Education
This Time Last Year I wrote an article titled The most (and the least) profitable companies on the ASX200. The article was written in response to reading several pieces in the financial press, breathlessly describing the size of profits that the major banks had generated which created the impression that... Show More
In each semi-annual reporting season, there are a few dates in the calendar that a fund manager will have circled either with pleasure or trepidation, either due to the expectation of a very good result or the fear that unpleasant issues will be uncovered. In February 2019 two of those... Show More
Commentary on house prices was a major topic in Australia’s media throughout 2018. As a nation whose taxation system incentivises home ownership, falling prices – although coming off close to 10 years of solid annual compounding gains – understandably generate a large amount of media coverage and community interest. Show More
Equities
Normally the most important dates in the financial calendar are the releases of their six-monthly profit results in February and August, but for Commonwealth Bank shareholders the most important date for 2019 was not the announcement of their earnings this morning, but rather the release of the Hayne Report on... Show More
Equities
The “Dogs of the Dow” is an investment strategy that is based on buying the ten worst performing stocks over the past 12 months from the Dow Jones Industrial Average (DJIA) at the beginning of the year but restricting the stocks selected to those that are still paying a dividend.... Show More
Over the course of 2018, the Royal Commission into Financial Services has provided numerous examples of the conflicts of interest inherent to the vertically integrated model of financial advice. In this model, the financial adviser is often incentivised to direct their client's savings onto an investment platform and then invest... Show More
Over the past six months, there have been numerous headlines around rising energy prices and their impact both on curbing global growth and in cutting domestic consumption as the costs of transporting people and goods around Australia were rising sharply. However, instead of climbing as expected, the oil price has... Show More
"In the short-run, the market is a voting machine - reflecting a voter-registration test that requires only money, not intelligence or emotional stability - but in the long-run, the market is a weighing machine." Show More
In March Wesfarmers announced their intention to demerge Coles into a new separately listed company, with the new company expected to list on the ASX next Wednesday. Existing Wesfarmers shareholders will receive 1 share of Coles for every Wesfarmers share they own and the parent company will retain a 15%... Show More
We are generally pretty sceptical about new IPOs (initial public offerings). Occasionally, however, a great IPO comes along, either for a long-term investment or one with a high probability of making a short-term gain on its opening day, so it is always worthwhile to run the ruler over companies about... Show More
Graeme, I probably should not have revealed the practice of "window dressing", but it has to do with incentives. A downgrade from an asset consultant can have a very material impact on a fund manager's business as it will certainly result in significant outflows and in some cases damage the viability of the manager's business. Given this fund managers have a strong incentive to do everything in their power to maintain the "recommended" grade. Having a portfolio with a few "Dogs" from the previous year combined with an underperforming year is likely to result in tough annual review from the asset consultants. The manager also wants to avoid a situation where for example they have held OneSteel in 2014 defended the holding in the review and then seen the company subsequently slide into administration. Hugh
Douglas, A2M has been very successful offshore in focusing on a particular niche where the company has some form of comparative advantage namely a) A2 beta-casein protein and b) "clean" Australia/New Zealand manufacturing which has been a big asset selling product into China. This suite of IP and organic growth is very different from Fosters simply opening up the chequebook to buy stakes in breweries in Shanghai, Guangdong and Tianjin. Hugh
I appreciate the positive feedback. I like ROCE as it looks at how efficiently a company uses the capital given to it by shareholders and banks/bondholders. One of the weaknesses of ROE as a measure is that highly geared companies can appear very efficient using ROE as the business is primarily financed by debt. Changes to business or capital market conditions can render such companies vulnerable. Hugh
On The most (and the least) profitable companies on the ASX200 -
Great note Steve. Earlier this week we were looking to do a piece combing through BIG's Appendix 4Cs and to over the last year to try find some obvious signs for retail investors that they should have concerns, without much success. The quarterly cash flows appeared strong and the only sign we could find was the categorisation of operating cash flows as "Receipts from customers and other sources" - not really massive warning sign when these accounts were examined in mid 2017. Hugh
Kui, Great question, if you apply the $409M proceeds against debt the gearing only comes down to 36%, outside the target range of 25-35%. So QBE require organic capital generation to fund the buy-back. Whilst new management have made some positive moves, it is probably premature in February to assume that QBE will have a smooth year without any major cat events, especially prior to the Atlantic hurricane season (June to November). Hugh
Great article Jason, especially point 1. Small cap valuations and the hunt for growth at any price is very similar to what i saw as a small cap analyst in 2006 and 2007.
Thanks Rod but often the presentation of these statements also deceive professional investors with decades of experience, financial education and 12 plus hours a day to analyse a company.
On Earnings Chicanery - how companies "dress up" their results -
Mark, The beta's that you are getting from Commsec don't look right. What we use is a 5 year beta with observations taken weekly. From experience shorter periods (which Commsec may be using) tend to throw up some weird numbers. Email me on inquiries@atlasfunds.com.au if you want to discuss further Hugh
On High Priced Shares -
Jaiprakash, GMA's buy-back is clearly supporting the share price, though one may question the long term rationale behind reducing a mortgage insurers prescribed capital rating at a time when GMA's metrics are deteriorating sharply. Hugh
Thanks Dylan. PTM are yet to buy back a share since the buy-back was announced Sept 13th 2016
Great piece Andrew, sensible advice for small cap investors
Great piece Nick, solid analysis