Collected Wisdom

This week we look at M2 Group, Vocus Communications, oil and gas player Senex, Brickworks and Nufarm.

Summary: The market is positive about the merger of telcos M2 Group and Vocus Communications, as the combined company could be a stronger competitor to larger players. Analysts warmed to Senex results after an asset sale was seen as helping derisk its Western Surat Gas Project, while analysts welcomed a sturdy result from building materials veteran Brickworks and Nufarm's results prompted a mixed response from the market.

Key take-out: Senex's sale of a gas field in Queensland was welcomed by anaylsts, with four out of five now having a positive outlook on the company.

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.

M2 Group Limited (MTU) and Vocus Communications (VOC)

The big news of the week is the merger of telecommunications companies M2 Group and Vocus Communications. The two are set to combine to make a $3 billion telco.

MTU shareholders will receive 1.625 VOC shares for every MTU share. This represents a 25 per cent premium for MTU shareholders. Analysts are positive about the move which will allow MTU to become more vertically integrated and make for a stronger competitor to the big telcos with the infrastructure that comes with VOC.

Analysts do not expect the ACCC to be an issue. One analyst has also pointed out with VOC as the acquirer it limits the chances of TPG Telecom interfering. It has been commented the merger is one born out of necessity to stay competitive with Telstra and TPG especially post TPG’s acquisition of iiNet.

  • Investors are generally advised to hold M2 Group and buy Vocus Communications at current levels.

Senex Energy Limited (SXY)

The literal translation of Senex in latin is “old man” and this old man of the oil and gas industry is showing some signs of life with analysts after the latest announcement. Last Thursday (September 24) SXY announced  the sale of the Maisey block gas field north of Roma and Wallumbilla in Queensland.

The buyer is the Santos-led GLNG. The group paid $42 million, in addition to providing SXY with technical and operating data for the company’s Roma operations. The move helps SXY to de-risk the Western Surat Gas Project as management head towards the Final Investment Decision.

Analysts have welcomed the de-risking of the project plus the additional cash to help further developments in the Western Surat Gas Project. Out of the five analysts surveyed four had a positive outlook for SXY (albeit one maintainging a high risk rating) and the one that had SXY as a hold admitted to not yet having the time to quantify the extent of this deal.

At the time of writing the company’s share price was $0.152. After the announcement the share price increased by one cent. The average 12-month price target from the analysts sits on $0.26 with the highest case set at $0.36 and the lowest at $0.24. On this basis there still remains material upside in the share price. The lowest 12-month price target implies an upside of 36 per cent from current levels.

  • Investors are generally advised to buy Senex Energy at current levels.

Brickworks Limited (BKW)

Speaking of old men, 81-year old building materials stalwart Brickworks Limited announced its results to the market on Thursday. Earlier this month the brickmaker was also welcomed into the ASX300.

Analysts were in agreement the result was sturdy especially with the strong sales growth in building materials. Sales revenue was $700.9m. This was achieved off the back of sales growth and increased prices. Management has guided to the growth in sales and pricing to continue through FY16.

If there was one negative to be taken away from the result, it was the weaker numbers from BKW’s investment division through the 42.72 per cent shareholding in Washington H. Soul Pattinson (SOL), analysts noted. The investment group contributed $54.6m for the year.

Management also indicated a flat year ahead for the property division, but as one analyst pointed out this division may yet give shareholders an earnings surprise off the back of a sale.

Analysts are in agreement on their hold recommendation, with two downgrading their rating from a buy due to an already strong share price. At the time of writing, BKW was sitting very close to the 12-month target price of $15.56. The most bullish price target sits at $15.80 and the most bearish at $15.06.

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

Nufarm Limited (NUF)

The global developer, producer and distributor of crop protection products announced its results on Wednesday (September 23) with mixed reviews from analysts. In the face of tough market conditions NUF met most analyst estimates but fell short for one or two.

One positive from the result all analysts pointed to was the tightening of the belt by management around costs. Management have so far been successful with the Performance Improvement Plan in an attempt to streamline the business and analysts expect this to continue to pay off in FY16 as well.

The forward-looking consensus among analysts is positive despite market conditions remaining tough globally. With management continuing cost improvements as mentioned above and continued product rationalisation analysts can see further earnings growth to come through in FY16. This sees the majority of analysts maintain their hold call.

The one outlying analyst with a sell call on NUF believes the above mentioned improvements are already factored into the share price and has a 12-month price target of $6.25. Considering the share price was $8.15 at the time of writing, it appears to be well overvalued in their eyes. The average 12-month price target is $7.64 with the most bullish case set at $8.85.

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

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