Collected Wisdom

Recent commentary from the management team at ANZ Bank (ANZ) was relatively cautious. Profit forecasts for all banks are being revised as high commercial bill rates begin to squeeze margins by as much as 25 basis points. As a result, consensus profit forecasts have been reduced by about 2%. Looking across the various departments, personal banking is growing strongly, recording an increase of 13%, while consumer finance is up 12%. The bank’s institutional business remains a disappointment but its overseas operations are beginning to bear fruit; investors with a long-term view are likely to rewarded. The bank’s share price is about 10% off its April highs and closed at $28.42 on Friday, September 7. One particular tip sheet thinks a market retraction will produce good buying opportunities for astute investors. Buy ANZ up to $28.95.

After failing to acquire the $2 billion Bendigo Bank, Bank of Queensland (BOQ) appears to have returned to its strategy of buying smaller operations in the same vein as its Pioneer Building Society and Mackay Building Society acquisitions. Bank of Queensland will pay $600 million for the WA-based Home Building Society (HBE), which represents a 30% premium to the company’s closing price on the day prior to the offer. HBE has a footprint of 29 retail outlets in Perth and regional WA, with about 130,000 customers. The acquisition is not expected to be earnings accretive until 2009. Talk of a larger bank making a play for the Bank of Queensland seems like wishful thinking as the bank remains expensive on price/earnings basis. Investors seeking a safe harbour from the concerns about global credit markets and asset quality should look elsewhere. Reduce your holding in Bank of Queensland.

In times of crisis investors often seek the relative safety of a natural hedge like gold, and since mid-August the gold price has undergone a spectacular rally. Although it is yet to retest its May 2006 high, one tip sheet believes its recent strength is a sign of things to come and investors with a view to the long term are encouraged to look into Newcrest Mining Ltd (NCM), a copper and gold miner with a market capitalisation of more than $8 billion. Investors who have avoided this company in the past may be encouraged to hear that its problems at the Telfer mine in WA are being addressed. Over the past six months Newcrest’s share price has appreciated by as much as 13%, after a very flat six months. Newcrest has 33.2 million ounces in reserve, leading one particular member of the investment press to believe that that this stock still has some way to run. Buy NCM around $24.40.

One stock watcher has run the magnifying glass over Oncard (ONC), a micro-cap loyalty card operator with big plans. One reason Oncard has drawn so much attention is for its top-heavy register, populated by the likes of James Packer, Richard Pratt, former Patrick supremo Peter Scanlon and Rupert Murdoch’s nephew David Calvert-Jones. The company quietly released results last Monday that showed a profit of $1.4 million after delivering a $1.1 million loss in the previous corresponding period. The group has operations in Australia, New Zealand and the United Kingdom but its real focus is mainland China; where it has eight million cards on issue. It plans to grow these numbers by about 20% a year and eventually plans to invest $50–100 million in this particular market. As it stands, the company has about $10 million in the bank, so a capital raising is likely to be on the horizon. After hitting a high of 56¢ on February 26, the stock has retreated to about 35¢. Oncard is a speculative buy at current levels.

Emeco Holdings (EHL) leases earthmoving equipment to mining operations across several countries with its Australian operations its main focus. Investor sentiment has soured since its August 2006 debut at $1.85 and over the past month the stock has been consolidating between $1.27 and $1.41. The company's latest results went some way to rebuilding confidence, with a net profit of $73.6 million, above most analysts’ estimates. Earnings were also stronger, with EBITDA up 53% to $122 million. Operations in Canada were a distinct disappointment, with utilisation rates down as much as 50% on account of bad weather. Further acquisitions aside, the outlook for Emeco is modest. Weakness in the price is likely to enhance corporate appeal with a bid for the company not impossible. This stock is leveraged to the mining industry, highly cyclical and is not suitable for investors who want to “buy right and sit tight”. Emeco Holdings is a speculative buy at current levels.

HealthLinx (HTX) may yet deliver solid returns to braver investors. A spin-off from Melbourne University and the Royal Women’s Hospital, Melbourne, the company is primarily dedicated to drug discovery involving proteins, which include waste products from dairy foods. The company’s core focus is the development of new diagnostic methods for targeted diseases, including ovarian cancer. Results showed revenues of just $330,000, which resulted in a loss of $2.3 million; however, the cash-burn rate was more than halved in the last quarter. Although there is certainly plenty of upside for the more risk-tolerant investor, be warned – it will still need to increase its revenues six-fold to turn a profit. Healthlinx is a speculative buy at current levels.

Greenvale Mining (GRV) is one of two Australian companies that is investigating the possibility of extracting oil from sedimentary rock. The company announced its plans to investigate a new method of oil extraction in 2006. The method will reduce sulphur dioxide emissions by 50%, nitrous oxides by 70% and mercury compounds by as much as 90%. Greenvale Mining has been pretty quiet since then, and after peaking at $1.33 on January 15, 2007, it hit a low of 47¢ on August 28. A recent company announcement about microwave trials due to start in April 2008 breathed a bit of life into the stock, which closed at 60¢ on September 7. Greenvale caught the attention of one stock tipster with an extraordinary track record, yet it must be said that it is a highly speculative opportunity, for risk-tolerant investors only. Greenvale Mining is a speculative buy at current levels.

Watching the directors

Week to September 7

• Outgoing ANZ chief executive John McFarlane has sold down two-thirds of his holdings for more than $50 million. McFarlane sold 1.25 million shares for about $36 million during the bank’s trading window, which began in August 30 and closed on September 10. Separately, he sold $2.5 million worth of stock from his superannuation fund and converted 450,000 options for $12.8 million. McFarlane retains holdings in ANZ valued at about $20 million.
• Penelope Maclagan has purchased $230,000 worth of Computershare (CPU) shares. Maclagan is the sister of Chris Morris, Computershare’s founder and executive chairman. Separately, Morris himself bought $887,000 worth of shares on August 15, and non-executive director Les Owen about $20,000 of shares on August 27.
• Adrianus de Bruin is still buying shares in Auspine (ANE). He picked up another $280,000 this week.
• Mark Foley, a director of BSA Ltd (BSA), has bought $265,000 worth of stock.
• Donald Okeby, a director of Westgold Resources (WGR), has just purchased $1 million worth of stock. This adds to a purchase made a fortnight ago by another director, Peter Cook, who bought $133,000 worth.
• Garry Ash, director of Walter Diversified Services (WDS), has just purchased shares in two transactions.
• Continued buying by Terance Hogan into Venus Resources (VNS). He just bought $100,000 worth of stock.
• Two directors of Uranium Equities (EUQ) have purchased parcels of shares.
• Two directors of Tattersalls (TTS) have purchased shares after a large price fall due to the equine flu problem and its effect on racing.
• Angus Gluskie, a director of Sylvastate (SYL) has bought more than $250,000 worth of stock over the past fortnight.
• GM Hargrave just bought $515,000 worth of shares in Skilled Group (SKE).
• Greg Wheeler, a director of Helix Resources (HLX), has continued buying shares. Another director, Gordon Dunbar, has also purchased a small parcel of shares.
• Three directors of Coventry Group (CYG) have purchased shares.

Previous week

• Kim Robinson of Apex Minerals (AXM) has just bought $390,000 worth of stock. This stock has recently seen a stellar rise to $1.20 and has fallen back with the overall market.
• Former CBA banker Michael Katz just bought $53,000 worth of shares in Everest Babcock & Brown (EBB). This stock is now only half the price it was a month ago.
• Billionaire James Packer just grabbed $500,000 of shares in Ellerston Gems Fund (EGF). This is on top of the $1.1 million worth of shares he bought last week.
• A couple of directors just purchased shares in Energy Ventures (EVE) for around 20¢. The price was over 40¢ in April.
• Terry Streeter of Fox Resources (FXR) just bought $60,000 shares.
• Gerrit de Nys bought $62,000 worth of Horizon Oil (HZN).
• Legend Mining (LEG) has just seen two directors buying shares after a price drop.
• Former Liberal Party leader Andrew Peacock and MFS director Geoffrey Williams just picked up some shares in MFS Ltd (MFS).
• Three directors have just bought into Traffic Technologies (TTI) after a recent large price drop.
• There has been buying by two directors into Virgin Blue Holdings (VBA).

Source: The InsideTrader