Collected Wisdom

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.

Brambles (BXB)

The investment press expect a bigger second half of the year for Brambles as the industrial leader capitalises on its recent acquisition and builds on recent earnings momentum.

The first quarter results were softer than several newsletters had anticipated, with sales increasing 6% to $US1.37 billion. The growth was aided in a small degree by the Ferguson acquisition announced in September this year (see Collected Wisdom's last coverage of the stock).

Management also restated guidance for sales growth of 8-9% and underlying profit growth of 9-12% for 2014-15, including the contribution from Ferguson. Brambles' long-term aim is to lift return on invested capital to 20% by 2018-19.

“We remain confident of stronger sales revenue growth for the group in the second half, reflecting our expectation of a continued strong performance in the pallets and RPCs operations and, in containers, the contributions of recent wins and acquisitions,” said chief executive Tom Gorman.

By and large, newsletters agree. On top of contract wins and acquisitions, Brambles' business in emerging markets has a lot of room for improvements after subdued economic conditions in South Africa and wet weather in Mexico harmed growth last year. Emerging markets grew 10-11%, under the 15% levels management had targeted earlier.

Newsletters call Brambles a “buy” with an average 12-month price target of $10.17 and a forecast dividend yield of 3.2% this financial year and 3.5% in 2015-16.

Analysts also upgraded their earnings forecasts on the back of the falling Australian dollar. In 2013-14 Brambles derived around 48% of its revenue from the US, 39% from Europe, 8% from Australia and New Zealand and 5% from emerging markets.

For one newsletter, Brambles is a key pick in the Australian transport sector because of its solid earnings growth prospects over the long term as the emerging markets and two of its businesses – RPCs and containers – mature over time.

* According to our value investor partners, StocksInValue, the intrinsic value for Brambles is $6.08. To find out more visit http://www.stocksinvalue.com.au/

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

Seven West Media (SWM)

Analysts are almost unanimous in their positive outlook for Seven West Media despite the company flagging a softer advertising market for the first half of 2014-15.

At its AGM last week (November 12, 2014), SWM indicated that first-half net profit would be up to 10% below the previous corresponding period due to a flat to slightly negative TV ad market during the year.

Nevertheless, the company said full-year guidance remains in line with market estimates for an 8% decline in net profit after tax as it reduces costs. Costs are now expected to grow around 1%, down from previous guidance of around CPI levels.

With the exception of one publication, each newsletter which crossed Eureka Report's desk rates the stock as a “buy” following the update.

One newsletter describes SWM as a quality company that is likely to strengthen its offering over the coming years via media consolidation as well as by offering more integrated solutions to clients. Current cyclical headwinds provide an opportunity for the patient investor, the newsletter says.

SWM is the preferred traditional media exposure for another publication. The forecast fall in advertising revenue has been offset by the forecast for a higher share of TV revenue for the company, the source says. For 2014-15 it forecasts a 40.5% share revenue forecast for SWM, 39.5% for Nine Entertainment and 20% for Ten Network.

On average, analysts have a 12-month target price of $2.02 on the stock, 18.8% above Friday's close. They also forecast a dividend yield of 6.4% in 2014-15 and 6.7% in 2015-16.

Potential positive catalysts include SWM securing the AFL rights at a reasonable price, a partnership with Foxtel for subscription video on demand (SVOD) and more offshore content sales, according to a newsletter.

* According to our value investor partners, StocksInValue, the intrinsic value for Seven West Media is $1.74. To find out more visit http://www.stocksinvalue.com.au/

• Investors are generally advised to buy Seven West Media at current levels.

Suncorp (SUN)

Suncorp's share price is likely to stay supported thanks to the company's attractive dividend yield and strong outlook for near-term growth, but long-term growth prospects present a challenge, according to the investment press.

The provider of insurance and banking services announced last Monday (November 10, 2014) that total lending for its banking division slipped 0.9% in the first quarter due to “prudent and targeted mortgage lending in a low-rate environment”.

Suncorp Bank's net interest margin lifted to the top of its target range of between 1.75% and 1.85%, while impaired loans fell 15.6%.

“Importantly, we have a strong pipeline of profitable, low-risk lending that has repositioned Suncorp Bank for growth in the December quarter,” said Suncorp Bank chief executive John Nesbitt.

Following the update, newsletters most newsletters call Suncorp a “hold”. While they all believe Suncorp is heading for a strong first half given the higher margins and lower bad and doubtful debts, they question longer-term growth in the face of declining market share.

One newsletter bases its “sell” recommendation on Suncorp missing its group targets for 4-6% growth for 2014-15. Growth is at just 2.1% now with the life insurance division at 5.1%, the banking division at 2.7% and the general insurance division at 1.2%, another newsletter points out.

The bank and life insurance divisions may be demonstrating signs of a recovery, but analysts are concerned they won't be able to fill the earnings gap left by the general insurance division – which is facing pressure.

For now, at least, the share price will be buffered by Suncorp's healthy 7%-plus dividend yield, say analysts.

* According to our value investor partners, StocksInValue, the intrinsic value for Suncorp Group is $11.17. To find out more visit http://www.stocksinvalue.com.au/

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

Scentre Group (SCG)

Expect more asset sales from Scentre Group as the real estate investment trust (REIT) repays debt and funds its development pipeline, say newsletters.

Scentre Group announced earlier this month (November 6, 2014) it is selling down 49% of five of its shopping centres in New Zealand to Singapore sovereign wealth fund GIC for $930 million. A joint venture has been formed over the centres, with Scentre Group keeping management and development rights.

The REIT also announced in a separate statement its third-quarter results, where it confirmed its full-year funds from operations forecast of 10.88 cents per security, with comparable specialty sale stores up 3.7% in the year-to-date.

Shares in Scentre Group have climbed 12.3% to $3.46 since the company debuted on the ASX in late June and 8.5% since Collected Wisdom covered the stock as a “buy” a week later (July 2, 2014).

However, the majority of newsletters now believe Scentre Group has reached fair value and advise their clients to “hold” the stock with an average 12-month target price of $3.57.

Most newsletters believe the sale was attractive at a 4% premium to book value and a capitalisation rate of 6.8%. Scentre Group used the funds to reduce its gearing by 2.1 percentage points to 35.5%. The remainder can be used to redeploy capital from leasing to more accretive development purposes.

Gearing at this level is at the top end of management's target for 30-35%. To lower gearing more as well as improve its portfolio quality and growth prospects, it's likely other non-core assets will be divested, newsletters say.

But others say the premium of the deal was too modest given the current real estate market. They point out the transaction is likely to be slightly dilutive in the near term.

That being said, Scentre Group is well placed to benefit from retail growth in NSW, a publication says, and its yield remains appealing at 6.5% in 2014-15 and 5.9% in 2015-16.

* According to our value investor partners, StocksInValue, the intrinsic value for Scentre Group is under review. To find out more visit http://www.stocksinvalue.com.au/

• Investors are generally advised to hold Scentre Group at current levels.

 Boral (BLD)

Boral faces difficult conditions amid further pricing pressure to its key business, according to the investment press.

The company announced on November 7 at its AGM that while earnings before interest and tax (EBIT) for building products would more than double the $8 million reported in 2013-14, the earnings performance from its much larger business, construction materials and cement, may not be able to live up to forecasts.

“Expectations could be dampened if we are unable to realise potential property sales and some level of price increase in this very competitive market, and if we experience extended periods of adverse weather,” said chief executive Mike Kane.

Overall, Kane said the group's outlook for 2014-15 remains positive as it fills volume shortfalls with improvement initiatives and the property sales. But analysts wonder whether the market will view this as lower quality earnings and look through the figure to the underlying businesses.

Within the construction materials and cement markets, newsletters are concerned strong residential construction activity – particularly in New South Wales – won't be able to completely offset the weakness in roads and engineering activity as well as weaker volumes in Queensland.

Meanwhile the US is performing as expected, analysts say, with the first quarter benefiting from improving volumes in cladding and roofing. However, the next two quarters are anticipated to turn negative on seasonal factors – neutralising beneficial effects from the falling Australian dollar.

Most analysts rate Boral as a “hold” at current share price levels. Boral has climbed 8.2% to $5.16 this year, compared to the 1.9% rise from the S&P/ASX 200 index.

At these prices, the stock trades at a 12-month forward price-earnings multiple of 16.4 times, a slight premium to the 14.9 times from the broader construction materials sector.

* According to our value investor partners, StocksInValue, the intrinsic value for Boral is $3.05. To find out more visit http://www.stocksinvalue.com.au/

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

Directors' trades

• Insurance Australia Group directors were big sellers this week, headed off by managing director Michael Wilkins, who offloaded $4,115,093 worth of shares at $6.507 each. Following him was chief financial officer Nicholas Hawkins, with the sale of $2,929,210 worth of shares, and two other director trades for a more paltry $314,009.
• Elsewhere, chief executive of TFS Corp, Frank Wilson, bought $1,071,300 worth of scrip in the sandalwood plantation company at $1.428 per share.
• Meanwhile, WorleyParsons chief executive, Andrew Wood, topped up his holdings in the mining services company, purchasing 15,000 shares at $12.76 each for a total of $191,400.