2009 - March/April

Angus Geddes

Founder and chief executive  
Fat Prophets

WOODSIDE PETROLEUM (WPL)

Woodside offers very attractive long-term growth prospects, primarily through the huge Pluto LNG project offshore WA, which is on track to commence operations in late 2010.

It is our view that the currently low energy prices will not prove sustainable in the years ahead. The long-term energy price drivers of flagging supply and growing demand remain in place despite the near term economic gloom.

Woodside’s current market valuation therefore offers a convincing risk reward profile given the upside potential of the Pluto project.

LIHIR GOLD (LGL)

Lihir’s strategy centres on transitioning from a single asset operation to a multiple mine, world-class gold producer. The company’s fourth quarter production report revealed excellent progress towards this goal.  An advantage Lihir has over other miners is the prevalence of geothermal energy at their Lihir Island project. Harnessing this energy contributes to Lihir maintaining their position at the lower end of the industry’s cost curve.Meanwhile, we expect the gold bull to gather a head of steam in the years ahead. Governments and central banks around the world are trying to print their way out of trouble, to the detriment of currency values relative to gold.

INSURANCE AUSTRALIA GROUP (IAG)

Although there is still a long road to travel, IAG’s domestically focussed recovery is certainly well underway. This increases the probability of a re-rating for the stock later this year, as the realisation of the immediate goals come into view. In the meantime, the defensive nature of the core insurance business and now sustainable dividend yield provides some downside protection to the company’s
stock price.

Jody Elliss

Chief executive
Investor Centre

WORLEYPARSONS LTD (WOR)

Worleyparsons Ltd (WOR) is a leading service provider in the energy and resource sectors.  It has maintenance facilities primarily in the Asia Pacific, Middle East, and United States. WOR currently has a P.E. ratio below 10 and has a partially franked estimated yield of around 8 per cent on current share price calculations for 2009.  WOR is due for an interim dividend (expect around $0.45) at the end of March. WOR has just been awarded the Saudi Aramco Mobil refinery contract which is worth $400M over the next four years.  WOR could easily move back towards $18.00 with strong earnings in the face of an economic downturn.

ENERGY RESOURCES OF AUSTRALIA LTD (ERA)

Energy resources of Australia Ltd (ERA) is involved in exporting uranium with contracts to supply fuel in Asia, China, Europe, and North America.  It has more than $4B of exports and produces more than 5 per cent of the worlds uranium.  Despite the economic turndown, it hold strong contracts and profits are up nearly 200 per cent to a record $221M. ERA is the beneficiary of a lower $AUD and continues to prosper. ERA will move back above $23 from its current $18 base.

ATLAS IRON LTD (AGO)

Atlas Iron Ltd (AGO) is an iron ore exploration company with good holdings of iron, gold and other base metals in the Pilbara region of Western Australia.  It is a significant share holder in Shaw River Resources and Warwick Resources Ltd. While AGO reported a negative cash flow in December, which brought its share price below $1.00, strong buying has put this stock in demand and overseas investors are viewing this stock as a bargain below $1.70.

Charles Leyland

Founder and managing director

Leyland Private Asset Management

FLIGHT CENTRE (FLT)

Flight Centre (FLT) saw a marked slowdown in sales during November and December as the economic downturn took its toll. The company expects to deliver a profit before-tax of between $82 to $87 million in the first half of FY2009, down from $93 million in the previous corresponding period. To weather the downturn, Flight Centre is intensifying its focus on cutting operating costs and overheads. Longer term, ongoing store roll-outs and further acquisition of niche travel business should cement the company’s market share and buying power in a consolidating industry.Despite the economic challenges, Flight Centre remains a profitable business.

SEVEN NETWORK HOLDINGS (SEV)

With a cash position greater than $1.5 billion, liquid assets (equities) of approximately $500 million and no debt to speak of, SEV currently has an enviably strong balance sheet. To put this in perspective, Seven’s market capitalisation is only $1.2bn. In addition to the discount to cash and liquid assets as mentioned above, SEV also owns 40 per cent of Seven Network which is currently dominating the free to air landscape, and has a monopoly on the metropolitan unwired (15mhz) spectrum, which is currently trialing new technology which produces the fastest broadband speeds ever seen in the wireless industry (over 30 meg per second).

AUSTAR (AUN)

In a world where debt has become a dirty word, there are gems amongst the rubble that are being ignored. One such gem is Austar. With almost no serious competition in its primary markets, AUN is the type of toll road monopoly with high barriers to entry in which Warren Buffet so often aspires to invest.