Index Changes, Results Season And Telstra

This story features MYER HOLDINGS LIMITED, and other companies. For more info SHARE ANALYSIS: MYR

By Rudi Filapek-Vandyck

Standard and Poor's will be making some changes to its main equity indices in Australia in March and analysts at Morgan Stanley believe Myer ((MYR)) might turn out one of the winners as the shares could potentially join the ASX100, the ASX200 and the ASX300 next month.

Guessing which stocks will be removed from these indices, and which ones will replace them, always comes with a certain degree of uncertainty. Standard and Poor's decisions, while based on publicly known principles, only carry 100% certainty on the day of the announcement. And index watchers have been known to be surprised by decisions in past years.

In this case the announcements will be made on Friday, March 5 and the index changes implemented on March 19. In between investors who follow these indices closely (like: index fund managers) will be selling stock in the “losers” and likely buying stock in the companies that will be added.

This is why it sometimes pays off to take a short time bet (but not always though – other factors can be in play).

Apart from Myer, Morgan Stanley analysts believe there is a fair chance Premier Investments ((PMV)) could be one of the winners too by joining Myer as a new addition to the ASX200. Other potential inclusions come with less confidence: could Mineral Deposits ((MDL)) and Perseus Mining ((PRU)) be among them?

As far as potential losers are concerned, the analysts suggest Dominion Mining ((DOM)), Sundance Resources ((SDL)), Minara ((MRE)), and Australian Agriculture Co ((AAC)) should be considered exclusion candidates for the ASX200, while Spark Infrastructure ((SKI)) is believed to likely lose its spot in the ASX100.

Elsewhere, RBS Warrants has observed that while everyone keeps talking about what a wonderful results season we are witnessing in Australia this month, the response by securities analysts has been far more subdued.

RBS Warrants is basing this observation on the fact that overall increases to earnings forecasts have been minor, while in the US at least a little bit more has been added to forward earnings expectations.

This, says RBS Warrants, "suggests to us either the market is happy with the numbers or there is a degree of uncertainty about the looming results".

RBS Warrants' observation is 100% backed up by FNArena's own observation. On our own calculations average EPS growth for the Australian share market has now increased to circa 1.5% for FY10, which is virtually unchanged from a week ago (despite the absolute barrage in company results). For FY11 the average EPS growth is now circa 21% and that too is only a smidgen higher than two weeks ago, or even prior to the February results season.

Time to point out that Telstra ((TLS)) shares are on the verge of closing below $3 today. A feat that has only occurred twice so far since the telco's listing on the Australian share market: in March last year and yesterday.

I note our own TechWizard, as well as technical chartists elserwhere, had been pointing towards this scenario. I mentioned this during last Friday's Round Table on BoardRoomRadio. The question now is: are the shares finally a Buy?

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