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Mixed views on Myer
Analysts are giving mixed signals about retailer Myer Holdings. Royal Bank of Scotland describes the stock as a “good all-rounder” and has a “buy” recommendation on it. RBS’s target price is $4.38. It has a prospective dividend yield of 6.1 per cent and a prospective earnings multiple of 12 times. The RBS report says that while David Jones should trade at a higher premium, Myer’s predictions for underlying growth in earnings is more impressive. Citigroup is more sceptical, downgrading its recommendation to a “hold” and setting a target price of $4.35. According to a Citi report, there should be strong retail momentum but much of this is already in the price. Credit Suisse is somewhere in the middle, with an “outperform” rating and a target price of $4.80. According to Credit Suisse analyst Grant Saligari , improvement in gross margins and the addition of two new stores are the main drivers of the positive view. Morgan Stanley has an “equal weight” recommendation, arguing that the pricing of the stock is fair. “We see the initial signs of a consumer recovery and as such we think Myer will trade in line with its fundamental valuation rather than on a price-earnings relative basis,” a Morgan Stanley report says. Deutsche Bank has a “buy” and target of $4.60.
Origin Energy’s announcement that it will conduct a feasibility study on investing $5 billion to build an 1800 megawatt hydro power station on the Purani River in Papua New Guinea – it is expected to generate more power than the Snowy Mountains scheme – got some positive reaction from analysts. Credit Suisse has an “outperform” rating on the stock and a target price of $18.20. A Credit Suisse report says it likes the “innovative thinking” , although the emphasis remains the LNG operations.
Dexus Property Group
Dexus Property Group is failing to enthuse some analysts. Credit Suisse has a “neutral” rating on the stock and a target price of 92¢. Its report says the “swing factors” will be industrial occupancy rates in the US, development leasing and the possibility of an earnings rebound. It has Dexus on a prospective earnings multiple of 11.6 times and a dividend yield of 6 per cent unfranked. Net debt to equity is estimated at 43 per cent and earnings per share growth is tipped to be 17 per cent this year.
Ad market recovery
The advertising market is recovering, a report by Goldman Sachs says, with positive growth is being reported in all media types. Magazines are up 3 per cent, metropolitan newspapers are 11 per cent higher, outdoor ads 15 per cent and cinemas 12 per cent. The Goldman report nominates News Corporation, Ten Network, SEEK and West Australian Newspapers as the stocks most likely to benefit. The target prices are respectively: $23, $2.05, $9.95 and $8.90.
Bauxite miner and aluminium refiner Alumina is not getting an enthusiastic reception. Goldman Sachs has a “hold” on the stock and a 12-month price target of $2.20. A Goldman report says the most important influence on the company’s shares is the price of aluminium and given the global surplus, it is not bullish in the medium term. Macquarie Equities takes a similar position. “In our view, Alumina remains a deep-value play for those who believe in an expected mean reversion in alumina industry returns,” its report says. “However, in the short to medium term there remains a large inventory and capacity overhang in global aluminium markets and the pace of evolution in alumina marketing structures is likely to be more gradual than some believe. We also consider the short-term potential for an oft-mooted bid for Alumina by Alcoa as fairly limited (although not non-existent).” Macquarie has a “neutral” recommendation and a 12-month target price of $2.10. UBS is more bullish. It has a “buy”, although its 12-month target is $2. UBS has a prospective earnings multiple of 54.9 times and a prospective yield of 2.6 per cent.
General insurers getting the nod
The best picks in the insurance sector are general insurers, according to a report by Royal Bank of Scotland. RBS’s preferred stocks are Suncorp-Metway, QBE Insurance Group, Insurance Australia Group, AMP and AXA-Asia Pacific Holdings. “Our view remains that the Australian-focused general insurers, namely Insurance Australia Group and Suncorp-Metway, face the most favourable operating conditions,” the report said. “Both stocks continue to see normalised margin expansion and favourable rate increases, particularly in home classes. They are also benefiting from the more favourable yield environment in Australia.” The report cautions, however, that IAG may be fully priced. It says QBE is facing a difficult operating environment but remains RBS’s second pick in the sector. “With QBE trading at only a nine times forward earnings multiple (versus its historical premium of 12.3 times) and on an 8 per cent dividend yield, we believe it represents compelling long-term value,” the RBS report says. Commonwealth Bank Securities has upgraded its recommendation for QBE to a “buy”, saying the stock has been a big underperformer when compared with the wider market. “There is plenty of talk of an inflection point coming,” a Commonwealth report says. RBS is less optimistic about the life insurers, AMP and AXA. “We see both stocks facing tough operating conditions, driven by soft investor sentiment, volatile markets, and signs of stress in life insurance operations,” the report says. “While there is potential upside in AXA from another bid for the company, we believe any bid could take time to materialise and the outcome remains far from certain. For AMP, we believe its long-term value is hindered by a complex investment case including regulatory overhang and issues involving AXA.” Meanwhile, Macquarie Group is arousing scepticism. Citigroup has a “hold” on the stock and a target price of $37. A Citi report recommends a share buyback as a way to create value for shareholders, given that the stock is trading near its book value.