Collected Wisdom

This is an edited summary of Australia's best-known investment newsletters and major daily newspapers. The recommendations offered represent the views published in other publications and may not represent those of Eureka Report.
Whether or not BHP Billiton (BHP) ends up with Rio Tinto (RIO), both companies are ripe for accumulation, stock pickers say. The Australian Competition & Consumer Commission (ACCC) has decided not to oppose the takeover, and although there are many other boxes to tick – approval from European Union and South African regulators especially – one newsletter reckons both BHP Billiton and Rio Tinto should be snapped up at today’s reasonably low prices.

Some have questioned whether the credit crunch and slowing commodity demand will scuttle the $US120 billion bid, but Rio Tinto chief executive Tom Albanese said last week he expects Chinese demand to remain robust, and metals prices to be higher than the historical average next year.

Rio has been trading at a significant discount to BHP’s 3.4 for 1 share offer for a while; on Friday it closed at $88.91, not far off its one-year low of $84.50. In May it was trading above $150. BHP Billiton, meanwhile, is trading just above $30, having reached almost $50 in May.

While Rio is maintaining that BHP’s bid “manifestly undervalues” it, others believe that if the key regulators clear the takeover and Rio continues to trade at a significant discount to the bid, Rio may be unsuccessful in convincing shareholders it is better left as a standalone entity. In any event, regardless of whether you are bullish or bearish on the short to medium-term future of commodities, the share prices of both mining giants have cooled dramatically from the heat of 2007-08 and will be well-placed to take advantage of any upturn. Investors are advised to buy Rio and BHP at current prices.

Now to Rio Tinto subsidiary, uranium producer Energy Resources Australia (ERA). ERA’s recent half-year results showed it had sold uranium at an average of $US35.69 a pound, up from $US16.90 the previous year. But there was concern over lower sales volumes, with uranium oxide production falling 6% to 2357 tonnes and tonnes sold dropping 21% to 1746 tonnes. Analysts have generally lifted their earnings per share (EPS) targets for ERA, some quite dramatically. The company has agreed to sell its first cargo to China, and is seen as likely to benefit from strong energy demands and the environmental push towards nuclear energy. Trading at $16.06, slightly above its 52-week low of $14.10, ERA is a buy at current prices.

Suncorp-Metway (SUN) has had a rough 2008; so rough in fact the vultures are circling. On that basis, investors who don’t mind a bit of volatility may look at buying the Queensland insurer and bank in order to capitalise on a weakened share price and a prospective takeover battle. Suncorp is tight-lipped on reports its assets are being targeted by groups such as QBE and Commonwealth Bank, but chief executive John Mulcahy has said if “there were better value for it [assets] in someone else’s hands and we could get that value crystallised, then we would optimise shareholder value”. And despite paying more for funds as a single A-rated bank, Mulcahy reckons customers are prepared to pay for better services and has rejected analyst talk that Suncorp needs to boost its provisioning levels by $350 million. While stock pickers acknowledge Suncorp-Metway to be a medium-risk buy, at $11.31 (intraday Monday) it is trading well below some price targets. Investors with a decent risk appetite are advised to buy Suncorp at current prices. (To read more about Suncorp see today's Takeover Diary).

It seems when heavily indebted PBL Media sneezes, minority shareholder Consolidated Media Holdings (CMJ) catches a cold. Consolidated Media shares dived recently when PBL, which has about $4.2 billion in debt, said it would build a printing facility for its ACP Magazines unit. Consolidated Media – which has a 25% interest in Foxtel, a 50% interest in sports producer and broadcaster Premier Media Group, a 26.7% interest in online news site Seek, and a 25% stake in PBL Media (which holds Nine Network and ACP Magazines) – recently posted a pro-forma net profit of $105 million for the year to June 30. But the result may have been tempered somewhat by news of executive chairman John Alexander receiving a $15 million one-off payment following the demerger of Publishing and Broadcasting Ltd (PBL). Good work if you can get it!

An interesting tidbit is that Commonwealth Bank (and its subsidiaries) have emerged once more as a substantial shareholder in Consolidated Media, with just over 5% taken late last month. Perpetual Investments has also upped its stake from 6.8% to 7.9%. Fascinating timing: shares have more than halved since the beginning of the year, having started the year at $4.28, they lost 30¢ last week to close on Friday at $2.22. One stock picker has cut its 2009 financial year forecast earnings by 7%, and was less than enthusiastic about Consolidated Media’s disclosure record. Besides troubles at PBL, Consolidated Media must also contend with an anaemic advertising market and the realisation that another takeover bid is less likely to emerge. Despite these concerns, Consolidated Media is still trading well below a reduced target price and retains the confidence of heavy hitters. Investors with a medium-sized risk appetite are advised to buy Consolidated Media at current prices.

CBH Resources’ (CBH) bid for Perilya (PEM) has turned hostile, but no matter: investors are advised to get out. After Perilya left the groom at the altar in May, the base-metal producers have been battling lower zinc and lead prices, as well as difficult markets. CBH is now offering 2.8 of its shares for each Perilya share, provided Chalice Gold Mines buys Perilya's Mt Oxide copper and cobalt project in Mt Isa. If not, the offer is 4.2 CBH shares for 1 Perilya share. The groups share a Broken Hill focus and one stock picker reckons the proposed takeover would lead to a reduction in costs of about 20% and $75 million in synergies. But stock pickers don’t have much faith in CBH at this stage. Awaiting battle, investors are advised to sell CBH.

How have stock pickers responded to Lend Lease (LLC) upping its stake in Babcock & Brown Communities (BBC) to 41%? They’re not too fussed. The purchase will cost Lend Lease $236.8 million, with chief executive Greg Clarke saying the developer would not seek out further investment opportunities in the short term. The company also reiterated its guidance for a 10–15% drop in net operating profit in 2008-09 from $447.1 million in 2007-08. Currently trading at $9.44, one stock picker reckons Lend Lease has long-term appeal and is likely to rise in the future, but perhaps not as much as expected. Nonetheless, investors are advised to hold Lend Lease at current prices.

Watching the directors

Week to October 3

• Gordon Cairns, the former chief executive of trans-Tasman brewer Lion Nathan has been picking up more stock in the gas sector. Cairns, who is also a director of Westpac Banking Corporation, on October 1 directly bought 12,000 shares worth $198,000 on-market in Origin Energy (ORG). Origin Energy has been one of the most successful stocks in the local energy sector following its recent decision to ignore a takeover bid from British Gas and sign a joint venture with ConocoPhillips.
• Macarthur Cook (MCK) director Craig Mathew Dunstan indirectly bought 1900 shares at 55¢ on-market on October 3 in the property and mortgage funds manager. This follows earlier purchases of 7360 shares at 50¢ in September and 16,111 shares at 65¢ in June.
• $1.2 million worth of shares purchased by Alan Rydge of media group Amalgamated Holdings (AHD). This is in addition to a parcel of shares purchased last week by Richard Norton, another director.
• Craig Coleman, a director of Bell Financial Group (BFG), has purchased two parcels of shares worth $100,000. Bell Financial Group has recently taken over Southern Cross Equities.
• More buying by Bow Energy (BOW) directors. Nicholas Mather indirectly bought 277,000 shares in the oil and gas explorer worth $102,496 on-market on October 1, following a purchase of 68,000 shares for $19,444 on September 23. Managing director Ron Prefontaine bought 50,000 shares worth $13,272 on-market on September 23.
• Meanwhile, Sunshine Gas (SHG) director Peter John Slaughter indirectly sold 10,000 shares worth $24,563 off-market via acceptance of the Queensland Gas Company (QGC) takeover offer on September 29. This follows SHG non-executive chairman James McKay selling 1.3 million shares for $3.9 million, executive director Anthony Gilby selling12.9 million for $37.57 million, and director James Hudleston selling 2.6 million for $7.58 million in September.
• More buying by directors of wholesale brands group Alesco Corporation (ALS).
• Two directors of dual-listed Equinox Minerals (EQN) have been buying stock.
• Buying by Graham Burns and Keith Fagg of industrial group Envirozel (EVZ).
• Buying by David Reed of gold explorer Reed Resources (RDR).
• More buying by Philip John Salter of customer communication group Salmat (SLM).

Previous week

• The founder and long-time supremo of Computershare (CPU), Christopher Morris, has been selling shares again. The offloading by Morris, who now serves as executive chairman at the share services group, first came to attention on August 19 and 20, when he sold 612,468 shares for $5.5 million through Finico Pty Ltd, in which he has a controlling interest. Morris has now followed up those earlier sales when he indirectly sold 33,385 shares for $301,800 on-market on September 17. Meanwhile, another long time Computershare director, Penelope Maclagan, sold 227,389 shares for $2,054,931 on-market between September 17 and 22. Morris and his directors recently surprised analysts in August when the group bought UK voucher business Busy Bees Childcare Vouchers from ABC Learning Centres for £90 million. Shares in the Computershare group have fallen from $9.85 to $9.01 since the start of the year.
• Over $1.4 million worth of stock purchased by Arrow Energy (AOE) director Nicholas Davies.
• Babcock & Brown Wind Partners (BBW) director Warren David Murphy sold 2.3 million shares for $2.16 million on market between September 16 and 18. He indirectly holds 150,351 stapled securities.
• Buru Energy (BRU) director Graham Riley indirectly bought 502,746 shares worth $158,502 on-market between September 19 and 23. Buru Energy is a newly listed petroleum explorer, formed from the ARC Energy/Australian Worldwide Exploration merger.
• Buying from Fortescue Metals Group (FMG) directors.
• Chris Mackay, a director of the Magellan Flagship Fund (MFF), has purchased another $150,000 of stock this week.
• QBE Insurance Group (QBE) director Francis Michael O'Halloran acquired 29,124 shares and 2668 rights under a dividend election plan and sold 100,000 shares on market.
• Two directors of PrimeAg Australia (PAG) have purchased parcels of shares this week.
• Three directors of Gunns (GNS) have purchased parcels of shares through September.
• Philip John Salter, a director of customer communication group Salmat (SLM), indirectly bought 15,875 shares worth $50,006 on-market.

nRecent directors' trades worth more than $200,000
Date	Code	Director	Quantity	Price	Total	Action
25/09/08	AHD	Alan Rydge	275,000	4.65	$1,278,750	BUY
25/09/08	DUI	Anthony Burgess	85,000	3.199	$271,875	BUY
23/09/08	PAG	David Trebeck	175,000	1.416	$247,793	BUY
23/09/08	NHC	Robert Millner	100,000	4.458	$445,824	BUY
22/09/08	TFC	Frank Wilson	250,000	1.15	$287,500	BUY
19/09/08	TJN	Troy Harry	366,600	0.65	$239,000	BUY
17/09/08	AOE	Nicholas Davies	500,000	2.868	$1,433,750	BUY
17/09/08	PRT	Paul Ramsay	500,000	1.38	$689,970	BUY
16/09/08	PRT	Paul Ramsay	500,000	2.35	$1,175,000	BUY
15/09/08	CAB	Reginald Kermode	50,000	6.69	$334,500	BUY
15/09/08	MRE	Various	800,000	1.2	$895,600	BUY
12/09/08	WIG	Steven Wilson	630,000	1.2	$756,000	BUY
12/09/08	SDG	John Leaver	178,150	2.31	$411,527	BUY
11/09/08	BBI	Leigh Hall	550,000	0.416	$229,000	BUY
11/09/08	ASL	Ronald Sayers	8,300,000	2.5	$20,747,510	BUY
10/09/08	MFF	Chris Mackay	423,112	0.655	$277,254	BUY
08/09/08	PNA	Garry Hounsell	500,000	0.702	$350,750	BUY
05/09/08	SAV	Hannu Savisalo	1,000,000	0.6	$600,000	BUY

Source: The Inside Trader