RESEARCH & MARKET COMMENTARY

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.

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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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Fixed Interest Weekly - 1 May 2015 

Fixed Interest Weekly: The Buy / Hold / Sell investment case for bank hybrids

It appears, as an anomaly that bank hybrid margins remain elevated, with investors currently being rewarded with attractive premiums to go down the capital structure to achieve an uplift in yield. Hybrid margins remain elevated despite a reduction in wholesale and deposit funding margins. Basel III requirements on improving regulatory capital have the potential to reduce the risk profile of the issuers. While fundamentals appear sound, sentiment remains subdued.

Click here to read our full report.

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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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Ringing the Bell. 2015 so far  

Please find below an excerpt from Ringing the Bell, a market commentary note authored by Charlie Aitken that is regularly distributed to Bell Potter clients.


2015 has already proven a year of sharp movement in equities, bonds, commodities, property and currencies. For an investment strategist who starts top down it clearly has been an active period attempting to be ahead of Central Banks and ahead of global and domestic cross asset class investor flows.

Today I am publishing a complete compendium of my "Ringing the Bell" notes for 2015. It is a chronological record of the 100 pages of ideas I have written this year

I have had three major themes this year.

1.Yield compression

2. The US Dollar (and vice versa short AUD, EUR & JPY)

3. USD industrial earners

My 4th clear theme has been do NOT buy resource stocks for "yield".

Click here to read our Ringing the Bell: 2015 so far document.

 

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Charlie Aitken: Today I am recommending “taking trading profits” in QAN . 

From a low point of 95c back in December 2013 QAN shares have gained +200%. Airlines are trading stocks: always have been, always will be. They are not long-term investment grade in my opinion due to the fact they control very few of the variables in their business.

Pretty much everything went right for us in this QAN "trading idea". The Oil price collapsed, the AUD collapsed, the domestic capacity war ended and QAN's earnings recovered as confirmed in yesterday's interim earnings result. The QAN share price has tracked the FY15 consensus EPS revisions. That drove a +200% share price appreciation and that's enough for me.

Despite QAN management doing an excellent job, I suspect the next +20% gain in the QAN share price will be much harder and slower than the last +200%, and that is why I am recommending taking trading profits today.

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AVJennings (AVJ): Good result, better outlook  

Click here to read our report.

Strong start to the year: AVJ reported a +95% uplift in underlying NPAT to $9.3m (BPe $5.6m) and its first interim dividend ($0.01ps fully franked) since 2012. Lot settlements were up +22% YOY and +10% ahead of expectations and this was the main driver of the beat. Lots under development, a key lead indicator of future sales, continued to expand up +22% HOH and +58% YOY and are now at levels almost five times the 2H12 low. We retain our Buy rating with a target price of $0.82ps.

Near term drivers remain sound: Near term demand remains robust with lots under development up +22% HOH (to 1,539) and FY15e contract signings guidance raised from 1,500-1,700 to 1,700-1,900. 1H15 gross margins were strong and impaired inventory continues to exit the system (provisions down 45% since FY13) through a combination of sales and provision releases ($9m in the last 2 years), which should assist margins in FY16-17e.

Changes to forecasts: Following the result we have raised our FY15e NPAT forecast by +19.8%, reflecting an uplift in lot settlements (+100) and development gross margins (+300bp) offset in part by lower price points. The latter two principally reflect changes in mix to land only sales. Changes in FY16-17e NPAT are more modest at +4.3% in FY16e and +3.8% in FY17e. Our target price remains broadly unchanged at $0.82ps with this principally derived from NTA, net working capital and FY16e ROIC methodologies.

Investment view: Buy retained: AVJ enters FY15e with its highest level of lots under development in seven years with the tailwind of a buoyant housing market. Despite this, AVJ continues to trade at an 22% discount to its net working capital backing and a 23% discount to NTA. With a 7 year tail in the development book (based on 1H15 settlements), undemanding valuation metrics and seven year high in projects under development, we retain our Buy rating with our target price unchanged at $0.82ps..

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BHP: An attractive divdend yield play. 

BHP: An attractive divdend yield play.

Watch our latest video by Peter Quinton on BHP. "To put it into very simple terms, in fiscal 2016, the fully franked dividend yield to BHP shareholders is going to be around 6.6% fully franked

BHP_(2)_First_Frame

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