Collected Wisdom

Woolworths (WOW)

After wasting valuable time watching Coles put a massive dent in its sales and growth figures, it looks like Woolworths may have finally turned a corner. The retail giant is speeding along at full throttle in a bid to catch up with Coles’ impressive growth figures, and although Coles is still in first place, Woolworths is closing the gap. Don’t let go of those Woolworths shares just yet, the newsletters say.

For what seemed like an eternity, the aggressive strategy that Coles employed to gain market share was met with tepid responses from Woolworths that had little traction. In appointing chief executive Grant O’Brien, Woolworths was hoping to reverse the trend. The results are in, and O’Brien is definitely delivering the goods. In the first half, total group sales came in at over $30 billion, an increase of 4.8% on the previous year, while the food and liquor division performed strongly, rising 4.7% to $20.49 billion.

Growth-wise, Woolworths is still trailing Coles. In comparable stores’ growth, Woolworths clocked up 2.5% to Coles’ 3.9%. But O’Brien can take comfort in the fact that Woolworths is moving in the right direction. In the December 2011 quarter, the gap stood at more than 4%.

The investment press think it’s a low-risk stock worth holding on to, given its healthy balance sheet, strong market position and improving performance.

• Investors are advised to hold Woolworths at current levels.

National Australia Bank (NAB)

It is often said that it’s much easier to forgive than forget, and while National Australia Bank will be hoping that its failed UK business can eventually be forgotten, there’s little doubt that investors are starting to forgive. Don’t get left behind; now is the time to buy in, the newsletters say.

NAB has been the underdog of the big four for a while as it struggles to find an answer for its ailing UK operations. But, with hopes rising that a solution can be achieved in the not too distant future, and consistently improving results, perhaps it’s time to view the bank in a new light.

NAB reported solid sales results for the first quarter, and is on track to deliver full-year earnings of $6 billion. But to really see the potential for investors, one source says its current share price is worth a closer look. Based on fiscal 2013 earnings forecasts, NAB is currently trading at 11-times earnings compared with an average multiple of 12-times earnings for the other big banks. This is equivalent to possibly a $2.50 share price rise from NAB’s current price of $29.

Combined with expectations for further volume growth and improved margins, NAB is certainly looking a lot more attractive of late. And, as the bank’s capital position grows stronger and becomes more profitable, dividends are also tipped to rise. But make sure to buy in before it gets too hot and the share price too high, the newsletters warn.

• Investors are advised to buy National Australia Bank at current levels.

Primary Health Care (PRY)

Changing demographics and rapidly ageing populations mean that defensive healthcare stocks are looking increasingly attractive in the long term. Primary Health Care is no different. It reported very impressive numbers for the first half of 2013, with net profit after tax (NPAT) rising 50% to $69.5 million, earnings per share rising 48% to 13.8 cents, and the company raising its interim dividend by 30% to 6.5 cents per share, fully franked.

But the recent surge in the stock price is a bit of a problem. It has rocketed 50% since August and now sits at around the $4.50 mark. For some, this is too high, especially considering the fact that the company is carrying debt of $1 billion and is in a sector that is at risk of changes to government policy. Primary Health Care could take a hit if the government starts making further cuts, for example, to private health insurance rebates, the newsletters say.

Managing director Ed Bateman has also confirmed that the focus for the company now is on organic growth, rather than outward expansion. Whether or not this is the best move, the newsletters are divided. For the most part, Primary Health Care is a seen as a safe, defensive stock that is well positioned in a sector that will continue to grow as the population ages. Hold on to the stock for now, but keep an eye on the share price.

• Investors are advised to hold Primary Health Care at current levels.

Arrium (ARI)

Arrium is certainly not for the fainthearted. For those who haven’t already offloaded their Arrium shares, now is the time to do so, the newsletters say. With the company holding on to more than $2 billion in debt, and the share price above $1.02, it’s not hard to see why.

Although Arrium may have been hoping for a new beginning with its name change (from OneSteel), the fundamentals of the business are the same, and should be just as much of a worry for investors. The company is making a $474 million goodwill write-down against its manufacturing and distribution divisions, but that’s just the beginning, the newsletters say. One source notes that the company is still holding on to $7 billion of assets that earned absolutely nothing in the three years to 2012 and that more write-downs will likely be on the way.

The company’s share price has bounced around in the past six months, hitting as low as 55 cents just before it received a takeover tilt from Steelmakers Australia, a consortium made up of Noble Group, POSCO, and South Korean pension funds. The consortium walked away late last year after Arrium rejected its bid of 88 cents. With shares now trading at $1.02, it is looking lofty right now.

The massive debt that Arrium is carrying, combined with the fact that its business is vulnerable to exchange rates and changes in steel and commodity prices, makes it a stock that is ticking very few boxes right now. Consider moving on from this one, the newsletters say.

• Investors are advised to sell Arrium at current levels.

Computershare (CPU)

Being the only global share registrar puts Computershare in an enviable position. By operating in a number of different regions, the impact of market volatility is being kept to a minimum. Combined with expectations for long-term growth, Computershare remains firmly in the hold category among the investment press.

Computershare is a giant on the share registrar scene, with operations spanning 20 countries, where it administers over 100 million shareholder accounts for more than 14,000 corporations. With low capital requirements and a strong balance sheet, it’s expected to grow further in the long term while it continues to retain a competitive advantage over its peers due to innovative technology and its global scale, the newsletters say.

Computershare is all too aware of the risks that come with having a market-facing business. In the short term, the investment press cautions that the company could be hit with fluctuations in market activity. But Computershare is trying to cover all bases and has completed two acquisitions in the non-market-facing segment – Specialised Loan Servicing and Serviceworks. This should work in its favour should sharemarket activity hit a rough patch.

In any case, with indicators pointing to the share registrar performing well in the medium term, Computershare should remain in the hold category, the newsletters say.

• Investors are advised to hold Computershare at current levels.

Watching the directors

• Astron Corporation’s Alexander Brown recently spent a hefty chunk acquiring 5,671,436 shares of the company through Firback Finance Limited – $6,805,723 to be exact. But the company quickly got a rap on the knuckles from the Australian Securities Exchange for failing to lodge a change of interest notice within the required timeframe of five business days. The change took place on January 21, but Astron didn’t notify the Australian Securities Exchange until February 5. In response, Astron’s chief financial officer, Mark Nielson, advised that “the company will make the major shareholders aware that any future transfers need to be disclosed to the company within three days of these transactions being completed.”
• Collection House director Dennis Punches offloaded 4 million shares in the company last week, netting himself a cool $5,200,000. He wasn’t the only one. Another director, John Pearse, also took advantage of the $1.30 share price (up from 78c this time last year), selling 1,700,000 shares. The shares were scooped up by Perpetual, which is now a substantial shareholder.
• GUD Holdings’ managing director Ian Campbell sold off 258,446 shares in the company – almost his entire holding – for $2,116,937.02 ahead of his departure later this year. In the notice provided to the ASX, Campbell said he had sold to “rebalance” his personal portfolio. He now holds just 40,000 of the company’s shares.

• BC Iron’s Michael Young made $1,087,882.03 from the sale of 300,000 shares in the company last week. Young said he sold the shares to satisfy “personal financial commitments.”