Sam Ferraro

Founder of Evidente, Salvatore Ferraro, is a top rated quantitative analyst and has over 17 years of experience in financial markets, with investment banks, Goldman Sachs and Merrill Lynch, providing advice on best practice to portfolio managers...

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Beyond earnings torpedoes

Sam Ferraro

Following its 5% to 10% miss on consensus earnings for 1H, Domino’s fell by around 15% from peak to trough last week. The market has little tolerance for earnings misses from growth stocks. Even after the price decline, the stock is still trading on well above 20 times 12 month... Show More

valuation ASX:DMP ASX:WES Growth vs Value

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Bernanke points to a new dawn for monetary policy

Sam Ferraro

In a recent research paper, former Chair of the Federal Reserve, Mr Ben Bernanke, proposes price level targeting as an alternative framework for monetary policy. Since 2012, the Federal Reserve has had an explicit inflation target of 2% pa, with inflation commonly measured in terms of the chain price... Show More

The RBA rings the bell

Sam Ferraro

The RBA's biannual Financial Stability Review (FSR) has become essential reading since the financial crisis, even for stock-pickers. The central bank has used the October issue as an opportunity to vent about its concerns surrounding investor complacency in global financial markets. It has cited some of these concerns previously, but... Show More

Subdued volatility conditions belie tail risks

Sam Ferraro

Summary: Market volatility conditions remain subdued in Australia, with volatility in the Australian dollar, government bond yields and the stock market close to historical lows. Lower stock market volatility appears to reflect a global volatility shock, with realised and implied volatility in the S&P500 also benign. Subdued market volatility belies... Show More

Yellen takes aim

Sam Ferraro

A number of popular scapegoats emerged in the aftermath of the financial crisis: conflicted credit rating agencies, a corporate culture and regulatory environment that encouraged risk taking over risk management, lax lending standards, rapid growth in credit, and what some considered to be excessively loose monetary policy from the U.S.... Show More

fed yellen policy Australian Interest Rates

Still positive on the banks

Sam Ferraro

There is plenty of bad news buffeting the banks, but I remain positive on the sector because pricing suggests that investors have become too gloomy on the sector’s prospects. The sector is trading on a book multiple of 1.9x which represents a 50% discount to the non-bank industrials. Show More

ASX:ANZ ASX:CBA ASX:NAB ASX:WBC

APRA's quest for an unquestionably strong financial system continues

Sam Ferraro

It has been a good week for APRA and the Reserve Bank. Their announcements surrounding the expansion of macro-prudential policy tools and warnings around the outlook for property prices have had the initial desired effect of maximum media coverage. They would hope that lenders and potential property investors are getting... Show More

Australia's housing revolution continues, but for how much longer?

Sam Ferraro

The revolution in Australian housing reflects a shift towards higher density dwellings. Building approvals for high density dwellings now accounts for half of residential approvals, well above the historical norm of around one-third. Show More

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Weekly Impressions: US corporate profitability - The coming compression

Sam Ferraro

Last year, Evidente published a report entitled The Dangers of Safety, which suggested that there had been an extended period of a rising equity risk premium. Since mid-2016, there has been a reversal of this trend, with the risk free rate moving higher and risk premium moving lower. In this... Show More

GDP contraction belies underlying strength in economy

Sam Ferraro

The outright contraction in the September quarter real GDP belies underlying strength in the economy. Nominal GDP lifted by 0.5% and expanded by 3% in the year to the September quarter. The nominal economy - which is a more important barometer for stock investors - is gradually pulling out of... Show More

The US Presidential election - Lessons for investors and forecasters

Sam Ferraro

The surprise election of Mr Donald Trump as 45th President of the United States – by a convincing majority in the electoral college – raises four questions that forecasters and investors need to confront. Why did Mr Trump win? What inferences – if any – can investors make about an... Show More

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The dangers of safety

Sam Ferraro

A lift in the equity risk premium (ERP) represents a cohesive narrative of a number of key empirical phenomena in financial markets: stock markets have not-rated despite the drop in the risk free rate, animal spirits in the corporate sector remain dormant despite high profit shares globally and stocks offering... Show More

An open letter to CBA Chairman, Mr David Turner

Sam Ferraro

In this open letter, I question the CBA's misconduct around financial advice in a vertically integrated model of financial advice and cite a senior economist's call for an inquiry into the conflicted nature of financial advice among the major banks. Given the growing regulatory risks surrounding the banks retaining their... Show More

Inflation targeting - RIP?

Sam Ferraro

Interbank Cash Rate Futures point to a 65% probability that the RBA Board will cut the Overnight Cash Rate (OCR) by 25 basis points at the August meeting. Real rates have effectively lifted in the first half of CY2016, with the 25 basis point cut to the OCR in May... Show More

Evidente launches its long only model portfolio for Australia

Sam Ferraro

Evidente's long only model portfolio is a high conviction, concentrated portfolio with no more than 30 stocks and an active share of no less than 30%. The key macro theme that guides portfolio construction is the prospect that interest rates will remain low in Australia and globally for an extended... Show More

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Reflections on Brexit and the future of the European Union

Sam Ferraro

The resounding victory of the ‘Leave’ campaign following last week’s UK referendum revealed a high level of antipathy towards European integration and immigration policy. In this post, Evidente briefly traces the antecedents of the EU and tentatively maps out various future scenarios surrounding European integration. On balance, the chance of... Show More

Another rate cut expected this year

Sam Ferraro

Various measures of underlying inflation have been at the bottom or below the central bank’s target band for some time now. Because there is little evidence to suggest that growth in aggregate supply or productive capacity has lifted significantly, the onset and persistence of disinflationary forces in Australia and globally... Show More

inflation the buy side brief Australian Interest Rates

Employees continue to lack confidence in the future

Sam Ferraro

The key development since the GFC that’s contributed to the slow recovery in the Australian (and global) economy has been a substantial reduction in the stock of human capital, reflecting lower expected future incomes growth and sticky personal discount rates. In Australia, nominal average compensation per employee has slowed to... Show More

macroeconomics the buy side brief

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Support for the AUD at current levels

Sam Ferraro

The weaker than expected non-farm payrolls outcome for the month of May has led interest rate futures markets to scale back expectations of the timing around further rate hikes in the United States. In an environment where many of the world’s major central banks are resorting to the use of... Show More

aud macroeconomics the buy side brief

Weekly Impressions: Home truths about housing affordability

Sam Ferraro

Malcolm Turnbull confirmed that the federal election will be held on July 2nd. Housing affordability has already emerged as one of the battle-lines in the election campaign. Concerns about housing affordability have also fed concerns about Australia's 'big short'. In this post, Evidente challenges the view around the affordability crisis.... Show More

Hi Patrick, thanks for reaching out with the feedback. With respect to the ROE, if the lift in equity is associated with a reduction in ROE, then it is because the company is less risky. This is consistent with the MM proposition that a lift in equity capital reduces the expected cost of equity. From a Gordon growth perspective, its not clear that this changes the book multiple. Although the expected roe falls, so does the discount rate, k, which should offset one another. p/e = 1/(k-g). p/bvps = roe/(k-g).

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