Collected Wisdom

Seven Network (SEV) has become a cash box since its recent deal with private equity giants Kohlberg Kravis Roberts. Apart from 50% of its TV, magazines and internet assets, it also owns 15% of West Australian Newspapers and $2.2 billion in cash. Analysts suggest that the cash will be used to buy either West Australian Newspapers or Fairfax or both. This offers Seven Network the opportunity to revitalise these assets online. Seven Network has proven itself in this space already with its $10 million Yahoo!7 joint venture, now valued at $590 million. Acquire Seven Network to $11.50, says Huntley's.
After the profit warning delivered by Adelaide Bank last week, it is no surprise that some of the investment press are moving away from second-tier banks. One in particular recommends that you reduce your exposure to Bendigo Bank (BEN). Over the past four months the stock has risen 13% and in the absence of a takeover bid, it is very difficult to justify the prices. Bendigo Bank’s exposure to the drought via its 50% share in Elders Rural Bank and the capital intensive nature of its rollout make this bank a risky proposition. Reduce your holding in Bendigo Bank above $12.80.

The Just Group (JST) story is well known. The company specialises in delivering the latest trends in fashion to stores faster than competitors, has a suite of niche outlets and excess warehouse capacity just begging for bolt-on acquisitions. Sales growth is expected to be slower this year after reinvigorating its womens’ wear offerings last year. High cash flow businesses such as Just Group are very attractive to private equity sharks. Risk-tolerant investors should acquire Just Group to $3.90.

Another newsletter turns its attentions to Rubicon America Trust (RAT). RAT owns a portfolio of quality US properties with quality tenants, including as the US Government. The company has hedged its exposure to exchange rates and offers investors a beneficial tax structure delivering a yield of about 10%. Currently expanding its commercial loan book with acquisitions valued at $US120 million, it is a medium-risk long-term investment. Acquire Rubicon America Trust at around $1.10.

Separately, the strong performance of Macquarie Airports (MAP) means that it is now approaching fair value. Over the past four months Macquarie Airports has risen 14%. With no franking on its 7.7% dividend, it is recommended that you use this opportunity to exit the stock. Reduce your holding in Macquarie Airports above $3.50.

A stock with a similar sized dividend to MAP but offering fully franked dividend is Funtastic Limited (FUN). The toy distributor and publishing company’s shares have been falling since late November 2005 and is viewed by many as a low quality stock. It does, however, have a number of valuable licensing arrangements. With a multiple of about eight times, the stock looks as though it has been oversold. Acquire Funtastic to $1.35.

Speculative gold mining operation Mundo Minerals (MUN) has only been trading for a little over two weeks but it has managed to create quite a stir in that short time, says The Speculator in The Bulletin. Although the stock IPO was heavily oversubscribed, the share price fell after the listing on November 16, from 30¢ to 28.5¢. About four million shares of the 99 million shares issued were dumped on the market in the first two days. However, on November 20 the company announced that one of its largest projects, a gold mine in Brazil, had 54% more reserves than first thought. Acquire Mundo Minerals to 30¢.

Over at The Australian, Zinifex (ZFX) gets fresh attention from The Criterion column. Zinifex is heavily dependent on one mine, which is expected to cease operations in 2015, and yet over the past 12 months the business has tripled in value, from $5.22 on December 1, 2005, to $17.37 on December 1, 2006. But the zinc rally is due for a rest sooner or later and now might be the time to cash out of this company. Sell Zinifex at current levels.

The third-largest grocery retailer and distributor, Metcash (MTS), is slowly realising its aim to become a significant player in a sector dominated by the duopoly of Coles and Woolworths. The Metcash acquisition of Foodland last year has had an impact on its half-year numbers but its market share is growing steadily, from 18% to 19% over the past six months. Long-term investors should acquire Metcash at current levels.

Food products manufacturer Greens Foods (GFD) is to be taken over by a consortium that includes Nestle and CVC Capital. The Greens Foods assets are to be split between the acquiring companies. This is not such a bad result given the history of underperformance from the company. Commenting on the $137 million offer, Greens Foods management said the offer was “very attractive from both a value and timing perspective”. Sell Greens Foods at current levels.

(This is an edited summary of Australia's best-known investment newsletters. The recommendations offered represent the views published in other publications and may not represent the editorial views of Eureka Report.)