Collected Wisdom

This week: DuluxGroup, IOOF, James Hardie and JB Hi-Fi.

Summary: Analysts see Dulux as a hold under the belief that sound home improvement numbers are priced in, while IOOF is a buy consensus. Meanwhile, future share buybacks at James Hardie pleased analysts.

Key take out: A material increase in share price at JB Hi-Fi saw many analysts move it to a hold - however, our comrades at Intelligent Investor have a different view and have listed the stock as 'avoid'.

Key beneficiaries: General investors.  Category: Economy.

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.

IOOF Holdings Limited (IFL)

IOOF last week announced a teaser to its upcoming half yearly numbers, the result of which sent the share price from around $9 to as low as $8.03. The reason for this? The numbers are flat. It appears net profit, funds under advice revenues and margins are all broadly in line with last years half year results.

Management commented, despite the business still being profitable it is impacted by the ebbs and flows of markets. The fact a financial services and advice company has is impacted by softer markets has surprised few analysts many of which believe the stock is undervalued by the market and believe growth can be obtained through cost outs. 

The quick decline in the share price only reaffirmed many analysts buy calls including the Intelligent Investor team who have a buy call on IOOF below $9. At the time of writing the stock was trading at $8.30. The consensus 12 month price target from all analysts surveyed was $8.83.

Investors are generally advised to buy IOOF Holdings Limited at current levels.

DuluxGroup Limited (DLX)

Last week the paint producer released its half-year results – and it was another solid performance from the provider of many DIY nightmare. Profit was up 3.7 per cent on this time last year and the interim dividend rose by 4.5 per cent to 11.5 cents per share.

The numbers were in line with analyst expectations. The main stories coming from the result were the growth in paints and coatings increasing by five per cent on the prior corresponding period in the face of more competition.

Management also highlighted the home improvement market is sound despite admitting new housing has peaked. This is the main reason for the few sell calls out there from analysts. Management countered this by saying there was a solid pipeline of work due to the lag between approvals and commencements, additionally the renovation market remains strong.

Currently DuluxGroup remains a hold with many analysts of the impression the high quality of the business is currently priced in. Currently the average 12 month price target sits at $6.27 and this is right in line with our comrades at Intelligent Investor who have a hold call on DuluxGroup with a buy on it below $4.

Investors are generally advised to hold DuluxGroup Limited at current levels.

James Hardie Industries (JHX)

The dual listed building materials manufacturer released its annual report on Friday (May 20). The result was broadly in line with analyst expectations. Net profit increased by 10 per cent on last year’s result, to $243m, with North American and European Fibre Cement for the year up nine per cent to $1.4bn for the full year.

Management commented they expect to see moderate growth in the US housing market for FY17 and are anticipating earnings margins to be at the higher end of 20-25 per cent.

For analysts the most pleasing highlight of the announcement was further share buybacks to the tune of $US100m over the next 12 months, which they expect will give the market a reason for further confidence.

The consensus is just in hold territory. There is a fair contingent in the buy camp but the holds win out in the end. Intelligent Investor’s call is also sitting in the hold camp. The current average 12 month price target sits at $19.48 with the share price at $19.77 at the time of writing.

Investors are generally advised to hold James Hardie Industries at current levels.

JB Hi-Fi Limited (JBH)

After some media speculation, JB Hi-Fi confirmed it was holding preliminary discussions with retailer The Good Guys. In a short statement JBH management said there was nothing further to read into this as The Good Guys management are looking at a number of options.

Commentators speculated The Good Guys could be a natural fit for JB Hi-Fi Home. Despite the speculation a handful of analysts have downgraded the successful retailer to a hold based on the material increase in share price from its low of $17.13 in November last year. That low was brought on by the fears of heavy product discounting at Dick Smith, which turned out to be false.

The downgrades are purely price related in the eyes of the analysts. Currently the 12 month average price target sits at $24.07 with the share price (at the time of writing) sitting at $23.69. The team at Intelligent Investor have a different long term view and have labelled JBH as an avoid, given the structural challenges the business faces as it looks to potentially transition into a retailer of white goods among other items.

Note: as of today (May 23) it has been reported The Good Guys are moving towards an IPO and have appointed Credit Suisse, Goldman Sachs and UBS as joint managers. However, this does not 100 per cent rule out a takeover by JBH.

Investors are generally advised to hold JB Hi-Fi Limited at current levels.

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