"High Profile Dusters" - Interestingly, they fail to mention that Zone 1 anywhere in any of our plays haven't been tested yet... shows the mentality of the sellers, and the general feeling of ADI to some in the investment community.
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Slump offers bargains for investors
24/03/08 11:12
Some unloved stocks are now a third of the price that they deserve to be and the share market rout presents bargains for retail investors and corporate predators, analysts say.
Cheap share market valuations have led to strong merger and acquisition (M&A) activity, particularly in the resources sector. The the most recent example is the Lihir Gold/Equigold NL combination announced on Friday, and a takeover bid by Indophil Resources NL for Lion Selection Ltd announced on Thursday.
"And we're going to be more of this, there is no doubt," said independent analyst Peter Strachan.
CopperCo Ltd, which is merging with Mineral Securities Ltd, was a prime example of a company now priced at a third of its value, he said.
Mr Strachan said many companies were trading at bargain basement, bottom-of-the-cycle levels.
"They're probably three to five per cent from the bottom in any continued downward movement, which I think we're going to get," Mr Strachan said.
"The stocks that stick out are property developers and property trusts, and also financials: the main banks, Suncorp-Metway and ANZ particularly.
"Those stocks have fallen 50 per cent.
"I know there will be profit downgrades from the banks ... but I still think, if you take a two or three year views, those stocks are looking particularly cheap."
Mr Strachan said oil and gas producers such as Petsec Energy Ltd, Arc Energy Ltd, AWE Ltd and Roc Oil Company Ltd represented extraordinary value.
"Petsec ... would spit out the same amount of cash as you would pay to buy the company in about 14 months."
While not yet producers, oil and gas explorers Otto Energy Ltd and Nexus Energy Ltd were also good value, he said.
"Any company that's got oil and gas assets, as opposed to undertaking pure exploration, looks cheap."
Mr Strachan said the energy sector had lost favour with investors due to a lack of recent exploration success and operational woes at projects including AED's Puffin field and the Anzon Australia Ltd-operated Basker Manta Gummy joint venture.
Mr Strachan said a string of high profile dusters - dry wells - included Adelphi Energy Ltd's Sugarloaf project in the United States and others in Mauritania and China's Beibu Gulf.
He said some companies servicing the resource sector offered better value than others, with GRD Ltd, RCR Tomlinson Ltd and Monadelphous Group Ltd being the top picks.
Among this sector, the most expensive stocks included United Group Ltd, Leighton Holdings Ltd and WorleyParsons Ltd, he added.
He said BHP Billiton Ltd and Rio Tinto Ltd, which comprise 20 per cent of the S&P/ASX 200, were highly priced.
"If Rio goes back to $80 and BHP goes back to $28 to $29, we'll see this market back at 4,800 points, and that's when I'd be looking to pick up some stock."
In a research note on Sunday, brokerage DJ Carmichael said the companies that were merging were acquiring targets with large sums of cash.
"This makes sense in these difficult times of raising debt to build large projects," the brokerage said.
As for future M&A targets, DJ Carmichael singled out Murchison Metals Ltd and Mount Gibson Iron Ore Ltd, as potential targets.
Murchison has cash and liquid investments of about $190 million and Mount Gibson, $120 million.
DJ Carmichael also pointed to Troy Resources NL, a 60,000 ounce-a-year gold producer with $80 million in cash and an enterprise value of about $100 million.
Not only are companies including Moly Mines Ltd facing deferred project development as financing arrangements become increasingly hard to complete, new floats were drying up, DJ Carmichael resources analyst James Wilson said.
While retail investors should be making the most of the current fire sale, they remained averse to risk, Mr Wilson said.
There were "bargains galore" to be had, he said.