By Daniel Goulding

I believe CSL is best of breed in the healthcare sector.

CSL is a biopharmaceutical company with a global footprint. It specialises in plasma products, vaccines, pharmaceuticals, and research and development.

The company has a market capitalisation of A$17 billion.

Three-quarters of its earnings is derived from CSL Behring. This division operates one of the world's largest human blood plasma collection networks. The plasma is used to generate life-saving therapeutics, used in a wide range of treatments. The global plasma market  is characterized by high barriers to entry, the limited supply of blood plasma, and the growing demand for its products. As a result, CSL enjoys strong pricing power and in turn strong margins.

With CSL, you are buying a franchise, not a stock.

As a long term investor I am not interested in buying lousy stocks that trade on attractive price-earnings multiples. Such companies tend to be cheap for a reason - they are perennial underperformers.

As Warren Buffet, the world's richest investor, asserts: price is what you pay, value is what you get.

I want a franchise with an impeccable track record of creating wealth for shareholders. CSL ticks all the boxes in this regard with its excellent return on equity (which has averaged 21.8% over the past five years), strong cash flows and no net debt.

The CEO Brian McNamee is a shrewd operator. After being rebuffed by American regulators on their potential acquisition of Talceris, management proceeded with a massive on market buy back of shares.

This stands in sharp contrast to the recent BHP bid for Potash. Why buy Potash when you can buy back your own stock at less than half the price (based on an enterprise multiple)?

Sometimes the very best investment you can make is yourself. With no suitable acquisitions on offer, CSL have announced another on market buy back of shares, amounting to $900 million. Shareholders will receive a lager slice of the earnings cake going forward - management focused on building wealth rather than growing for growth's sake is exactly what I like to see in my managers.

On our prospective numbers for 2011, CSL is trading on 14 times earnings - a multiple I consider undemanding for a global franchise with a strong track record of creating wealth.

Investors can use any weakness in the share price below 3100 to commence accumulating a position in this franchise. I consider the company a strong buy below 2900.

Regards,

Daniel Goulding

Office: 07 4771 4577 | Fax: 07 4771 4527
Email: daniel.goulding@rbsmorgans.com

By Jason Fittler

We expect Myer's share price to benefit from three key levers:

1) Positive earnings momentum from strategic growth projects;
2) Desired exposure to a retail upswing; and
3) A re-rating to reflect stronger growth.

Overall, MYR remains one of our high conviction calls.

MYR delivered a reasonable sales result in what was a challenging environment, but the company also expanded the operating margin to deliver 2010 EBIT guidance above the proforma target of A$261m, at a
range of A$265m-272m.

Management provided a positive view on the outlook, with expectations of solid Christmas trading.

Underlying margin expansion appears to have accelerated factoring the top end of upgraded guidance, Myer has expanded its EBIT margin above 92bp of growth in first half 2011.

Myer attributed the margin expansion to a positive mix-shift towards ‘exclusive brands’, better buying opportunities and lower shrinkage; all contributors to a stronger GP margin result.

Given the high levels of discounting the underlying improvement to the margin appears notable.

We see three levers for share price growth in the medium term, including:

1) strategic growth projects (including CCTV, PoS and new stores);
2) exposure to a cyclical upswing in retail sales (which Myer’s high fixed-cost base and gearing supports); and
3) a PE re-rating.

We maintain our Buy call and raise our target price to A$4.36 to reflect earnings upgrades for FY11 by 4.6% (to A$195m) and for FY12 by 4.1% (to A$215m).

To invest in Myer please call us on 07 4771 4577.

By Jason Fittler

QBE Insurance Group is an Australian-based non-life insurer writing both general insurance and reinsurance business.

The company operates in Australia, Asia/Pacific, North America and Europe. QBE is a major player in the Lloyd's insurance market. The company's strategy remains growth by acquisitions and diversification by geography and product category.

In our view, QBE is now looking oversold as we head into the first half 2010 result. We appreciate that the result is likely to be unfavourable, however, we have priced this into the stock. Based on our analysis of PE, PE relative and dividend yield, we believe that QBE is looking good value at $17.25.

The main catalyst for QBE appears to be a trifecta of;
1.    an improving US economy,
2.    rising global interest rates and
3.    a strengthening Australian Dollar.

While these catalysts may not materialise for another six months, we believe that investors will be rewarded for investing in QBE today.

QBE has continued to underperform the ASX All Ordinaries over the past three months as well as the domestic general insurers. QBE is now down 17% over the last three months versus the All Ordinaries down 11%, IAG down 13% and SUN down 9%. This is despite IAG coming out with an A$365m downgrade to earnings due to an increase to its UK claims reserves.

In our view, this underperformance seems excessive.

The current dividend yield of 7% is well above its historical dividend of 4.0% of the past 10 years. Even if we take a more normalised payout ratio of 70%, this would still represent a dividend yield of 6.0%. For value investors that are looking for a healthy yield, we believe that this creates a compelling valuation proposition.

In our view, QBE's track record in underwriting and acquisition execution remains strong. Furthermore, the company retains a strong balance sheet with about A$1bn of debt capacity
available for acquisitions.

While QBE faces various headwinds in 2010, we believe the valuation appeal is now just too compelling.

For more information on QBE please call us on 07 4771 4577.

By Jason Fittler

You must act on this rights issue or you will lose money.

You can either pick up some extra Cardno at a 19% discount or sell the rights and take the cash. Either way you will make some money. But first I have included some detail on the offer.

Cardno Limited (CDD) has announced a fully underwritten 1 for 6 renounceable rights issue to raise approximately A$49 million.  The issue price under the Rights Issue is $3.25 per share, being a 19% discount to the last closing price of Cardno shares on 30 June 2010 of $4.00 per share and a 16.5% discount to TERP of $3.89 per share.  Eligible shareholders may also apply for additional shares over and above their entitlement under a top-up facility. 

Rights trading will then commence on Wednesday 7 July and continue until Monday 26 July. 
 
The proceeds from the Rights Issue will be used to assist in funding the acquisition of two major US based environmental consultancy firms, ENTRIX Holding Company and Environmental Resolutions, Inc (announced on 10 June 2010) and to strengthen Cardno’s balance sheet.

New Shares issued under the Rights Issue will rank equally with existing ordinary shares on issue and will be entitled to the final dividend payable in October 2010.

For more information on Cardno Limited (CDD) please call us on 07 4771 4577.

By Jason Fittler

Telstra has struck a deal with the Government and NBN Co for the sale of the infrastructure assets. 

We expect to see the price improve providing an opportunity for those investors looking to reduce their exposure to the stock.

NBN deal agreed in principle:
1. The government and Telstra have struck a deal to include TLS's customers and infrastructure under the NBN Co (National Broadband Network Company).
2. The deal has an Net Present Value to TLS of ~A$11bn which is in-line with our expectations and is a positive outcome for TLS.
3. The deal comprises of A$9bn from the government for TLS to progressively migrate its customers on to the NBN Co and cost savings for TLS of ~A$2bn as the Universal Service Obligations are removed from 2011.
4. In additional TLS will be allowed to bid for LTE (Long Term Evolution) which is the next generation of mobile network bandwidth.
5. NBN Co will acquire access to TLS's fit for use infrastructure which includes cable pathways (ducts, pits and conduit) in addition to the right to acquire TLS's back haul services (fibre interconnecting the exchanges) and use of TLS's space in exchanges.

We expect to see the price of Telstra move back closer to our price target of $3.75 in the short term.

For many clients this will provide an opportunity for many share holders to reduce their exposure to the stock.

Keep in mind that TLS is still paying a 10% dividend and will maintain this over the next 2 years. This deal clearly removes uncertainty for Telstra shareholders and will allow TLS to concentration on its longer term position.

It is still early days and expectations are that it will take another 9 months to finalise terms of the deal before TLS will put the deal to shareholder in 2011.

For more information on Telstra (TLS) please call us on 07 4771 4577.

By Jason Fittler

CPB has three business divisions:

1. Australian Laboratory Services which provides analytical testing services in key
areas of mining and mineral exploration, commodity analysis and certification,
environmental monitoring, equipment maintenance, food analysis and manufacturing
of electronic products.

2. Campbell Chemicals. This division covers industrial, commercial, consumer products and engineering services

3. Reward Distribution. This division supplies chemicals, paper goods, tableware, kitchenware and associated non-food consumables to hospitality and institutional markets.

CPB reported a solid full-year result, with normalised Net Profit After Tax (NPAT) down 29% to A$75.3m from a record year in Financial Year (FY) 2009 (A$106m).

Revenue fell 10% to A$825.5m. The revenue and profit decline was largely due to reduced global demand in mineral exploration markets that affected the ALS Minerals division.

We forecast 57% NPAT growth in FY 2011 driven by a recovery in exploration activity triggered by rising commodity prices, the recapitalised junior explorers and further penetration into the environmental and inspection services markets, facilitated by recent acquisitions and CPB’s acquisition of AEC.

We acknowledge that the RSPT will weigh on sentiment in the short term, but we believe CPB is well placed to weather this due to its international diversification, with more than 50% of its revenue derived offshore.

The premise of an economic and minerals exploration recovery appears to be supported by sector and company leading indicators.

Recently announced Mining House capex budgets suggest a return to 2008 (cUS$10bn) exploration budgets could be achieved over the next couple of years.

Indeed, CPB indicates that year to date  ALS mineral sampling is around 25% higher than in 2009.

The key upside to CPB is the operational (margin) leverage its ALS business achieves in periods of increased sampling activity. In 2008, ALS minerals sampling margins were estimated to be as high as 40%.

We do not forecast a return to these peaks, but we expect a 22% Earning Before Interest and Tax (EBIT) margin in FY 2011.

Our A$38.42 target price (from A$33.18) is at a 10% premium to our DCF. We maintain our Buy rating, with activity, currency and acquisitions the key risks to our target price.

For more information on Campbell Brothers Limited (CPB) please call us on 07 4771 4577.

By Jason Fittler

Brambles Limited is a global provider of support services which operates through two key businesses; CHEP and Recall.

BXB has operations in approximately 45 countries across six continents with a primary listing on the ASX and a secondary listing on the London Stock Exchange.

CHEP: A provider of pallet and container pooling services, delivering pallet and container chain logistics and efficiencies for customers primarily in the fast moving consumer goods; produce, meat, home improvement, beverage, raw materials and automotive industries.

RECALL: Recall is an information management solutions provider. The primary focus is on transaction-intensive market segments such as banking and finance, insurance, health care, retailing and government.

BXB has been trading in a down trend since September 2009, which is still technically intact.

The first potential downside price objective is around $5.55 where we will need to reassess.

Overall, the medium-term down trend from the April high is still in progress and at present there are no signs suggesting a reversal.

BXB recently lost a contract with ConAgra foods, this loss is expect to hit the 2011 financial year. There is also a concern over the losses from foreign exchange movements, which are playing on the company at present.

I see this company as being negative for the medium term as such there are better places to invest your money. I would look to exit the stock on any short term rallies.

For more information on Brambles Ltd (BXB) please call us on 07 4771 4577.

By Jason Fittler

PNA is a copper and gold producer with interests in Laos and Thailand.

The company is headquartered in Brisbane and owns a 90% stake in Phu Bia Mining Ltd, a Lao-registered company.

The Company’s major asset is the 2,636 square kilometre Phu Bia Contract Area located in the Lao PDR. PanAust's interests in Laos are held via the Lao-registered company, Phu Bia Mining Limited (PBM).

The Government of Laos has exercised a right to acquire a 10% interest in PBM. PanAust owns the remaining 90%. The Lao Government acquisition cost will be funded through its 10% share of future dividends paid by PBM.

Within the Phu Bia Contract Area, lies the Phu Kham Operation which comprises the Phu Kham Copper-Gold Operation and a Heap Leach gold operation. Production of copper-gold concentrate at Phu Kham commenced in April 2008, transforming the Company into a copper concentrate producer.

PNA has been trading in a primary up trend since January 2009.

The long-term up trend line was broken in January 2010 showing the trend is deteriorating and losing momentum. Current price action is very close to the significant support/resistance around $0.42 and is the key level to watch.

The RSI indicator has reached oversold territory suggesting a rally is likely to unfold in the near-term. A bounce from support will confirm the RSI signal and will trigger a buy signal.

The initial upside price target is toward the $0.55 - $0.60 area.

Overall, as long as support at $0.42 holds our view on the stock remains positive.

For more information on PanAust Limited (PNA) please call us on 07 4771 4577.

By Jason Fittler

BHP has been in free fall over the past three weeks breaching its key support level of $39.14 yesterday (12-5-10).

The breakout has bearish implications and shows the primary up trend is deteriorating.

From current price levels, further decline toward the $36.00 area is a fair possibility where support is likely to arise.

The Relative Strength Index (RSI) reached the 20 level today, which indicates the stock is extremely oversold and overdue for a rally.

Lower levels have been seen just once before – during the January 2008 panic sell off.

This suggests that further weakness (if any) would be limited and a short-term rise is likely to take place very soon.

This view is also supported by the oversold MACD and stochastic readings, Bollinger Bands and the open/close price reversal posted today.

The bottom line is that while we don’t want to try to catch a falling knife, we believe the downside in the short-term should be limited and therefore current price levels are becoming quite attractive to open long positions.

Our initial short-term price objective is toward the $41.00 - $42.00 area.

For more information on BHP please call us on 07 4771 4577.

By Jason Fittler

So the float was a dog. It went from $4.10 to $3.15 in 6 months.

This is a case of do not throw out the baby with the bath water. Clearly from the float the stock was over priced and investors were concerned if the company could meet the performance guidance. So far so good and now is the time to get into this stock.

Myer remains a compelling investment case on valuation grounds.

However, with the company on track to ‘comfortably’ meet prospectus profit guidance, we recognise further share price appreciation (from January lows) will likely require confidence in sustainable sales growth, which is more of a 2011 event.

We remain comfortable that sales will be achieved through leverage to the retail up-cycle, new store openings and refurbishment growth.

As a result, we retain our Buy recommendation and A$4.15 target price along with expected dividends of 6% for 2010, 6.98% 2011 and 7.56% in 2012.

Profits positively surprised consensus forecasts.

The key difference was the 159bp reduction in cash as a result of better-than-expected renegotiated terms on cleaning, transport and media distribution contracts, among others. Underlying gross margin improved (34bps) from strong Exclusive Brands sales growth (+20% pcp), partially offset by heavy discounting, the impact of which we estimate at c72bp of gross margin.

Strong operating cash flow benefited from the MyMerch IT system.

Sales expectations for 2010 were downgraded to +1-2% pcp (previously +3.0%), reflecting, in our view, a positive decision to bank margin gains rather than reinvest to drive sales, which we recognise is in part also an acknowledgement of a tougher sales environment.

There is no doubt that this is a long term story, but all the good stocks are nowadays.

I would look to buy Myer for the dividend and expect to see the price move in 2011 as the sale continues to match expectations.

For more information on Myer please call us on 07 4771 4577.