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.

OZ Minerals Limited (OZL)

Last Friday (October 23) copper miner OZ Minerals released its September quarterly update. The update focused predominantly on the Prominent Hill operation, which in OZL chief executive Andrew Cole's words is having a “very strong year... we are now confident that we will exceed our original production guidance target”.

Located 650km north west of Adelaide, Prominent Hill was the highlight. It produced 33,518 tonnes for the quarter, up from the previous quarter by 527 tonnes. This brings the total YTD to 97,669 tonnes. This has beaten consensus estimates and has seen a number of analysts upgrade their rating. OZL has increased its FY16 guidance by 9-15 per cent with analysts anticipating the company to come in at the upper level of this estimate.

Even though the numbers received a warm reception, analysts did point out three areas of concern. These are the soft outlook for copper prices, the potential for smaller acquisitions higher on the risk curve and sustainability – as one analyst pointed out higher grades of copper had been brought forward to the potential detriment of production in future years.

The average 12-month price target for OZL is $4.67 with the share price at the time of writing sitting at $4.42. The most bullish analyst has their price target set at $6 and the most bearish is down at $4.05.

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

BlueScope Steel Limited (BSL)

The steel maker continues to enjoy a resurgence with two announcements earlier this week (October 26). One was regarding further cost outs to the Port Kembla facility and the other was about the acquisition of the other half of North Star BlueScope Steel LLC.   

BlueScope will pay $US720 million for the other 50 per cent of North Star to current owner Cargill. The acquisition will be debt funded. Analysts believe the move makes sense as North Star is a high quality asset which has been generating cash and is consistently profitable.  

BlueScope announced further cost outs from Port Kembla to the tune of $200m by FY17. Analysts are impressed by the resilience of the facility and given global steel production globally is struggling the increase in guidance is impressive. First half earnings guidance has increased by $50m.

Analysts remain positive on the stock despite its recent share price run. The average 12-month target price among them is $5.11 with the current price at $4.51.

• Investors are generally advised to buy BlueScope Steel at current levels.

Wesfarmers Limited (WES)

Wesfarmers came out with its results last week and produced another strong set of numbers. One analyst even called it “a cracker”. Sales for Kmart and Target in particular were strong while Bunnings delivered double digit sales growth for the 10th consecutive quarter.

While all of this is incredibly pleasing to the analysts the consensus remains a hold for WES for several reasons. Analysts commented the strong sales numbers were due in part to the struggles of competitors (Woolworths and Big W). They also note Masters is still an unknown variable for Bunnings. Food deflation is accelerating and is expected to hit Coles with profit growth anticipated to slow.

The major reason though for the analyst consensus being a hold is the current share price. The average 12-month price target sits at $43.31 while the share price is currently $41.89, showing minimal upside.

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

Super Retail Group (SUL)

On October 21 (Wednesday), Super Retail Group (SUL) provided the market with a trading update for the 16 weeks to October 17, 2015. Like for like sales growth was 3 per cent, 5 per cent and 5 per cent in the auto, leisure and sports divisions respectively, with total growth for the three segments coming in at 5 per cent, 65 per cent and 7 per cent respectively.

Pleasingly, margins appear to be strong in auto and sports, but lower in leisure. Generally speaking analysts felt that this was a solid update, with many forecasts and buy calls remaining unchanged. Analysts have noted currency headwinds could provide for some risk ahead and have flagged that the re-positioning of Ray's Outdoors will not be an easy fix.

The 12-month average price target is $10.41 suggesting some upside to the current price which at the time of writing was $9.65. The most bullish of analysts has set their target at $11.30 while the lowest comes in at $8.75.

• Investors are generally advised to buy Super Retail Group at current levels.