Collected Wisdom

This week we look at OZ Minerals, Ten Network, Mount Gibson Iron, Tabcorp and Federation Centres.

Summary: Newsletters are bullish toward OZ Minerals after the copper and gold miner beat forecasts in its third-quarter report. They say more challenges are ahead for Ten Network as the internet continues to pervade the landscape, though it could be a takeover target. Mount Gibson should survive the sombre outlook for iron ore, further upside for Tabcorp depends on the Spring racing carnival and Federation Centres stock is likely to be supported by its high yield and, they say.

Key take-out: On top of a solid quarterly performance, Oz Minerals has shown its ability to deliver on its promises on time and effectively. The company is the preferred pick in the copper universe for several newsletters.

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.

OZ Minerals (OZL)

OZ Minerals is on track to beat its production guidance for 2014 after an exceptional September quarter, according to the investment press.

The copper and gold miner released its third-quarter report last Tuesday (October 14, 2014), where copper production for the period was 26,249 tonnes and gold output was 47,400 ounces –comfortably ahead of most analysts’ estimates.

Shares in OZ Minerals rose 7.6% to $3.95 on the day. They have now climbed 26% this year.

As with Collected Wisdom’s last coverage of OZ Minerals in July, newsletters are divided between “buy” or “hold” calls on the stock following the update. However, most advise their clients to buy the stock at current levels with a 12-month price target of $4.80.

Newsletters which are less convinced over the stock’s potential say Oz Minerals’ valuation is constrained by short open pit mine life and questionable economics for underground mining at Prominent Hill and at Carrapateena. Prominent Hill is currently in the open pit phase, while Carrapateena has just had its pre-feasibility study (PFS) completed.

But OZ Minerals is the preferred pick in the copper universe for a number of newsletters. They say the company has sharpened its cost focus and is well placed to beat its full-year production guidance of 85,000-90,000 tonnes of copper and 130,000-140,000 ounces of gold.

On top of the solid production performance, newsletters highlight that OZ Minerals has delivered on other milestones during the quarter. These include the announcement of its new chief executive, Rio Tinto veteran Andrew Cole (who will begin in December), the commencement of Malu Underground in October and the completion of the Carrapateena PFS.

Carrapateena appears to be a globally competitive project and will attract a partner, believe analysts. Indeed, multiple partners continue to conduct due diligence since the release of the PFS.

* According to our value investor partners, StocksInValue, the intrinsic value for OZ Minerals is $2.21. To find out more visit

  • Investors are generally advised to buy Oz Minerals at current levels.

Ten Network Holdings (TEN)

Shares in Ten Network received their biggest two-day rise in two years last week despite the television broadcaster posting a full-year loss wider than analysts had predicted.

The company announced last Thursday (October 16, 2014) a full-year net loss of $115.4 million, far worse than its $5 million loss last year and consensus forecasts for a loss of $75.8 million. Television revenue declined 4.2% to $601.7 million.

Ten shares climbed 5.3% to 20 cents on the day, up from their record low of 19 cents. Since then they have climbed 10% to today's close of 22 cents as the media speculated that the distressed company could be in the crosshairs as a takeover target. Even after the gains the stock has dropped 19.6% this year.

Newsletters are more mixed over Ten’s outlook compared to when Collected Wisdom last covered the company as a "sell" at 26.5 cents per share. Now the majority advise their clients to “hold” the stock at current levels.

Newsletters that upgraded their recommendations since then say Ten will benefit from its reduced costs in 2014-15 – guided at 8% lower compared to the previous year ex-selling costs – but most believe it won’t be enough to turn a profit and that cash flow will remain negative.

What's crucial to the outlook for Ten over the next 12 months is whether the company can garner a M&A deal, as well as potential changes to media laws, analysts say.

“Australian companies that are stymied by the current laws should not be expected to keep waiting for reform, while the online giants continue to operate in a largely unregulated landscape,” said chief executive Hamish McLennan.

However, some analysts question Ten’s ability to dislodge the 81% market share from Nine and Seven. The two networks deliver advertisers the compelling combination of consistent ratings success and the ability to cross-promote and bundle packages through multiple platforms, they say.

They also believe audiences will continue to fragment as online content grows. Faster and cheaper internet will allow international competitors, such as Netflix, to come into the market and offer content directly to Australians.

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

  • Investors are generally advised to hold Ten Network Holdings at current levels.

Mount Gibson Iron (MGX)

Strong September quarterly results and signs of life in the iron ore price combined to lift Mount Gibson Iron shares the most in two years last Wednesday.

The stock soared 18% to 52.5 cents on the day the iron ore miner announced it was on track to meet its full-year production guidance of 6.6 to 7 million tonnes of iron ore in 2014-15 and the iron ore price leapt 4% to around $US83 a tonne.

However, it must be said that even after the share price boost the stock remains 25% lower than two months ago when the iron ore price was trading around $US90 a tonne.

By and large, newsletters rate Mount Gibson Iron (MGX) a “hold” after the developments. They say the company has flexibility in the depressed iron ore price environment thanks to its cash holdings of $465 million, its cost reduction strategy and its higher grade deposits.

“Importantly, Mount Gibson was partially buffered against this price decline by the comparatively high grade and quality of our product mix,” said chief executive Jim Beyer.

Mount Gibson’s yield of 7.2% should also provide some support, analysts say. And given the stock is highly correlated to the iron ore price, steel mills in China looking to restock ahead of winter could offer a short-term opportunity.

But while Mount Gibson is likely to survive and is more attractive than the junior iron ore miners, newsletters believe it will be difficult for the midcap company to prosper over the long term when the majors – BHP, Vale and Rio Tinto – have significant capital and operating cost advantages.

Mount Gibson’s short mine life of about six years based on current reserves also concerns the investment press.

* According to our value investor partners, StocksInValue, the intrinsic value for Mount Gibson Iron is $0.46. To find out more visit

  • Investors are generally advised to hold Mount Gibson Iron at current levels.

Tabcorp (TAH)

Tabcorp shares jumped 3.7% to $3.61 last week as the betting and wagering company posted better-than-expected first quarter results.

Group revenue grew 6.6% to $537.4 million for the three months to September 30, primarily driven by an 8% increase in wagering revenues to $415.9 million.

While two newsletters upgraded their recommendations to “buy” after the results, most newsletters are more conservative and consensus is to “hold” the stock.

The result was undeniably good, but several analysts question whether Tabcorp can keep the momentum running throughout 2014-15. They caution their clients not to read too much into quarterly results.

Newsletters point out wagering revenues in the first quarter benefited from the soccer World Cup. Focus will now turn to the spring racing carnival – a critical point for Tabcorp – where race field costs are rising.

That being said, the World Cup was only incremental to the boost in wagering revenues, and newsletters agree with management that the strategy to attract new customers to its digital offerings is working.

“In wagering, our investment in recent years in high growth areas such as digital and fixed odds is paying off,” said chief executive David Attenborough.

The wagering division should also be aided in the second half of 2014-15 by the acquisition of ACTTAB, one newsletter says. Tabcorp completed the $105 million acquisition ACT’s gaming business last week after the ACCC granted approval.

With a price-earnings (P/E) multiple of 17 times on a one-year forward basis, however, newsletters say the share price appears to reflect fair value at current levels.

* According to our value investor partners, StocksInValue, the intrinsic value for Tabcorp is $2.16. To find out more visit

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

Federation Centres (FDC)

Recent property purchases from Federation Centres have generated a mixed response from the newsletters.

The real estate investment trust (REIT) announced two weeks ago (October 7, 2014) that it acquired a 25% stake in the Mt Ommaney shopping centre in regional Brisbane for $104.6 million in a co-ownership agreement with TIAA Henderson Real Estate.

TIAA will own 75% of the shopping centre and will the rest of the total purchase price of $416.15 million. Federation Centres will manage the centre.

In a separate transaction, Federation Centres purchased a 50% stake in Mornington convenience centre Bentons Square for $38 million, with the option to acquire the other half before July 2016.

One newsletter questions the merit of buying property in the current environment. Though the acquisitions will most likely be earnings accretive, and Federation Centres can easily fund them thanks to its asset disposals in recent years along with record low borrowing rates, commercial property appears expensive at this time.

But another says the REIT has taken the opportunity to improve the quality of its property portfolio while also introducing new capital partners to the business. Indeed, the two newsletters agree that with TIAA Henderson’s property portfolio of more than $18 billion, the transaction bodes well for more growth in funds under management.

Despite the differences, most newsletters call Federation Centres a “hold” at current levels. The REIT’s high yield of 6.7% this financial year will support the stock, they say.

* According to our value investor partners, StocksInValue, the intrinsic value for Federation Centres is $1.48. To find out more visit

Investors are generally advised to hold Federation Centres at current levels.

Directors’ trades

  • This week the Lowys dominated proceedings by lifting their stake in Westfield Corporation to 9.5% from 8.4%. They bought $177,338,459 worth of scrip at $7.46 a share in the shopping centre company.
  • Meanwhile, Primary Health Care managing director, Edmund Bateman, snapped up 530,000 shares in the medical centre operator at $4.158 each for a total of $2,203,600.
  • On the selling side, a founding group led by directors Patrick Grove and Lucas Elliott offloaded 25% of its stake in iProperty Group for $26,300,000 million. The trade was at 2.63 a share.
  • Elsewhere, executive director Mark McInnes sold $4,000,000 worth of shares in retailer Premier Investments at $10 per share.

Takeover Action October 14-20, 2014

15/10/2014Cape AluminaCBXMetroCoal66.57
09/09/2014Clinuvel PharmaceuticalsCUVRetrophin7.80
18/08/2014Genesis ResourcesGESBlumont Group5.81
04/09/2014Gondwana ResourcesGDAOchre Group Holdings18.23
25/08/2014Merlin DiamondsMEDBlumont Group13.19
25/09/2014Neon EnergyNENEvoworld Corporation19.99Unsolicited proportional bid
17/10/2014Noni BNBLAlceon Group53.60
15/10/2014Reef Casino TrustRCTAquis Casino Acquisitions 81.31
17/10/2014Robust ResourcesROLStanhill Capital Partners & Droxford International83.88
17/10/2014Roc Oil CompanyROCFosun International50.79
Schemes of Arrangement
06/10/2014Crowe Horwath AustralasiaCRHFindex Australia0.00Vote December
08/09/2014Goodman FielderGFFWilmar International and First Pacific Company10.10Vote Q1, 2015
28/08/2014Intrepid MinesIAUBlackthorn Resources0.00Vote November
Foreshadowed Offers
21/07/2014Antares EnergyAZZUnnamed party0.00Indicative proposal
08/08/2014Gondwana ResourcesGDAUnnamed party0.00Indicative proposal
25/09/2014Guildford CoalGUFSino Construction0.00Intends to make bid
13/10/2014Orbis GoldOBSSEMAFO0.00Indicative proposal
13/05/2014PanAustPNAGuangdong Rising Assets Management23.00Indicative proposal
07/07/2014Ten Network HoldingsTENPrivate equity firms0.00Media speculation
20/10/2014Transfield ServicesTSEFerrovial Servicios0.00Indicative proposal
25/06/2014WorleyParsonsWORUnnamed party0.00Media speculation
Source: Newsbites

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