Collected Wisdom

This week we look at CSL, UGL, Computershare, David Jones and Cochlear.

Summary: The newsletters are still hooked on blood products group CSL, but are advising investors to disengage from engineering and property services company UGL. Share registry group Computershare is rated a hold, and so is retailer David Jones – despite several stock overhangs – and hearing aid device maker Cochlear.
Key take-out: CSL’s huge global presence and potential continues to make it an investment drawcard, with analysts expecting the blood products group to make its full-year guidance despite its first-half revenue falling short of expectations.
Key beneficiaries: General investors. Category: Shares.

This is an edited summary of the Australian investment press: It includes investment newsletters, major daily newspapers and broker reports. The recommendations offered represent the views published in the other publications and may not represent those of Eureka Report. This article is general advice only which has been prepared without taking into account your objectives, financial situation or needs. Before acting on it you should consider its appropriateness, having regard to your objectives, financial situation and needs.


Most newsletters remain convinced of CSL’s growth potential, despite the blood plasma products company disappointing the market with its half-year results.

Shares in CSL fell 3% to $67.75 – the biggest one-day slide in six months – on Wednesday last week after revenue fell short of expectations, coming in at $2.69 billion for the period when consensus estimates were for $2.77 billion.

But the 3% increase in net profit to $US646 million (with a $US64 million litigation settlement in the US included) should make full-year guidance relatively easy to achieve, analysts note. CSL is guiding for 7% growth in net profit at 2012-13 exchange rates on the previous year.

As a result, buy recommendations heavily outweigh other calls on CSL. The majority of newsletters say that with healthcare demand growing, CSL’s consistent double-digit earnings growth more than justifies its 2013-14 price-earnings multiple of around 21 times. CSL’s huge scale makes it uniquely placed to benefit through cost advantages over peers and expanding earnings margins, they say.

Further, the strong performance from CSL’s specialty products division – led by Kcentra (a coagulant agent) – highlights a healthy research and development pipeline that should keep CSL ahead of its rivals. Specialty product sales jumped 16% to $US403 million for the half-year.

Indeed, the stock has since recovered and sits at $69.71 as of Tuesday’s close.

But there are risks to the stock. One source says CSL is expensive because competition is set to increase this and next year, particularly in the haemophilia and immunoglobulin divisions. CSL’s US-based rival, Baxter, is expecting to get approval to release HyQvia by the middle of the year. The product would compete with CSL’s Hizentra, an immunoglobulin product.

“Competition is vigorous but I believe our philosophy of sustainable continuous improvement in everything we do is fundamental to dealing with these pressures,” chief executive Paul Perreault said in the report.

* According to our value investor partners, StocksInValue, the intrinsic value for CSL is $62.90. To find out more visit

  • Investors are generally advised to buy CSL at current levels.


The majority of newsletters are telling their clients to exit UGL shares, even after the engineering and property services company dived to its lowest point in a decade.

Shares in UGL plunged 12% to $6.23 after the company announced underlying net profit after tax fell 3% to $49.7 million in the first half of 2013-14 compared to the same time last year, while operating revenue increased 7% to $2.2 billion.

The company anticipates underlying net profit will be at the lower end of previous guidance at around $120 million for 2013-14.

Newsletters are deeply split over UGL given how undervalued it appears, but most say to sell the stock given its level of risk.

What was most alarming was weak operating cash flow at just $9 million. That, along with the funds needed to demerge UGL’s property business DTZ from its engineering business, caused the company to abandon its interim dividend.

The balance-sheet risk will continue to weigh on UGL’s share price, one newsletter says. Along with poor cash flow, net debt increased to $641 million in the half and gearing lifted to 35%. This leaves little room for error against UGL’s debt covenant, the source says.

Another newsletter says to avoid UGL while its current strategy to either sell or demerge DTZ by December is in place because setting such a tight time frame won’t maximise value for the shareholders. Further, the demerger may require an equity injection, which one source says could range up to around $160 million.

And while DTZ is performing well in the context of the US-led recovery, UGL’s engineering business continued to be weak with earnings before interest and tax declining 40% to $35.9 million. The sector faces structural headwinds and challenging market conditions should persist in the near term, a newsletter says.

* According to our value investor partners, StocksInValue, the intrinsic value for UGL is under review. To find out more visit

  • Investors are generally advised to sell UGL at current levels.

Computershare (CPU)

On the same day CSL was briefly out of favour, Computershare was soaring to its highest point in almost three years on its half-year results.

Shares in the stock transfer and services company leapt 6.4% to $11.80 – and have since gone higher to $11.90 since yesterday – after announcing net profit surged 47.4% to $US139.4 million for the first six months of 2013-14. Management also upped earnings per share (EPS) guidance for the full-year to be 5-10% greater than 2012-13, compared to previous guidance of up to 5%.

Investors warmed to the upgraded outlook despite Computershare also announcing that chief executive, Stuart Crosby, would stand down after eight years at the company at June 30 this year. He will be replaced by chief investment officer, Stuart Irving.

Though the investment press were surprised by the departure, they believe Irving is an experienced replacement given his more than 15 years with the company in varied roles. They are mostly split between buying and holding Computershare, but more say the company is a hold.

While analysts were impressed with Computershare’s cost-cutting initiatives, which included realising synergies from the recent acquisition of Shareowner Services, several were concerned about Computershare’s flat revenue growth (revenue slid 1.1% in the period).

The key to a re-rating would have to be from revenue growth, one analyst says, given Computershare’s 2013-14 price-earnings multiple has reached 17 times after shares have soared over 20% over the past six months.

This might not occur in the short term, a newsletter says. Though Computershare has built up a competitive advantage from its reputation for efficiency, superior technology and scale, the company’s top-line depends on stronger economic conditions, as this would lead to more corporate activity and higher interest rates.

* According to our value investor partners, StocksInValue, the intrinsic value for Computershare is under review. To find out more visit

  • Investors are generally advised to hold Computershare at current levels.

David Jones (DJS)

The best sales growth in four years for David Jones has outweighed the recent insider trading allegations plaguing the retailer, with most newsletters advising shareholders to stay with the company.

Their recommendations follow David Jones’ second quarter sales figures last week. The company reported sales growth up 4.7% for the period and like-for-like sales returning to positive growth at 2.1%.

Several newsletters say there is upside potential in the stock because of further growth and expansion of the company’s online offering, especially since much of the setup has already been completed. While only contributing 2% to total sales, online sales skyrocketed 150% during the period.

David Jones could also create other income channels by freeing up some of its expensive real estate for specialty retail or commercial development, one newsletter points out.

However, after surging around 38% to $$3.28 since June-lows, David Jones’ price-earnings multiple is looking fully valued at nearly 18 times compared to the department store sector’s 14.9 times.

A good deal of negative sentiment also hangs over the retailer. While a large majority of the newsletters say the stock is a hold, most others are telling their clients to sell. Indeed, when Collected Wisdom wrote about David Jones in October, the consensus was to sell the company.

One reason is they don’t expect David Jones’ sales growth to flow through the bottom line. Its gross margin has been hurt by aggressive discounting in the market before Christmas to stay competitive with Myer and discount department stores, and chief executive Paul Zahra expects this to continue into the second half of the year.

Another is the ongoing management and corporate governance issues. Uncertainty over whether Zahra will stay as chief executive – and for how long – clouds David Jones’ outlook, and the board is absent two directors and a chairman over the implications of buying shares in the company just after a merger proposal from Myer.

* According to our value investor partners, StocksInValue, the intrinsic value for David Jones is $2.25. To find out more visit

  • Investors are generally advised to hold David Jones at current levels.

Cochlear (COH)

Cochlear tumbled 8.9% to $53.68 – its lowest point in eight months – after delivering half-year results and guidance for the full year that fell short of expectations.

The hearing aid device maker announced on Tuesday last week that net profit slumped 73% to $A21 million and forecast it to be between $70-80 million for the second half of the year. This implies a full-year forecast of between $91-100 million – well below the guidance set in October last year for $133 million.

However, the vast majority of the investment press say Cochlear is a hold, up from a sell when Collected Wisdom last looked at the stock. In fact, three upgrades to hold crossed Eureka Report’s desk following the developments.

The consensus is that the worst is behind Cochlear after the company finally obtained approvals and launched new products near the end of the period.

“With the release of the new products, quarter two sales were up over 30% on quarter one,” chief executive Roberts said. “There is sales momentum going into the second half.”

With a meaningful dividend yield (up to 4.6% this financial year), and solid growth prospects in an immature market, the stock is an attractive medium- to long-term story, one newsletter says. Cochlear has built a reputation for technological innovation and reliability, giving it strong competitive advantages over its peers.

But at current levels, most analysts say Cochlear appears fully valued with a 2013-14 price-earnings multiple of 24 times.

Newsletters also agree that some earnings risk remains, particularly from increased competition in the US. Cochlear’s market share in the state was eroded to 60% from historical averages at around 70%.

* According to our value investor partners, StocksInValue, the intrinsic value for Cochlear is $35.84. To find out more visit

  • Investors are generally advised to hold Cochlear at current levels.

Watching the Directors

  • Mint Wireless chief executive Alex Teoh, and executive director Andrew Teoh, offloaded $8.99 million worth of shares in the mobile payment solutions company at 29 cents a share. The brothers, who cut their Mint Wireless stake by 30%, sold the shares to institutional investor Acorn Capital.
  • Elsewhere, executive director Glen Richards slimmed his stake in veterinary clinics chain Greencross by 5%, selling 300,000 shares at $7.80 to net $2.34 million.
  • On the buying side this week, non-executive director Gavin Caudle spent $5 million for almost 28 million shares in Finders Resources. The on-market trade in the copper, gold and silver miner was at 18 cents a share.
Takeover Action February 13-19, 2014
18/02/2014Ampella MiningAMXCentamin48.75
14/02/2014Blackwood CorporationBWDCockatoo Coal90.39Ext to Feb 28
01/11/2013CoalbankCBQLoyal Strategic Investment62.2775% proportional offer
18/02/2014Commonwealth Property Office CPADexus Property & Canada Pension Plan82.77
18/02/2014Continuation InvestmentsCOTDMX Corporation2.33Lapsed
06/11/2013Energia MineralsEMXCauldron Energy0.00Ext to May 1
18/02/2014e-pay AsiaEPYGHL Systems93.42Compulsory acquisition
24/01/2014Genesis ResourcesGESBlumont Group0.00
13/02/2014Jacka ResourcesJKATangiers Petroleum5.27
12/02/2014Keybridge CapitalKBCOceania Capital Partners27.36Closing Feb 21
18/02/2014PaperlinX SPSPXUPaperlinX5.56Offer for all step-up preference securities. Ext to Feb 28
09/02/2014Real Estate CorpRNCLittle Group19.90Pre-bid acceptance
18/02/2014Scott CorporationSCCK & S Corporation85.9075% minimum
13/02/2014Tranzact Financial ServicesTFSGro-Aust97.75Delisted
12/02/2014Warrnambool Cheese & ButterWCBSaputo Inc87.91FIRB clearance. 
18/10/2013Warrnambool Cheese & ButterWCBMurray Goulburn Co-operative Co0.00
Scheme of Arrangement
17/12/2013EnvestraENVAPA Group33.00
Foreshadowed Offers
04/10/2013Billabong InternationalBBGCoastal Capital7.59Post re-financing/equity proposal
19/09/2013Billabong InternationalBBGAltamont Consortium4.00Post re-financing/equity proposal
19/09/2013Billabong InternationalBBGCenterbidge/Oaktree Consortium33.90Post re-financing/equity proposal
Source: NewsBites

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