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The Sunday Times - - BUSINESS WEEKLY -

AC­CU­MU­LATE QBE In­sur­ance Group (QBE) $10.33 QBE dis­ap­pointed the mar­ket with ex­pec­ta­tions that claims re­lat­ing to the re­cent hur­ri­canes in the US and Mex­i­can earth­quake would im­pact earn­ings by $US600 mil­lion. We don’t ex­pect the in­crease of claims costs to repeat in 2018. Over the longer term we ex­pect QBE to ben­e­fit from stronger global eco­nomic con­di­tions and ris­ing in­ter­est rates. QBE is un­der­val­ued and is trad­ing below our fair value of $13. RE­DUCE Flight Cen­tre Travel Group (FLT) $43.63 Since April, FLT has risen more than 50 per cent with the strong AUD ben­e­fit­ing Aus­tralians trav­el­ling over­seas. Over the longer term, higher mort­gage rates are likely to put pres­sure on house­hold con­sump­tion and may lead to consumers cut­ting back on hol­i­days which would neg­a­tively af­fect FLT. The stock is now trad­ing well above our fair value of $33 and we rec­om­mend re­duc­ing hold­ings. SPECULATIVE BUY Kala­ma­zoo Re­sources (KZR) $0.145 KZR has just an­nounced an op­tion to ac­quire three Pil­bara ten­e­ments prospec­tive for gold, cobalt and base me­tals to add to its ex­ist­ing project port­fo­lio. The three projects are close to the re­cent flurry of ac­tiv­ity in the gold space in the Pil­bara. The re­gion is poorly tested but highly prospec­tive. We main­tain our speculative buy on KZR, given the low mar­ket cap­i­tal­i­sa­tion and an­tic­i­pate plenty of news flow from the new ground. For high-risk in­vestors only. BUY Bendigo and Ade­laide Bank (BEN) $11.44 BEN’s fun­da­men­tals are look­ing solid and over­all out­look ap­pears pos­i­tive. Lend­ing growth has re­turned and the re­tail fund­ing base re­mains strong. BEN’s higher busi­ness lend­ing com­po­nent, in­clud­ing broad-based agribusi­ness lend­ing through Ru­ral Bank, pro­vided di­ver­si­fi­ca­tion from tra­di­tional mort­gages. On­go­ing cost dis­ci­pline is ex­pected to con­tinue and it re­mains on track to meet the APRA cap­i­tal re­quire­ment by 2020. The div­i­dend of 5.7 per cent is com­pelling. BUY Premier In­vest­ments (PMV) $12.81 PMV has ex­pe­ri­enced strong growth mo­men­tum in the Smiggles brand. In the UK, 38 stores have opened with a fur­ther 30 to 40 out­lets tar­geted for 2018. New stores have also opened in Malaysia, Hong Kong and Ire­land. Man­age­ment ex­pect rev­enue growth to con­tinue and are plan­ning to en­ter the Nether­lands and Bel­gium. On­line sales have achieved sig­nif­i­cant growth and ex­pected to ex­ceed orig­i­nal tar­gets. BUY Qube Hold­ings (QUB) $2.460 QUB has now reached an agree­ment with Tar­get Aus­tralia for both lo­gis­tics and ware­hous­ing at its Moore­bank fa­cil­ity. This con­tract is an im­por­tant step that will as­sist fur­ther take-up and the de­vel­op­ment of sup­ply chain ef­fi­cien­cies at Moore­bank. Gear­ing lev­els are below the com­pany tar­get range, giv­ing QUB op­tions for fur­ther de­vel­op­ment of ware­hous­ing projects and strate­gic in­fras­truc­ture as­sets. EQUAL-WEIGHT ANZ Bank­ing Group (ANZ) $29.48 We have re­duced con­fi­dence in ANZ's rev­enue re­cov­ery and be­lieve its loan loss gap to "nor­malised" loss rates is greater than its peers. At the same time its cost fo­cus and rel­a­tive cap­i­tal strength are well un­der­stood, while ben­e­fits of the "ANZ So­lu­tion" are re­flected in the price. We have re­cently down­graded our rat­ing to equal-weight. OVER­WEIGHT Trea­sury Wine Es­tates (TWE) $14.08 TWE is well placed to ben­e­fit from the pro­posed US Fed­eral corporate tax rate cut from 35 per cent to 20 per cent dur­ing 2018. We es­ti­mate that TWE gen­er­ates 33 per cent of group profits from the US. The pro­posed big re­duc­tion in the US corporate tax rate could drive 2019 earn­ings 7 per cent higher. OVER­WEIGHT Eclipx Group (ECX) $4.10 At its re­cent in­vestor day, ECX show­cased its strat­egy to lever­age its lead­ing corporate fleet busi­ness with high-growth ad­ja­cen­cies. Man­age­ment high­lighted the com­pany's abil­ity to pro­vide corporate and con­sumer cus­tomers a plat­form to fully man­age their mo­tor ve­hi­cle needs. This sup­ports our view of more growth, lower resid­ual value risk at a dis­counted P/E ra­tio.

Mor­gan Stan­ley Ian Clarke

Paul Adams DJ Carmichael

Heather Zampatti Bell Pot­ter Se­cu­ri­ties

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