Foreign Buyers Boost Market
The Sun Herald
Saturday May 11, 1991
ANTHONY GELONESI,
Credit Lyonnais Australia Ltd
OVERVIEW
EXPECTATION that the economy will emerge from its trough late in 1991 remains. The recovery is expected to be far different from previous recoveries experienced by the Australian economy, as it will emerge later and will definitely be milder. The sharemarket continues to be pushed higher, prompted by some eager stock purchases from overseas interests. Emphasis has been on stocks like BHP, CRA, CML and LLC which are trading well above peaks of 1987.
BUY
AWA (59c): At one stage AWA had a market capitalisation of $500 million, on current price it is now $65 million. The group has a current year gross cash flow of $22 million and has in excess of $33 million in tax losses. AWA owns 75pc of the contract to operate Keno in NSW for seven years. The value of this is not reflected in the share price and could equate to $25 million if divested. Consequently, AWA is trading at two times cash flow compared to in excess of seven times for the rest of the industrial market. The price is forecast to rise to $1 by year end.
Defiance Mills (DFM) ($1.98): DFM is a Queensland-based baker and flour miller. The quality of its cash flows and its recurrent earnings base are particularly attractive given the current economic climate. Post the capital raising, it is envisaged that the company will earn some 20c a share and generate cash flow of 34c a share. Compared with the other food sector stocks, a multiple of 10 times seems quite modest. Alternately, the preference shares in Defiance offer a fully franked yield of 7.3pc. A forecast price up to $2.50 seems justifiable.
HOWARD ELTON & COLIN GLAZEBROOK,
McKinley Wilson Ltd
BUY
Amcor Ltd ($5.12): Amcor is now among the top 10 cardboard box makers in the world. This position has been attained through building new plants and the acquisition of established plants in Australia and overseas. Box-making is to be a major profit-earner for Amcor. Containers Ltd, an Amcor subsidiary, is a major profit earner for the group which is a leading supplier of paper and plastics packaging, and aluminium cans. Amcor's paper making business is also a core profit earner and draws raw materials from the company's own forests. The group has been affected by the recession but less so than some others. In recommending Amcor we are looking "over the valley" of the recession and to increased 1992 earnings estimated at 45c a share. This assumes quite modest increases in sales and trading margins.
Bligh Oil & Minerals NL (44c): Bligh is a smaller petroleum company with interests in the US, NZ and Australia. With its focus on on-shore oil, Bligh has chosen to increase its activities in the US where the costs of exploration and development are much lower than in Australia. Most recent interest in Bligh has related to the string of small oil discoveries in the Navajo Nation lands (Bligh has 11.875pc working interest) and the Hardeman Basin (Bligh has 50pc working interest), both in the US. The Navajo joint venture has discovered oil in 12 of 16 wells drilled, a very high success rate. Plans are in hand to drill between 35 and 40 wells a year. Total oil production is now about 1,400 barrels a day (BPD) and this should lift to an average 2,000 BPD in 1991-92. The company is profitable and we estimate earnings of 8c a share and cashflow of 16c a share this year, lifting to 12c a share and 42c a share respectively in 1992. This recognises forward oil sales and assumes an average US$20 oil price. We expect the market to re-rate Bligh Oil's shares in coming months.
PETER HOOKER, BZW Australia
BUY
ANZ Banking Group Ltd ($3.83): The interim result is likely to be poor, but we believe second half and subsequent profits should show an improving trend. Management is tackling the cost base with vigour and the fully franked yield of nearly 7pc will improve in future years. Any weakness will be a buying opportunity.
TAKE PROFITS (reduce holdings)
Coca-Cola Amatil Ltd (CCL)($8.02): CCL has announced the establishment of a joint venture in Hungary with BULIV, the existing Coca-Cola licensee for Budapest and surrounding areas, giving CCL access to about 50pc of Hungary's population. We view this as the first of a number of acquisitions that over time should consolidate CCL as the dominant Coke bottler in both Hungary and Czechoslovakia. The growth available to CCL from making Coke available to these new markets is substantial over the longer term but initially the contribution to the bottom line should be minimal. Currently the stock is trading at a significant premium to the market and given the long lead time associated with the European expansion, we recommend taking profits.
© 1991 The Sun Herald
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