The Wrap: Salmon, Real Estate & Small Retail

Weekly Reports | Dec 08 2017

Weekly Broker Wrap: salmon; technology; high conviction stocks; global real estate; small retailers; house prices; and salary packaging.

-Weaker international salmon prices impact outlook for Oz producers
-Citadel Group debuts as number one in Bell Potter's key picks in technology
-Morgans suggests solid returns still exist but should not come with excessive risk
-Real estate portal adjacencies could be substantial
-RBA may be on hold until 2019
-Consolidation potential in Australia's automotive fleet leasing sector


By Eva Brocklehurst


Weaker international salmon prices have affected Ord Minnett's models for both Huon Aquaculture ((HUO)) and Tassal Group ((TGR)), and a -32% decline has been incorporated since May. The broker envisages an opportunity for Huon, as its valuation has de-rated more strongly than Tassal, and net profit forecasts are still 18% ahead of FY18 consensus estimates. A Buy rating is maintained while the target is trimmed to $5.81.

In contrast, Ord Minnett held less conservative prior estimates for Tassal so marking to market has more of an impact. Moreover, the broker finds the company's cost reduction outlook less compelling. Hence, the rating is downgraded to Lighten from Buy and the target lowered to $3.43 from $5.00.


Bell Potter updates its key stock picks in the technology sector following recent price movements. Citadel Group ((CGL)) debuts at number one with a strong growth outlook and potential to re-rate as a pure software company from a services and software company.

Technology One ((TNE)) remains a key pick as its expected to deliver a strong growth year in FY18 and trades at a PE discount to other high quality tech stocks. A solid earnings rebound is expected from Senetas ((SEN)) while Appen ((APX)) returns as a key stock following a transforming acquisition. There are no changes to the broker's Sell ratings on WiseTech Global ((WTC)) and Altium ((ALU)), which are based purely on valuation.

High Conviction Stocks

Morgans suggests stock markets are in a sweet spot, as global growth is becoming entrenched and there is little evidence of inflation. Nevertheless, geopolitical risks also indicate this environment is unlikely to continue. The broker advises that while solid returns are still achievable, this should not come with excessive levels of risk.

The broker identifies Senex Energy ((SXY)) as ideally position to make a material impact on the east coast gas market, with two projects expected to transform earnings over the next few years. Bapcor ((BAP)) is removed from the high conviction list, having locked in a 12% return over the last nine months . Still, Morgans remains attracted to the stock's defensive characteristics.

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