By Jason Fittler

Watpac is a listed construction company and property developer in Queensland.

The company operates across the country, with offices in Brisbane, Townsville, Perth, Adelaide, Sydney, and Melbourne, and an international office in Vietnam.

It consists of the following divisions, Construction, Civil Infrastructure, Mining, Property, and Specialty Services. Watpac spans construction across all of QLD, with an operational base in Townsville. The portfolio includes well-known landmarks such as Suncorp Stadium, Brisbane Cricket Ground and Seaworld Nara Resort.  

WTP's interim result gave no cause for concern, with FY10 guidance provided with the result pointing to strong growth.

We currently forecast FY10 profit of $26.8m and assume no profits from property sales.

The company remains well positioned given its strong balance sheet ($71m in surplus cash), property pipeline (book value $381m) and growing workbook (approx. $1bn with new project wins likely to be announced in the short-term - management indicated at the result there are around $350m in potential near term project wins).

We expect acquisitions will focus on civil businesses with a NSW focus.

In our view, the key swing factors relate to construction margins and timing on property sales. The stock is trading on attractive fundamentals including a PE of 8 times and a 7% fully franked dividend yield. As at 31 December NTA stood at $1.46. We expect little value is being attributed to the group's property book.

For more information on Watpac (WTP) please call us on 07 4771 4577.

By Jason Fittler

SPARK is the CKI/Reef-managed infrastructure vehicle.

The group’s current assets include 49% interests in Victorian electricity networks Powercor and CitiPower, and in South Australian electricity network, ETSA.

SPARK’s objective is to invest in regulated utility infrastructure, both within Australia and overseas. This includes electricity, gas distribution and transmission, regulated water, and sewerage assets, which offer relatively low risk and stable cash flows. This facilitates the payment of relatively predictable distributions to investors and offers the potential for long-term capital growth.

SKI reported a solid interim result, underpinned by steady organic growth and a good performance from unregulated services. SKI continues to exert financial discipline, and we believe funding concerns are overdone.

However, we do concede that the stock is facing some headwinds at the moment. With the market bracing itself for roughly 150-200bp of rate hikes over the next year, market sentiment towards geared defensives like SKI has turned negative.

Throw in uncertainties around funding of capex, and there’s another excuse for investors to stay away. But if the company maintains its discipline, we think it will win back the market’s favour. With CKI also on the acquisition trail, we believe SKI.s 18% FCF yield is one best value acquisitions out there.

The stock is paying a 12% yield with a forecast for this to increase to 13% by 2011.

If you are looking for good blue chip shares paying high dividends (and you should be) make sure you add this to your portfolio. The stock has recently gone ex-dividend making it cheap right now.

By the way you should also see 20% growth in the stock as well.

What more could you want!

For more information on Spark Infrastructure (SKI) please call us on 07 4771 4577.

By Jason Fittler

1300SMILES is truly a home grown success story.

They have proved over the past 5 years that hard work and sensible approach to business will yield fanatics results.

For those who do not know the company 1300SMILES Limited (ONT, formerly be known as Townsville Family Dental Pty Ltd) provides dental surgeries, practice management and other administrative services to self employed dentists.

It also provides general dentistry services to patients. The services provided by the company allow dentists to focus on the delivery of dental services rather than on the administrative aspects of carrying on their businesses.

In 2009 1300SMILES produce a stellar result, our concern at the time is how will they improve on it. Last week they released their half yearly results up to December 2009 and again exceeded market expectations.

They announced a 15.5 percent increase in net profit before tax to $3.1 million and an 8.6% increase in net profit after tax of $2.3 million, this resulted from a 5 percent increase in revenue. They also announced a 20 percent increase in their dividend to 6.5 cents per share.

This stock is currently trading at $2.85 which is a 5% increase since the results were announced. They are paying a 4.5% fully franked dividend giving the stock a gross yield of 6.4%.

The only question is how long will you wait until you add this stock to your portfolio?

For more information on 1300SMILES please call us on 07 4771 4577.

By Jason Fittler

BHP Billiton is the world's largest diversified resources company. It has around 100 operations in about 25 countries.

BHP occupies industry-leader or near-industry-leader positions in major commodity businesses including aluminium, energy coal and metallurgical coal, copper, manganese, iron ore, uranium, nickel, silver and titanium minerals, and has substantial interests in oil, gas, liquefied natural gas and diamonds.

The company reported last week in line with expectations, however, the results of the individual sectors of BHP were not in line with expectations.

A number of smaller sectors vastly outperformed expectations while some of the core sectors such as Iron Ore did not.

There is no doubt that this stock has a place in any portfolio, the question is how much should you hold.
 
Our vet present value has increased from A$43.26 to A$43.72ps, following changes to our revenue and costs. Our target price has increased in line with this, from A$51.05 to A$51.59ps.

The key downside risks to our target price are lower-than-forecast metal prices with more leverage to bulk spot prices, and a delay in negotiating new sales terms. There is upside risk of a sustained turnaround in China as infrastructure spend improves the demand for BHP’s products and drives spot prices higher.

At present BHP is trading around the $40 mark, for those who pick up share in the last 12 months or have held them for many years you now have a good gain on the stock.

With a small yield, concerns over China slowing down and the reliance on the spot price, I see now as a good opportunity to take some part profits on this stock. 

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

By Jason Fittler

NCM was formed in 1990 from the merger of Newmont Australia and BHP Gold. A significant proportion of NCM's gold production is sold as gold in concentrate and the company benefits from copper credits derived from concentrate sales.

Newcrest's concise strategy is to develop large, long-life operations that are low on the cost curve.

We base our target price on the long-term share price premium of 40% to our NPV for NCM and we raise our target price to A$41.49 from A$41.28ps.

We see potential upside to our earnings forecasts and valuation based on the potential project development pipeline, but we have chosen to take a relatively conservative approach until feasibility studies are completed.

The CFO indicated that NCM finished 2009 with about 0% gearing. Combined with cash flow from existing operations and a US$600m undrawn debt facility, we believe this leaves the company well placed to develop existing mines.

Our modeling of the site costs appears to show that the changes have been gradual and sustainable rather than one-off items. The A$ is having a positive impact on consumable costs but in other areas a small amount of capex on plant appears to be delivering increased throughput and a reduction in tail grades (improved recoveries).

At below $32 Newcrest is a good short term trading buy chasing a 10% bounce or a great long term hold stock look to extract full value if the stock hit $40.

Is Newcrest an opportunity for you? To find out, call us on 4771 4577.

By Jason Fittler

ACL has developed a propriety technology for large scale and cost effective synthesis of carbohydrates. They use this product in major surgery to thin the blood.

At present they are currently waiting for FDA approval for the product. This was due out before Christmas but like any new medical product the timing of FDA approval is always variable.

ACL is confident of receiving approval to the extent that they already have in place a marketing and distribution program which will begin immediately once the product is approved.

ACL recently completed an A$15.5m rights issue, which has removed any funding concerns.

The company’s underlying monthly burn rate is approximately A$500,000 per month. Our F valuation has increased to A$0.98 (from A$0.89). We have set our price target at the same level as our valuation of A$0.98 (was A$0.89).

The downside risk to our target price relates to the timing of the FDA approval for fondaparinux.

Like all small medical research companies this news will re-rate the company and we can expect to see the price move, we have already seen the price start to push up in expectation of the news.

This is a speculative buy for those who have the appetite for risk.

We have seen investors successfully trade other companies like this such as Chemgenex in 2009, if you are looking for a quick trade take a look at ACL.

PS. For more information on Alchemia (ACL) please call us on 07 4771 4577.



By Matthew Smith

HVN is not an ordinary retailer and is being recommended as a long term buy and hold.

HVN happens to own 35% of the stores it operates out of. So apart from earning franchise fees and its owned store profits there is also rental income from both franchisees and other attractive corporate tenants that lease from these Harvey Norman complexes.

The fact that over 50% of HVN assets are its property portfolio aids in demonstrating the robustness of this business model and also is favored over that of its competitors.

The management own 47% of HVN which is great to see, as this allows for interests to align with other owners of the business. HVN’s intrinsic value lies somewhere between $4.45 - $6.00. An educated estimate of fair value lies somewhere around the $5.00 per share or $5.3 billion level.

Whilst HVN is not trading at ridiculously cheap prices right now, beginning to build a parcel of this business now at a sane price is a great idea.

If HVN were to drop heavily inline with any broader market fall and deviate even further from its intrinsic value a strong accumulate alert will be issued on this stock.

This is a good long term buy in the current market conditions at the current price, if you have some already I would look to top up your holding if not, then now is the time to start buying into this stock.

PS. For more information on Harvey Norman (HVN) please call us on 07 4771 4577.

By Jason Fittler

TXN is an Australian-based oil and gas Exploration Company with operations located in the Gulf Coast of Texas, USA. The company's key assets include: 7 productive wells; 13 prospects already leased and ready to drill.

Texon’s objective is to expand as a profitable oil and gas producer by initially focusing on the development of the Leighton oil field, in which it now has five wells in production, 14 proved undeveloped locations and 10 probable well locations. It will also test the Mosman and Rockinham prospects where previous drilling indicates the presence of the Olmos reservoir, now producing at Leighton.

It will also evaluate the underlying Eagle Ford shale in the 4,549 acres now leased. Texon intends to farm down other prospects generated under the terms of its exclusive arrangement with Wandoo and Seitel (a seismic-acquisition company).

Texon has access to over 150 3D seismic surveys covering 16,000 square kilometers, and to other surveys acquired by Seitel, extending until 30 April 2014. The 3D seismic surveys are interrogated and the technical characteristics of producing wells are used as analogues to generate prospects in nearby areas. The success rate to date is above 80%.

This is a more speculative stock, but if you are chasing a speculative stock in the energy sector this would be my pick.

PS. For more information on Texon Petroleum (TXN) please call us on 07 4771 4577.

By Jason Fittler

Investing for Income – time to let go of your term deposits.

Below are my top 10 share picks in the market right now, some of you may hold some of these shares already. If so continue to hold them as they will produce you a great return, but take a look at the ones not currently in your portfolio and consider if they suit your investment style.

I have also included a PDF of a $100,000 portfolio made of my top 10 picks, in summary the portfolio is spread across the below sector (see pie chart) and will provide growth of 11.6% and income or 8.4% in the coming 12 months. That is a total return of 20% for the year. If you have funds currently sitting in interest bearing deposits you may consider achieving a far superior return through this portfolio. All stock are large blue chips stocks.


10 Ten Stock picks

APA Group (APA) - owns, or has an interest in, over 10,000km of gas transmission pipelines in Australia. APA has a significant presence in all mainland states & territories. Being an infrastructure stocks it is undervalued at present, as such, we should see 6% growth in the stock and a 9.77% gross yield.

Goodman Fielder Limited (GFF) - is Australia's leading listed food company, with a range of grocery products including bread, milk, margarine, dressings, mayonnaise and flour. This is a recession proof stock, currently paying an 8.57% yield and a price target 15% above the current price.

General Property Trust (GPT) - is one of Australia's largest AREITs with total assets of $13.87bn at June 2008, being a stapled security comprising a unit in the trust and a share in the management company. GPT has three inter-linked businesses, each based on investment property, being ownership, development and management with assets in Australia, New Zealand, Europe and the USA. Company has under gone a major restructure over the past 12 months and although we do not expect much growth in the coming years the 6.5% yield will make up for it. It is also a key takeover target with Stockland holding a large holding. Expected take over price is 0.71c. The stock is currently trading at 0.55c.

Healthscope Limited (HSP) - is a provider of hospital and related health services to public and private sectors. This sectors is also recession proof, they have had high occupancy rates in their hospital and a strong cash flow. On a yield of 6.84% and expected growth of 6.9% this is my key pick in the health care sector.

National Australia Bank (NAB) - is a large financial services group providing a comprehensive and integrated range of financial products and services throughout Australia, New Zealand and parts of the United Kingdom. We all know this stock with a yield of 9.21% and growth of 21% buying now makes long term sense.

QBE Insurance Group (QBE) - is a leading provider of general insurance and reinsurance services in Australia, the Pacific, Asia, the Americas and Europe. The Australian General Insurance operation provides insurance cover for both the private and commercial sectors. Again the largest in the sector, currently buying IAG to get a better foot hold in Australia, paying a 6.36% yield and potential growth of 5% it is a must have.

Tabcorp Holdings Limited (TAH)  - offers a wide range of gambling and entertainment products. The stock has re-grouped after losing the betting business in Victoria, now expanding the casino business, paying a whooping 11.33% yield and expected growth of 16% it is a must have.

Telstra Corporation Limited (TLS) - is a provider of telecommunications and information products and services. The principal activities are provision of telephone lines; national local and long distance, and international telephone calls, mobile telecommunications, data, Internet and on-line, wholesale, telephone directories and pay TV. Looks like all of the bad news is out on this stock and we should start to hear some positive news regards the same of clients to the government, in the meantime for the next couple of years you will benefit from a 12.28% yield. That is correct 12.28%; we also expect growth of 16%. Love or hate them Telstra is a stock to have and hold.

United Group Limited (UGL) - is a broad based infrastructure services company engaged in industrial maintenance, manufacturing, engineering and business process outsourcing services for blue chip companies and governments throughout Australia, New Zealand and parts of Asia. This is the stable player in a tough industry, strong cash flow and strong income UGL is paying 6.98% yield and has a price target 22% above the current price.

Woolworths Limited (WOW) - is an Australian retailer whose primary activity is supermarket operations. Other operations include petrol sale through Caltex Woolworths co-branded service stations and Woolworths plus Petrol, liquor, Big W general merchandise stores, and consumer electronics through Dick Smith, PowerHouse and Tandy. Hard to spend money with out Woolworths getting some, this stock is paying 6.03% and has a price target 10% above current levels. Another core portfolio stock that looks cheap.

Make sure you download and read the $100,000 portfolio made up of these stocks so you can witness the benefits of holding them in your portfolio.

Dowload PDF.

If you are interested in any of these stocks now is the time to buy.

For more information please call us on 07 4771 4577.

By Jason Fittler

HSP is a provider of hospital and related health services to public and private sectors. These sectors are also recession proof; they have had high occupancy rates in their hospital and a strong cash flow.

The business is broken into two parts being Pathology which provides 25% of revenue and Hospitals which provide the other 75% of revenue.

Pathology - This division contains pathology operations in Australia, Malaysia, Singapore and New Zealand, as well as medical centres/skin clinics. Management stated that first quarter 2010 revenue growth has been above market, and that it believes this growth has been from increasing pathology from HSP’s hospitals as well as growth at the expense of one competitor.

Hospital - HSP’s management has identified greenfield and brownfield opportunities for its Hospitals division. In terms of greenfield opportunities, the Norwest Hospital (NSW) is open, and management commented occupancy was running ahead of plan. We assume an incremental earnings contribution from most of these beds in 2010, with the balance contributing from 2011. In terms of brownfield opportunities, management has identified opportunities to increase bed stock and operating theatres by 10% over the next two to three years (ie, increase beds by about 400, and operating theatres by 20).

Better use of operating theatres for Day surgery will be a major component of ongoing growth at the private hospital level. We believe the development of operating theatres in medical/surgical hospitals is a major driver of revenue and margin growth in HSP’s hospitals. This is because of the ongoing shift to day-only surgical cases, which ensure high turnover of a surgical bed.

The day-surgery component of the private-hospital industry has been growing in line with revenue. Surgical technology and anaesthetic advancements have made surgery possible through smaller incisions and provide better pain-relief regimes after surgery. Both have reduced pain after surgery, allowing patients to leave hospital for home earlier.

On a yield of 6.84% and expected growth of 6.9% this is my key pick in the health care sector.

This is for the investor who is looking for long term growth, high yield and a recession proof industry.

PS. For more information on Healthscope Limited (HSP) please call us on 07 4771 4577.