RESEARCH & MARKET COMMENTARY


Outlook for 2016 Analyst Series: Industrials with Lafitani Sotiriou, Analyst 

In the video below, Lafitani Sotiriou speaks about the outlook for Industrials and his top stocks for 2016:

> Watch the video summary

Reports:

> BT Investment Management

> Challenger

> Donaco

> OneVue

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Outlook for 2016 Analyst Series: Hybrids with Damien Williamson - Research Analyst 

In the video below, Damien Williamson speaks about the outlook for Hybrids and his top stocks for 2016:

> Watch the video summary

Reports:

> Macquarie Group Capital Notes 2

> Australian Unity bonds

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Outlook for 2016 Analyst Series: Industrials with Sam Byrnes - Industrials Analyst 

In the video below, Sam Byrnes speaks about the outlook for the Industrials sector and his top small-mid size growth stocks for 2016:

> Watch the video summary

Reports:

> SurfStitch

> Qube Holdings

> Catapult Group

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Outlook for 2016 Analyst Series: Resources with Peter Arden - Resources Analyst 

In the video below, Peter Arden speaks about the outlook for the Resources sector and his top stocks for 2016:

> Watch the video summary

Reports:

> MetalsX

> FAR Limited

> Talisman Mining

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Outlook for 2016 Analyst Series: Financials with TS Lim - Banks/Insurance Analyst 

In the video below, TS Lim speaks about the outlook for the Financials sector and his top stocks for 2016:

> Watch the video summary

Reports:

> Macquarie Group

> Westpac Bank

> Bank of Queensland

> Suncorp

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Outlook for 2016 Analyst Series: John O'Shea - Senior Analyst 

In the video below, John O'Shea speaks about the outlook for the Travel sector and his top three stocks for 2016:

> Watch the video summary

Reports:

> Cover-More

> Amalgamated Holdings

> Ardent Leisure

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Outlook for 2016 Analyst Series: Jonathan Snape - Senior Industrials Analyst 

In the video below, Jonathan Snape speaks about the outlook for the Industrials sector and his top three stocks for 2016:

> Watch the video summary

Reports:

> Huon

> Australian Agriculture Co

> Elders

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Outlook for 2016 Analyst Series: John Hester - Healthcare Analyst 

In the video below, Nathan Umapathy speaks about key global investment themes and how you can access them via ETFs:

> Watch the video summary

Reports:

> Mayne Farma

> Viralytics

> Paragon Care

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Outlook for 2016 Analyst Series: Nathan Umapathy- ETF Analyst 

In the video below, Nathan Umapathy speaks about key global investment themes and how you can access them via ETFs:

> Watch the video summary

Reports:

International:
> MKT VECT MSCI World Quality
> SPDR MSCI World Quality Mix

International Health Sector:
> iShares S&P Global Healthcare

International currency:
> Betshares US Dollar ETF
> ANZ ETFs Physical USD ETF


> ETF Quarterly - October 2015 (full report)

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Outlook for 2016 Analyst Series: Sam Haddad - Emerging Growth Analyst 

In the video below, Sam Haddid discusses his top three stocks for the Healthcare & Biotech sector.

> Watch the video summary

Reports:

> Super Retail Group

> RCG Coporation

> Shine Corporation

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Outlook for 2016 Analyst Series: Tanushree Jain, Analyst - Healthcare & Biotech 

In the video below, Tanushree Jain discusses her top three stocks for the Healthcare & Biotech sector.

> Watch the video summary

Reports:

> Opthea (previously Circadian Technologies)

> Neuren

> Pacific Smiles

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Outlook for 2016 Analyst Series: David Coates, Resources Analyst 

In the video below, David Coates speaks about his outlook for the resource sector and talks about his top three stocks.

> Watch the video summary

Reports:

> Sandfire Resources

> Western Areas

> Oz Minerals

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Outlook for 2016 Analyst Series: Chris Savage, Industrials Analyst 

In the video below, Chris Savage speaks about his outlook for the industrial sector and talks about his top three stocks.

> Watch the video summary

Reports:

> Integrated Research

> Melbourne IT

> Automotive Holdings

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National Australia Bank (NAB): Stay on the road but mind the scenery 

Transformation humming along nicely. NAB today announced the sale of 80% of its life insurance business to Nippon Life for $2.4bn (completion late 2016) and provided a definite timetable for its UK demerger and IPO (shareholder approval January 2016, completion February 2016).  The bank has made significant progress in the past six months in cleaning out its legacy assets, more so than in the past six years.  When completed, these measures should lift ROE by ~200bp to 15% (top end of peer range) and place NAB in a strong capital position.

2015 results solid despite softer NIM. NAB's key 2015 results are: (1) cash NPAT $5,839m (BP $6,259m, consensus $6,256m); (2) cash EPS 234cps [+11%] (BP 255cps, consensus 255cps); (3) final dividend 99cps fully franked (BP 99cps, consensus 99cps); (4) NIM 1.87% (BP 1.91%, consensus 1.91%); and (5) BDD charge $823m (BP $925m, consensus $888m).  Cash NPAT was ~7% lower than our expectations and consensus due to 4bp weaker NIM (largely from pricing in business banking) and higher operating expenses (largely UK conduct charges - a major swing factor as anticipated - and other one-off costs) mainly in the second half offsetting a lower BDD charge.

Price target $35.50, Buy rating maintained. We have lowered cash NPAT across the outer years by ~3%.  This reflects weaker overall NIM as discussed earlier (lowered by 4bp on a sustainable basis), lower other income (proportional removal of life insurance contributions) and a redistribution of the BDD charge (timing issue).  While the price target is slightly reduced to $35.50 (previously $36.00), the Buy rating is unchanged.  Concern about the weaker NIM is justified to a certain point but we feel the market has not fully appreciated NAB's transformation progress to date.  The bank continues to move closer to completing its strategic turnaround and a core business ROE milestone of 15% assuming UK demerger and IPO should underpin a healthy re-rating of the bank going forward.

Read the full report >

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Boost your income with high yield ETFs 

We understand investors crave yield in this ultra-low interest rate environment.

Structurally similar to an index fund but listed on the ASX, ETFs have made it extraordinarily easy to gain a diversified, cost and tax effective domestic portfolio of high yielding assets.

To demonstrate how ETFs can be used as 'building blocks' in an investor's portfolio, we've produced a flyer that compares eight ETFs offering domestic high yield exposure.

Download the flyer >

If you would like to introduce an ETF to your investment portfolio please don't hesitate to contact a Bell Potter adviser on 1300 0 BELLS (1300 23557).

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There's no time like the present 

With shares pulling back from their recent highs, there is no time like the present to take advantage of the contribution caps to move wealth into the generous tax-effective superannuation environment.

Read our monthly superannuation newsletter by Jeremy Tyzack, Head of Technical Financial Advice at Bell Potter.

There's no time like the present >

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Shares generate income  

We continue to live in an ultra-low interest rate environment, with Central Banks in developed countries continuing to play an unprecedented role in stimulating economic growth through quantitative easing and monetary policy measures.

This trend of Central Bank involvement has continued in Australia with the Reserve Bank of Australia (RBA) reducing the interest rate to the historically low rate of 2.0%.

Therefore, investors who are still heavily overweight in cash or cash products are being forced to rebalance their portfolio to increase their exposure to risk assets, which generate a higher rate of income.

By reviewing the current investment environment and examining how equities have performed against other asset classes, this report builds a compelling case as to why investors should be invested in equities.

In this report we demonstrate how maintaining a well-constructed, diversified equities portfolio can provide exceptional opportunities to generate growth and income through tax effective dividends.

Read Shares Generate Income >

Associated documents

Fixed Income: An investor's guide >

Learn the basics: ETFs >

Learn the basics: LICs >

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Orora (ORA) : FY15 result slightly ahead of our estimates, double digit EBIT growth in both segments. 

Segment EBIT: Australasia up 11.8% to $181.6m, EBIT margin up from 8.2% in FY14 to 9.5% in FY15 (driven by cost improvement initiatives;  North America up 25.4% to $71.6m, EBIT margin up from 4.5% in FY14 to 4.9% in FY15 (market share gains and improved efficiencies in the box conversion business). B9 delivered incremental cost reduction and innovation benefits of $18.4m over pcp, taking the cumulative benefits delivered to $21.4m which was slightly ahead of guidance. Operating cash flow up 19% from $219m to $261m.Net debt $607m, leverage 1.9x from 2.2x at pcp

Read the report >

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LIC Quarterly  

Our report provides detailed coverage of 37 LICs (and two LIC hybrids) including historical performances over a periodical accumulation basis; reported portfolio composition; investment strategy; dividend history; and risk/return gauges.

Based on our filters of investment performance, dividend yield and the current indicative premium/discount to NTA, our preferred LICs currently are:

1.AUI - Offers exposure to the ASX 300, with a yield of 4.0% fully franked;

2.DUI - Provides a more broad based domestic exposure with the inclusion of medium and small cap stocks and international ETFs in its portfolio, yields 4.0% fully franked, and has outperformed the ASX300 Accumulation Index by 0.7% pa over the last 10 years; and

3.PGF - Investment performance has matched its benchmark, the MSCI World Accumulation Index over the last 12 months, and has indicated it aims to pay a dividend in Feb 2016.

Read the report >

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Suncorp Group (SUN): Travelled each and every highway, and still going strong. 

SUN's headline 2015 results were largely ahead of consensus.  The key headline items were: (1) cash NPAT $1,191m (BP $1,185m, consensus $1,143m); (2) cash EPS 93cps (BP 93cps, consensus 89cps); (3) final ordinary dividend 38cps and special dividend 12cps (BP 45cps and special dividend 15cps, consensus 33cps and special dividend 23cps) - all fully franked; (4) GWP $8.9bn (BP $8.8bn, consensus $8.8bn); and (5) reported margin 11.4% (BP 9.7%, consensus 10.6%). We have made immaterial changes to overall Group earnings with little change in General Insurance numbers and upgrades in SUN Bank offsetting downgrades in the Life business.  However, the price target is increased to $15.50 (previously $14.50) after lowering the discount rate from 11% to 10% in line with a lower risk free rate.  The Buy rating is maintained for this rejuvenated "Cash and Growth" story.

Read the full report >

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The Collins Street farmer - Agricultural sector review 

 

Key commodity trends and stock implications:

Livestock: Price and volume indicators remain strong in cattle markets, with the EYCI up +30% YOY (R12M basis) and national saleyard volumes up +20% YOY (R12M basis). Despite recent headlines concerning Indonesian live export quota reductions in the September quarter, live export volumes have continued to track ahead of 2014 levels, up +24% YOY (R12M basis), with strong levels of demand emerging in Vietnam. At this late stage of the year all major volume and price indicators in cattle markets are exceeding our expectations.

Dairy: Dairy prices have continued to weaken with continued growth in supply among the Top 5 global producers (+2.9% YOY in May15) and subdued demand for WMP by importers. The GDT Index is down 41% YOY in USD terms and YTD (June YE) down 21% relative to average 2014/15 levels in AUD terms. Globally milk price to feed ratios have fallen to the lowest level since Mar'13 (~1.29x) and at levels that would typically be associated with moderating supply growth, which suggests a turnaround in pricing is likely at some point. Opening Victorian farmgate prices have been announced at A$5.60/KgMS for the 2015/16 season, with closing estimates in a range of A$5.80-6.20/KgMS.

Water markets: In general water prices in the Murray Darling Basin have demonstrated a material uplift in a tight market since March. Current prices for permanent water in the Murrumbidgee Irrigation Area (MIA) have demonstrated ~40% YOY gains in both High and General Security. Meanwhile prices for temporary water in the MIA have almost tripled YOY (+186%) to ~$200/ML. Water prices are currently trading at levels above that utilised in the independent expert reports utilised in the now complete WBA/TAN merger.

Key picks in agriculture: Our key picks remain: (1) ELD on leverage to favourable trends in livestock and wool markets and the benefit of 8PP initiatives beginning to deliver more meaningfully in 2H15e; (2) WBA on a continued strategy to maximise the value of its water resource in aggregating the asset base towards higher margin horticultural crops; (3) BGA on corporate appeal of the assets as well as seeing the current weakness in milk prices as more a cyclical than structural event, that is likely to reverse as global supply responds to deteriorating farmgate economics.

Read the report >

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iSelect (ISU): Upgrade in price target. 

ISU announced it has come to an agreement to receive a cash settlement for its outstanding NIA Health loan facility. We believe this is a very good outcome for the following reasons:

Higher value than anticipated - We valued the NIA loan facility separately at $39.6m vs $42.1m cash to be received; and

Enhanced product suite - This deal has further enhanced ISU's depth of health insurance product by adding GMHBA as well as retaining Health.com.au on a cash upfront commission basis.

Based on this announcement, we have made minor upgrades to FY16 & FY17 earnings due to changes in interest revenue assumptions. We have updated our Price Target for the NIA loan settlement and rolled forward our DCF ahead of next month's FY15 result. We have also added a 15% premium to our valuation to account for the prospect of capital management initiatives. As a result our Price Target has increased to $2.10 (previously $1.65). We retain our BUY recommendation.

Read the report >

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Macquarie Group (MQG): X’mas in July 

MQG held its AGM last week and provided a positive 1Q16 trading update. We have upgraded our price target for MQG and reinstated our Buy recommendation.

Watch our video summary by analyst TS Lim >

Read the report >

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Bank Note$: Enough room now to swing a cat. 

APRA announced an increase in the capital requirements for residential mortgages under the IRB approach. This move should come as no surprise with the major banks already having extensively gamed a 25-30% mortgage risk weight scenario. Our view remains that the major banks will not need to raise external capital but rather they will be creative in terms of adjusting their respective DRPs in the coming years. Our analysis suggests MQG and NAB are the clear winners while the impact on ANZ is not as detrimental as the market has been led to believe. The resilience of NAB and ANZ relative to WBC and CBA is also underpinned by much lower earnings dilution. Finally, regional banks on the way to accreditation are clear winners while BOQ should also benefit in due course.

Read our report >

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Macquarie Group (MQG) FY15 Result Summary  

Macquarie Group (MQG) is our top pick across the broader banking sector. We have a price target of $90.00 and a strong Buy rating on this unique growth story.

TS Lim provides a summary of their FY15 results.

> Read the full report

> Watch the video summary

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Our Fixed Income and Hybrids Analyst Damien Williamson discusses the Buy, Hold or Sell investment case surrounding bank hybrids.

In favour of buying bank hybrids, Damien points out three key arguments: 

1. Bank Hybrids have historically high margins with decreasing levels of default risk

2. Basel III requirements to strengthen capital levels provide a more attractive risk profile for bank hybrids, and

3. On a risk / reward basis, bank hybrids provide an attractive uplift in yield versus what is available from other fixed income investments, such as Government bonds, corporate debt and bank deposits. 

> Read the full report

> Watch the video

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3 Reasons Why We Like Shine Corporation (SHJ) 

Our Industrials Analyst Sam Haddad discusses three key reasons why Shine Corporation (ASX: SHJ) is one of top stock picks in the professional services space.

> Read the report

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BT Investment Management (BTT) interview with Emilio Gonzalez (CEO) 

Lafitani Sotiriou, Diversified Financials Analyst at Bell Potter has interviewed CEO of BT Investment Management (BTT) Emilio Gonzalez post the release of their half year results.

BTT is our top stock in the diversified financials sector, supported by an outstanding multi boutique funds management model, and with funds in key markets of Australia, United Kingdom, Singapore and more recently the United States. The company is achieving strong net flows into its business, locking in $1.4 billion in the March quarter alone. Our price target is currently $12.30 per share and our Buy rating remains.

Driving growth for BTT includes their Equity Income Fund and their Significant Investor Visa (SIV) program and overlay strategy. We are also starting to see growth coming from JO Hambro, a new bunch of funds that have delivered positive net flows every quarter since inception two years ago.

>View the video

> View the research report

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IOOF: Upgrade to Buy  

We have upgraded our recommendation from a Hold to a Buy for the following reasons:

> The business is displaying strong organic growth in the key divisions of Platforms and Advice & Distribution;
> There remains meaningful synergies to be extracted from the SFG acquisition;
> The share price has fallen and Price Target increased since we downgraded to a Hold; and
> We believe the current low interest rate environment remains generally supportive of wealth managers.

Read our report.

Watch Peter Quinton review the stock on YouTube.

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Super Retail Group (SUL): Transitioning to growth 

With the benefit of important business transformation initiatives undertaken over the past two years, and bed-down of execution hick-ups that unfortunately accompanied, we believe SUL is now entering its next earnings growth phase. We are forecasting EPS growth of 18.1%/16.8% in FY16/FY17 driven by the combination of leverage benefits off initiatives recently complete or well advanced (including new DC network, JDA rollout and SAP), the closure of loss-making stores in 2H15 (FCO and 5xRays), cycling of weaker comparatives, and the progressive unwind of investments. Notwithstanding continued pressures stemming from mining, we believe the business will benefit from a number of internal drivers as well as the conducive macro backdrop.  We retain our Buy rating with an unchanged 12-month PT of $11.00.

Read the full report via this link.

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The Collins Street farmer - Agricultural sector review  

Our Agricultural Analyst, Jonathan Snape, reviews the agricultural sector, covering 4 major emerging themes and our top stock picks.

Click here to view the report.

An accompanying video summary can be viewed here.

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