrastructure services company engaged in industrial maintenance, manufacturing, engineering and business process outsourcing services for blue chip companies and governments throughout Australia, New Zealand and parts of Asia. This is the stable player in a tough industry, strong cash flow and strong income UGL is paying 6.98% yield and has a price target 22% above the current price.

Woolworths Limited (WOW) - is an Australian retailer whose primary activity is supermarket operations. Other operations include petrol sale through Caltex Woolworths co-branded service stations and Woolworths plus Petrol, liquor, Big W general merchandise stores, and consumer electronics through Dick Smith, PowerHouse and Tandy. Hard to spend money with out Woolworths getting some, this stock is paying 6.03% and has a price target 10% above current levels. Another core portfolio stock that looks cheap.

Make sure you download and read the $100,000 portfolio made up of these stocks so you can witness the benefits of holding them in your portfolio.

Dowload PDF.

If you are interested in any of these stocks now is the time to buy.

For more information please call us on 07 4771 4577.

Healthscope Limited (HSP)

By Jason Fittler

HSP is a provider of hospital and related health services to public and private sectors. These sectors are also recession proof; they have had high occupancy rates in their hospital and a strong cash flow.

The business is broken into two parts being Pathology which provides 25% of revenue and Hospitals which provide the other 75% of revenue.

Pathology - This division contains pathology operations in Australia, Malaysia, Singapore and New Zealand, as well as medical centres/skin clinics. Management stated that first quarter 2010 revenue growth has been above market, and that it believes this growth has been from increasing pathology from HSP’s hospitals as well as growth at the expense of one competitor.

Hospital - HSP’s management has identified greenfield and brownfield opportunities for its Hospitals division. In terms of greenfield opportunities, the Norwest Hospital (NSW) is open, and management commented occupancy was running ahead of plan. We assume an incremental earnings contribution from most of these beds in 2010, with the balance contributing from 2011. In terms of brownfield opportunities, management has identified opportunities to increase bed stock and operating theatres by 10% over the next two to three years (ie, increase beds by about 400, and operating theatres by 20).

Better use of operating theatres for Day surgery will be a major component of ongoing growth at the private hospital level. We believe the development of operating theatres in medical/surgical hospitals is a major driver of revenue and margin growth in HSP’s hospitals. This is because of the ongoing shift to day-only surgical cases, which ensure high turnover of a surgical bed.

The day-surgery component of the private-hospital industry has been growing in line with revenue. Surgical technology and anaesthetic advancements have made surgery possible through smaller incisions and provide better pain-relief regimes after surgery. Both have reduced pain after surgery, allowing patients to leave hospital for home earlier.

On a yield of 6.84% and expected growth of 6.9% this is my key pick in the health care sector.

This is for the investor who is looking for long term growth, high yield and a recession proof industry.

PS. For more information on Healthscope Limited (HSP) please call us on 07 4771 4577.

AGL Energy

By Jason Fittler

AGL is the largest publicly owned natural gas, LPG and electricity utility in Australia and NZ.

The group’s distribution assets include the bulk of the NSW gas networks and the Solaris electricity networks in Victoria. AGL also has investments in wind farms and is in a prime position to benefit from the CPRS (Carbon Pollution Reduction Scheme). Not to be confused with the ETS (Emissions Trading Scheme.)

Ark’s share price has underperformed the market by almost 20% over the last 2 months, reflecting a shift away from more defensive names.

While we would concede that the story lacks some high beta sizzle, but the wind opportunity is not yet priced in by the market and expect this to occur gradually over the next 12 months. Further to this when an ETS comes into Australia AGL is once again in the prime spot to benefit.

Under the ETS, Gas and Wind generators are in favorable positions, this puts AGL on top of the list.

The company is paying a modest dividend of 3.8% partly franked, this is set to grow to 4.66% by 2012. The real excitement is the capital growth, we have a price target of $15.70 on the stock which is 12% above the current price.

However, once an ETS is approved I would expect to see the benefits of the diversafacation within this company.

PS. For more information on AGL Energy please call us on 07 4771 4577.

MAP Airports (MAP, $2.86) Buy

By Jason Fittler

Infrastructure stocks have yet to run, MAP is a key pick in this sector.

They are today showing good results in a tough climate.

The Brussels Airport's declined 1.6% for third quarter 2009 as April's price increase and cost-control measures combined to see earnings outperform traffic declines. With economic conditions improving, we see upside in MAP's share price.

This is a good result given that the second quarter showed a decline of 6.6% and year to date earnings have fallen 9.1% on the pcp. It was driven by moderating traffic declines, a 5.1% increase in aeronautical tariffs in April 2009, improved property revenues and tight operating cost control.

Quarter on quarter revenue declines continue to be better than the recovery in traffic volumes, which highlights the effectiveness of MAP’s responses to the economic downturn.

Traffic declines continue at MAP’s European Airports and the combined impact of price increases, commercial initiatives and tight operating cost control has had limited earnings declines to date.

MAP has strong management, in our view, is highly leveraged to economic recovery, has cA$900m of surplus cash on a balance sheet to provide financial flexibility and is yielding a best-in-sector at 7.3%.

MAP remains our top pick in the sector, with potential upside to our valuation from better-than-expected economic conditions. 

If you would like more information on MAP Airports please call us on 07 4771 4577.

Myer

By Jason Fittler

Myer is the first large blue chip float to lead the Australian market out of this Bear market.

It is always a risk to be the first but the offering from Myer is one to pay attention to. This is a turn around story, but the kicker is that most of the hard work has already been done.

By 2012 this company will be completely transformed. With a new culture and the systems and service to back it up, I expect to see Myer regain market share.

Myer has 65 stores around Australia this will expand to 80 in the near term, with a store in Townsville due to open in 2012.

Annual sales of $3.3 billion and 3.1 million customers in their loyalty program. It is this loyalty program customer which they base their marketing and sales around.

Myers have positioned themselves between the discount department store and the iconic David Jones. As we move into tough times in the average Australian household I expect to see more shoppers look to Myer to maintain the quality of their lifestyle at a lower cost.

The IPO was completed through a book build putting the price somewhere between $3.90 and $4.90 putting the stock on a dividend of between 5.3% to 4.3% fully franked and a PE between 14-17 times. The sell down was for 70% of the existing shares in the company, management and staff would own around 15%, the remaining stock was offered to Myer 1 card holders and firm stock through brokers. There was no offer to the general public.

I do not expect to see the price of this stock rocket off, however, they certainly are set to produce good results in the coming years and the share price should improve in line with their performance. This in my book is a good blue chip stock which will prove sound income and growth over the long term.

The stock will begin trading on the 11th of November 2009, I for one will be keeping a close eye on how they trade and look to buy.

If you would like more information on Myer please call me on 07 4771 4577.