Tag Archives: Telecom/Technology

article 3 months old

Doubts Over M2 Telecom’s Growth Rate

-Question mark over earnings growth
-Volume growth drives revenue
-Brokers cautious about company's plans
 

By Eva Brocklehurst

M2 Telecommunications ((MTU)) needs to deliver better organic growth to satisfy expectations, or pursue more acquisitions. This is the key finding as brokers rake through the half year results. Most of the growth in earnings was driven by the Primus acquisition and a question mark hangs over what will drive earnings growth in the future.

For Citi the calculation of the organic growth rate is made more difficult by the fact that M2 has made both acquisitions and a divestment over the past 12-18 months. Volume growth seems to be the main revenue driver, offsetting pricing pressure and churn. Citi expects revenue will be at the lower end of M2's forecast range of $610m to $650m for FY13, because of further divestments of low or no-margin business, but profit will be at the top end of guidance ($43-48m), derived from an 18% earnings margin.

Macquarie is cautious about synergies continuing beyond FY13, given the size of the Primus acquisition and the issues around operating a telco infrastructure, a new area for M2. CIMB also suspects synergy gains from here will be an uphill battle. The core Small-Medium Enterprise (SME) segment, including Primus, Commander and People Telecom, looks to be growing at less than 1%, according to Macquarie. Yet management expects it to grow 5% by June and 7-8% by the end of 2013. CIMB finds the performance wanting in this area. Macquarie believes the Primus acquisition has changed the company's business and the search for synergies has distracted from SME-focused direct sales. 

The consumer business, including iPrimus and Time Telecom is expected to break even. Macquarie notes the focus here has changed from a defensive strategy to a more expansionary strategy - reducing churn, improving bundling and increasing access to market.

M2 plans to aggressively grow market share in SMEs via a scaleable distribution network as well as expand consumer market share. Citi and Macquarie are giving the company the benefit of the doubt. For CIMB this is not enough. The broker does not see enough catalysts for stronger organic growth.

Macquarie has reduced its rating to Hold, given the strong share price appreciation recently. On the FNArena database there are three brokers covering M2. Macquarie has the Hold position. CIMB has the Sell and the Buy is occupied by Citi. Citi is happy to retain a Buy rating based on the company's reiterated guidance. CIMB thinks the good news is all factored in to the share price and has downgraded to Sell. The consensus price target on the database is $4.57, showing just 1.3% upside to yesterday's closing share price.
 

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided.

article 3 months old

Can Telstra Hang On?

After going ex-dividend last week Telstra ((TLS)) is holding the dividend at $4.60 at present on 26th February.

Last night's price action in the US was bearish and it looked to the TechWizard that a run for the exits is about to happen for a decent correction

A daily close below $4.48 would usher in selling down to $4.20 but if TLS is favoured as defensive stock in this correction, a daily close above $4.68 would see $4.80 on the cards.

The TechWizard favours the downside.



 

The TechWizard is the pseudonym of Scott Morrison, whose experience in financial markets exceeds twenty years. Morrison operates his own website nowadays at www.techwizard.com.au. All views expressed are the TechWizard's, not FNArena's (see our disclaimer).

Technical limitations

If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided.

article 3 months old

What Analysts Reckon About Reckon

- Intuit leaving a big hole
- Competition circling
- FY14 will make or break
 

By Andrew Nelson

It started last February. That was when analysts' pet Reckon ((RKN)) first started to fall out of favour with brokers. The accounting software specialist had already seen a couple of moves down to Neutral on valuation grounds, but then the month saw a rare FY reporting miss and the stock’s well regarded status started to crumble.

The news convinced Macquarie to downgrade to Neutral. The broker was worried about challenging market conditions and an increasingly stretched looking valuation. The broker downgraded to Underperform just a month and a bit later, this was on news the distribution relationship between Reckon and Intuit would end in 2014. Customer leakage, increased R&D to replace Intuit and a premium to the Small Ords were the driving factor.

This week saw the next move, again after the release of company’s FY report one year down the track from when the cracks started to emerge. The last holdout sitting at Buy was BA-Merrill Lynch, but the broker cut to Neutral yesterday after the company missed the broker’s forecasts by 5%. While margin erosion within the business division was the main culprit, BA-ML admitted the obvious: the imminent removal of product partner Intuit has created uncertainty.

Despite the downgrade, BA-ML continues to see upside in the form of 30% return on capital performance, free cashflow margins of 20% and a buy-back that should help support 12% EPS growth. However, persistently underperforming earnings, uncertainty around what the broker calls the Intuit “divorce” and the looming threat of a tougher competitive backdrop as peers take advantage of current weakness has the broker worried. This cocktail saw BA-ML cut FY13-14 net profit forecasts by 14% and 6%. The broker still thinks the valuation would be looking good, if not for the above.

Deutsche was OK with the result, but the rest of its assessment reads exactly the same as BA-ML’s. Uncertainty surrounding the Intuit license, less favourable industry dynamics etc. The levels of recurring revenue, a sticky customer base, strong cash flow generation and a solid balance sheet are simply not enough of an offset, it seems. However, were the company able to bank the entire $6m royalty payment due on termination of the Intuit license, then 2014 net profit lifts 9.5% and the PE falls to 12.6x. A whole different story, says the broker.

CIMB, also sitting at Neutral, sees an important year ahead for the company. A big rebranding push, increased marketing and the release of new Reckon One product could all add up to major game changers. However, FY14 will be the crux and we won’t really know anything about the company’s mid to longer-term prospects until then. In the meantime, the broker expects 7% earnings growth over the year ahead is achievable, with even more potential depending upon how the licensing issues works out.

Despite finding the company’s FY report reasonably solid and believing the growth rate is sustainable, at least over the near term, Macquarie continue to believe the stock is at serious risk of a PE de-rating given the current 22% premium to the Small Industrials.

Macquarie, still at Underperform, also sees a real risk the company may have to lift its R&D spend to bring them into line with industry averages just to keep up with the competition over the longer term. Peers like MYOB and Xero are not likely to be asleep at the switch and longer term customer attrition thus also remains a real risk.

FNArena's Stock Analysis shows three Hold and one Sell rating with a consensus target for Reckon of $2.34, slightly below yesterday's close.
 

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided.

article 3 months old

Corum Ltd: Why We Will Not Be Investing Anytime Soon

by Shuo Yang (Investment Analyst) and Carlos Gil (CIO) at Microequities Asset Management

Recently we came across Corum Limited ((COO)), a software company specialising in real estate rental payments and pharmacy dispensary. The company has displayed consistent revenue over the last few years, although we acknowledge there has been no growth. Margins have also been exceptionally strong, circa 30% on a normalised EBITDA basis, which is outstanding even for a software company. Delving deeper, we noticed quarterly cash flows were consistently robust and capex was minimal. The balance sheet was pristine and had improved over time with no debt and cash as of 1H13 in the region of $6 million. At the time we first came across the company, its market capitalisation was $37m and was on a profit before tax multiple of 6 times. We also liked the scalability aspect of being a software company. To us, on paper, it ticked all the boxes of being a potential investment candidate. 

The next step of our due diligence process involved contacting the company and requesting a phone conversation and face to face meeting with management. This process allows us to better understand the background of the company, its operating environment and whether we feel comfortable with the executive team running the company, as they are effectively the managers of our investment dollar and our client’s hard earned dollars. It took numerous phone calls over about two weeks before we could get hold of the managing director, already not a very good investor relations sign. Once we eventually did manage to make effective contact we were told by the CEO “We are a subsidiary of a private company (Lujeta Pty Ltd) and do not provide selective briefings to analysts or investors”.

Further digging from our side revealed Corum was majority owned by Lujeta Pty Ltd, a private investment vehicle owned by one of the directors on the Corum board. In 2011, it would also appear that Douglas Halley, one of the independent directors on the board of Corum at the time, was facing a motion to be removed from the board from Lujeta. In a CFO World article published on 11 November 2010, Mr Douglas Halley said, ‘he felt he was the only truly independent director’ and that in his view, ‘it is my exercise of true independence as a director that is the reason for [the motion]’.

The reluctance of management to speak with us and the lack of independence on the Corum board sounded warning bells to us. It’s not to say that there is anything wrong with the company, its future prospects or the management but we have to follow our own investment philosophies. We perceive a greater risk with a non-independent board, a large controlling shareholder and management that seems to be unwilling to engage with the investment community. Corum Ltd might 57.9% owned by Lujeta Pty Ltd, but 42% of the shareholders are not related to Lujeta Pty Ltd. Effectively, 42% of the salary of the CEO is paid by those non Lujeta shareholders, and they have a valid right to engage with management. Furthermore, a public listed CEO should understand that part of his role as an executive of a public company entails liaising and engaging with investors, shareholders and the investment community at large. One wonders if the CEO takes call or provides private briefings to Lujeta Pty Ltd and its officers and if so, is this really treating all shareholders equally? Shouldn’t the minority shareholders interest be treated fairly? For Microequities Asset Management it is not only important companies possess strong business models and a valid investment case, the conduct of their key executives must befit that of a person who upholds the best interest of all shareholders, not only those that control 57% of the company. 
 

Microequities Asset Management is a value investor specialised in Australian microcaps. Its flagship fund –the Deep Value Microcap Fund-- has a 5 star Morningstar rating. For further information visit microequities.com.au. Content included in this article is not by association the view of FNArena (see our disclaimer).

DISCLAIMER: This article contains general information only and should not be construed or relied upon as legal, financial or professional advice. Accordingly the recipient should note that a) the advice has been prepared without taking into account the recipients objectives, financial situation or need; and b) because of that, the recipient should, before acting on the advice, consider the appropriateness of the advice, having regard to the recipients objectives, financial situation and needs, and obtain individual professional advice on this matter.

article 3 months old

Telstra to Test Five Dollars?

Dominant Australian telco Telstra ((TLS)) is considered a defensive holding but this has not stopped the stock joining in the recent "risk on" rally. At the end of the day, reliable yield is still being sought in a low world interest rate environment which makes Telstra's forecast yield in excess of 6% over FY13 and FY14 very attractive to offshore investors, and even more so to domestic investors enjoying full franking.

Indeed, analysts have begun to speculate on the prospect of Telstra raising its dividend in years ahead but while this might add to the positive story, a consensus price target for the stock of $4.02 among FNArena database analysts does not. The stock closed yesterday at $4.59 and no database broker has ascribed a Buy rating.

From a technical perspective however, the TechWizard's charts suggest Telstra, like most of the market, is in a "melt up" phase, and the Wiz notes no overhead resistance until the old 2008 high of $5.00. If the market rally continues, then the Wiz can see the stock heading to test that old high at $5.00.
 


 

The TechWizard is the pseudonym of Scott Morrison, whose experience in financial markets exceeds twenty years. Morrison operates his own website nowadays at www.techwizard.com.au. All views expressed are the TechWizard's, not FNArena's (see our disclaimer).

Technical limitations

If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided.

article 3 months old

Could Telstra Raise Its Dividend?

-Telstra looks solid
-Potential for increased dividend
-NBN value should hold up
 

By Eva Brocklehurst

Dominant Australian telco Telstra ((TLS)) remains on solid ground in 2013 and should retain its value position with ergard to the NBN (national broadband network) this year, according to most brokers. JP Morgan notes, even if Telstra's share of NBN retail broadband services (household and small business) falls to a forecast 32.5%, compared with an earlier 46%, it does little to move valuations. A 1% shift makes a difference of 2c. So what excites brokers going forward? It's the prospect of increased dividend payments.

Macquarie is most upbeat on the company's ability to pay increased dividends going forward, expecting increases are likely from FY14. The broker believes Telstra will be strongly generating cash over the medium term and franking credits are not a barrier to increasing dividend levels. Furthermore, on the back of increasing the ordinary dividend to 30c (from 28c in FY13), Macquarie finds scope for a 2c special dividend, rising to 8c by FY17, assuming little change to the NBN deal structure. Macquarie has raised its target price to $4.30, topping the FNArena database range, to reflect both market and stock-specific factors.

Ahead of the first half result, UBS is also of the belief that dividends can increase in FY14 and has marked its forecast up to 30c, with 32c in FY15. UBS notes Telstra has bounded off a low in November 2010 and now trades at a 12% premium to the long-held $4.00 discounted cash flow value. Therefore, the broker finds further share price appreciation is limited in the near term. A more rational pricing environment, market share momentum, cost out and 4G upside have now been priced in. Hence, a Hold rating is maintained.

Meanwhile, CIMB sees a potential change in government as the key issue for 2013. This could create some uncertainty around forecast payments from the NBN, although the broker does not believe any change would provide a significant risk to the value of Telstra's $11bn NBN deal. CIMB has raised its price target to $4.15 (from $3.85) and sees investor demand for yield supporting the stock price in the near term. Nevertheless, the broker has moved to a Sell rating from Hold as, on an FY13 price/earnings ratio of 15 times there is limited valuation support at these levels. On the story of dividends, CIMB expect a more modest improvement, up to 29c in FY14 and 30c in FY15, calculating there is sufficient cash flow and earnings per share (ie franking credits) to support this.

JP Morgan is at the softer end of the scale, believing many industry observers over-estimating the returns that will be achievable on NBN products because they are used to looking at capital-intensive businesses with oligopoly characteristics. Moreover, this broker says forecasts for earnings margins of 20-30% seem unrealistic given the low capital intensity of NBN participation. JP Morgan is aware that investors may be asking whether buying Telstra for yield could prove to be a mistake if fixed line returns are re-based radically. While being conservative about returns, the broker thinks the valuation can withstand this, although notes that the share price has now drifted above the broker's June 2013 price target of $3.97.

As for the dividend, JP Morgan is not going out on any limb, simply noting that the 28c dividend would be covered by free cash flow until FY22 and by earnings until FY21. Once NBN disconnection payments run down, free cash flow falls sharply. The broker admits this makes Telstra an unusual investment, as it is effectively selling part of its business (fixed line customers), returning capital to shareholders and ultimately growing off a much lower earnings base. One challenge this poses, according to JP Morgan, is that valuation multiples, including yield, do not work well for Telstra, as they imply that the cash flow is ongoing. The broker is sticking with a discounted cash flow valuation.
 
Overall, Telstra serves up six Hold recommendations on the FNArena database and two Sell (CIMB and BA-ML). The target price ranges from $3.50 (BA-ML) to $4.30 (Macquarie). According to FNArena's Stock Analysis, on current FY13 forecasts and current share price, Telstra is offering a fully-franked yield of 6.2%, rising to 6.4% on FY14 forecasts. 
 

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided.

article 3 months old

Integrated Research Offers High Tech Opportunity

-IRI coverage initiated with Hold
-Offers high tech exposure
-Blue chip customer base


By Eva Brocklehurst

Software developer, Integrated Research ((IRI)), presents opportunities for exposure to the high tech arena according to Moelis. The Australian based company, established in 2007, provides monitoring and reporting functions for critical IT infrastructure, payments and communications. IRI claims to "make your business irresistIble to your customers". Moelis has initiated coverage with a Hold rating and target price of $1.45.

The company has warned that first half profit will likely be $2.5m-2.9m against $3.6m previously (ie down 20-30%) but Moelis explains this as largely attributable to the lumpy nature of the company's contracts. Management has said the sales pipeline is very strong and the shortfall in licence sales in the first half will likely be made up in the second. This should deliver growth in FY13. IRI customers include financial institutions, stock exchanges, telcos and governments. Its revenue breakdown is typically 20% per annum of revenue spent on R&D and 30% as maintenance. IRI specialises in business-to-business and most of its clients are recommended by other clients.

Moelis says the significant opportunities available were demonstrated by the net profit growth of 21% in FY12 that followed a 39% increase in FY11. The company's main segment, Unified Communications (around 44% of revenue), delivered a 31% constant currency revenue increase in FY12. The broker says this demonstrates the opportunities available within an immature high growth segment driven by the growth in size, complexity and critical nature of networks, particularly in the Americas. Infrastructure, the second major segment, (around 42% of revenue), comprises the traditional Prognosis Nonstop software. This experienced a 5% decline in revenue reflecting what is now a mature global market, according to Moelis.

What attracts the broker is the significant opportunities available to Unified Communications software within a high growth (15% pa) international segment valued at over $500 million. This is driven by the need for multiple methods of communication as well as the company's stated target to increase the current 5% global market share to 25% by 2017. Despite some recent weakness, IRI’s share price is up over 180% over the past year. Moelis says its value metrics are well deserved and the return on equity is over 30%. 
 

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided.

article 3 months old

Weekly Broker Wrap: Slowly, Slowly Grinds The Recovery

-Recovery will be slow in 2013
-Mid cap resources making headway
-Opportunity in software
-Tough times in healthcare


By Eva Brocklehurst

Domestic recovery is coming, slowly. CIMB has launched a semi-annual survey of its analysts to see how their macro views are tracking. A domestic cyclical recovery seems to be in the early stages but the momentum is fairly weak. Firms are focused on reducing costs. CIMB notes cost reduction has been weak in the basic materials sector, but this could be changing with Boral’s ((BLD)) announcement of staff cuts. Retail, food & beverage and infrastructure sectors have also been less aggressive on costs. The mining sector has an improved outlook for margins, given a combination of cost mitigation and stronger demand. CIMB says business conditions are unchanged, or have weakened, for the small-cap stocks exposed to domestic housing and consumer spending.

Of course any meaningful dip, say 10%, in the Australian dollar would have a large positive effect on earnings for S&P/ASX 200 companies in the broker's coverage. Miners would have the most to lose from further appreciation of the Australian dollar and transport and infrastructure stocks would see relatively little impact, CIMB notes. The analysts believe 36% of investors are neutral on the market, while 35% are underweight and 25% overweight. Large-cap diversified miners are seeing a pick-up in demand and some margin expansion. However, the broker is seeing the mid-cap iron ore, uranium, zircon and rare earths stocks (led by iron-ore miners) making up the most ground. Demand in the mid-cap coal and gold sector is relatively weaker.

The market will be fighting to sustain the rally in the year ahead, BA-ML contends. While small caps rallied in 2012, resources were a weak spot. Despite this, small-cap valuations are still attractive to the broker, but investors need to be selective. Small-cap industrials are attractively valued at a 1% discount relative to the broader market, despite a vast majority of quality stocks having re-rated in 2012. Industrial goods & services dropping materially within the index. Preferences are for energy over resources. Mining services have run too hard and consequently the broker downgraded Bradken ((BKN)) and Sedgman ((SDM)) to Underperform. Super Retail ((SUL)) is considered a quality play and other BA-ML favourites include Automotive Holdings ((AHE)), Ainsworth ((AGI)), Henderson ((HGG)) and Technology One ((TNE)). Goldman Sachs also favours Henderson with a Buy rating.

Goldman Sachs sees positive markets ahead and early signs of a turn in flows, which should deliver earnings upgrades. Models have been adjusted to reflect the strength in equity markets during the December quarter. However, the size of earnings upgrades depends on each stock's leverage to markets. Again, the theme is selective. In financial services the broker sees AMP ((AMP)) with the lowest leverage and BT Management ((BTT)), Henderson and Perpetual ((PPT)) with the highest. In summary, the broker is Neutral on AMP but sees upside in the AXA synergies. BTT is Neutral rated, with a downside in the UK slowdown. Henderson is a Buy, as mentioned, IOOF ((IFL)) is Neutral while Perpetual is rated a Sell.

The year has started with a triumph of hope over earnings, at least in building materials and steel, according to JP Morgan. The sector has enjoyed a particularly strong performance over the past six months, outperforming the ASX 200 by 20%. Drivers of this strength are the growing expectations for material cost cutting at Boral and Fletcher Building ((FBU)) and the ongoing momentum in the US housing recovery for Boral and James Hardie (( JHX)). The broker believes Boral and Fletcher share prices are ahead of the rationalisation prospects and so has downgraded both to Underweight from Neutral. On the FNArena database Boral got the rounds of the kitchen this week. The stock received two rating upgrades (Deutsche Bank and Credit Suisse) to Buy and two downgrades to Sell (CIMB and JP Morgan). Upgraders cite the reduced costs while downgrader CIMB takes a more cynical view of the longer term impact.

In contrast, the US housing recovery is seen gathering momentum and a strong order book raises Hardie to Neutral from Underweight for JP Morgan. Adelaide Brighton ((ABC)) remains Overweight and is JP Morgan's preferred pick in the sector. The broker notes ABC is trading at a deep discount to the sector on most valuation metrics, as well as offering a relatively defensive cash flow profile. However, on FNArena's database, BA-ML takes a dimmer view, expecting growth to slow. It has downgraded the stock to Underperform from Neutral. For JP Morgan, CSR ((CSR)) remains in Neutral and Deutsche Bank and Macquarie's ratings concur. After hitting an all-time low in July last year, CSR has staged a strong rebound, based on an improved aluminium price and JP Morgan sees limited upside to the current share price.

Macquarie has taken a snapshot of Christmas trading trends to see the outfall for retailers. The first two weeks in December were particularly weak but it was a strong Boxing Day clearance through to the first week of January. Hot weather drove air-con and refrigeration sales. Seasonal appliance sales were seen up in excess of 40% in December and refrigeration sales grew high single digits. Department store feedback favours Myer ((MYR)) over David Jones ((DJS)) at Christmas, Macquarie said. Due to the significant improvement in weather in December and trade feedback indicating over 40% improvement in seasonal appliance sales during the month, Macquarie upgraded Harvey Norman ((HVN)) earnings estimates for FY13 by 4.7%. The remainder of the Christmas trading feedback was largely in line with expectations and no other significant changes were made to earnings or valuations of the other discretionary retailers.

Morgan Stanley can see pockets of opportunity in a tough software industry exposed to soft corporate and government expenditure. CSG's ((CSV)) turnaround and Reckon's ((RKN)) expected growth profile stand out. However, job vacancies and business confidence continue to languish. Morgan Stanley says industry feedback from both IT providers and client firms suggests pressure on budgets and uncertain project timing. Individually, CSV has rallied 22% from its late September low and the broker's 80c targets reflects a 10% upgrade to FY14 earnings estimates a re-rating towards industry peers. Consulting and services stocks like SMS Management ((SMX)), Oakton ((OKN)) and ASG Group ((ASZ)) face negative first half earnings momentum due to soft demand and increased uncertainty relating to delays and deferrals. Morgan Stanley cut SMX earnings 9% for FY13 estimates but expects it is best positioned to take advantage of any rebound in demand.

UBS notes that the Australian healthcare sector is unlikely to repeat its 2012 performance this year. Sector earnings risk is low but improving demographics are now factored in and price catalysts are scarce. Upside is seen in any broader market weakness and stock specific events. In view of the fact the next Australian federal election must be held by November domestic healthcare service providers such as Primary ((PRY)), Ramsay ((RHC)) and Sonic ((SHL)) are quite exposed. UBS suspects there won't be unnecessary policy change/confrontation this year. On FNArena's database BA-ML has singled out Primary as a Buy, at high risk, noting synergies with the Symbion merger are starting to deliver. Australian names deriving revenues globally, such as CSL ((CSL)), Cochlear ((COH)), ResMed ((RMD)), Sonic, Ramsay, Ansell ((ANN)) and Sirtex ((SRX)) are all likely to confront similar headwinds and Europe has never been tougher, UBS maintains.

 

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided.

article 3 months old

Switzer Super Report: Predictions for 2013

By Peter Switzer, Switzer Super Report

Bob Doll used to be chief equity strategist at BlackRock, the biggest fund manager in the world but now is at Nuveen Asset Management. He has been a legend of the US stock market and his predictions have been closely watched over the years.

Some critics say he has not been performing well lately but I relied on him, when too many experts were super negative on stocks in the 2009 — he even gave me guts in 2008 to look for the positives that could turn the market around by March 2009.

In fact I interviewed him, when I took my Sky News Business program to New York in 2010, in the BlackRock boardroom which had a table as long as a 25-metre swimming pool!

A good year

This is what he predicts for this year and I will throw in my two pence worth as well.

He predicts a new all-time high for the S&P 500 “some time this year”, which is only 6% away. I think the US market will do better than this, but there will be some moments when I will have doubters — I could even doubt it! Or maybe not — but I reckon the Yanks do well and we even do better.

He believes large multi-national companies that rely on emerging economies will do well this year. This augurs well for local companies such as BHP Billiton ((BHP)) and Rio Tinto ((RIO)) if he is right and once again I support his view on up and coming economies. The IMF also believes ASEAN countries will return to pre-GFC growth rates and this means more modernization and that means more steel which helps coal and iron ore.

Top sectors

On the sectors, he is pro-cyclical and if we see a big year in stocks, which is due, then these sorts of companies are likely to do well. Doll likes Tech companies, industrials and those with positive cash flow to buy stocks and raise dividends.

He thinks banks and financials will do OK, but “won’t lead the race” and I think that’s a good call for Australia. I would buy financials on any silly dip or maybe a takeover target.

Improving growth

He expects US and global growth will be better in 2013 and I support this view but importantly he told CNBC that “the perceptions of growth” will improve so businesses and investors will be more confident about the future of their operation and where P/Es are going, that is up!

This is a big issue for 2013 and we will see this here in Australia as well despite the Treasurer, Wayne Swan, backing away from his surplus promise, which will be good for growth and even with an election year ahead.

Less fear this year

He is arguing there will be a “little less fear in 2013” and we will see things like more M&A activity, which not only reflects more confidence but helps share prices.

He is cautious about being too cautious on defensive stocks but that could provide value for the long-term player who wants dividends more than capital gain, while they would cop it if it comes along.

He thinks dividend increases will be at a double-digit rate which looks huge for the likes of Telstra ((TLS)) here and so I would rule this one out as a general prediction but many cyclical companies that have not even paid dividends lately could easily return dividends this year. I expect better dividends from many companies if the stock prices are rising and economic growth picks up over the year.

On interest rates

Doll also expects long-term interest rates to rise in the USA. In Australia I think we will see rates fall for home loans, however longer term rates could sneak up but only slowly as we get to year’s end. For this to happen we would need to see a big spike in stocks, which is definitely possible.

Bob Doll might have had some years where he has not performed as well as other fund managers and equity strategists but his history is there to look at and as a legend of the stocks game I’m prepared to take his tips, especially when they mirror my own views!

Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided.

article 3 months old

Australian Stocks: What Happened Today?

By Max Ludowici, Equities & Derivatives Advisor, 708 Capital

The scoreboard:

-          The ASX200 closed down 10 points or 0.23% to 4623

-          The AUD fell sharply lower at midday.. Currently reading 1.0451 vs the USD

-          Total volume for the day was $8.3B. Less the influence of premarket options exercise ($3.3) gives a real volume figure of $5B.

It was a rollercoaster ride on the final major trading day for the year as the ASX reversed early gains at midday after an 11th hour vote was pulled by House of Representatives speaker John Boehner who was unable to muster majority support  to avert a possible fiscal cliff disaster.  The vote was supposed to extend Bush era tax cuts on incomes below $1m and allow higher tax rates for incomes above $1m. Boehner and Obama remain at loggerheads over the threshold at which the tax hikes will come into effect. Obama wants higher taxes on income above $400,000 where Boehner remained fixed on only agreeing to increases above $1m.

The market is all too aware that time is running out to resolve the crisis as most politicians will take holiday from today. Our market jagged 40 points lower on the news before financials and defensives regained traction and slowed the fall in the final two hours of trade. The news sent DOW futures plunging 220 points on the failed vote and remained down around 200 for most of our session.

The finale of this soap opera is anyone’s guess really. The market has a nasty habit on ‘selling the fact’ so perhaps a fall in the US market is likely even if a resolution is reached before the year end. We do know that there won’t be another House of Reps vote before Christmas so any immediate resolution remains up to Senate leader Harry Reid and President Obama. It looks as though the market is in for a good old country and western standoff. Perhaps the pollies have set the market up for one of the greatest bull traps in history. The way the US futures were looking most of the day, Iam not sure why Aussie market thinks they’re only bluffing?

If we put this noise to the side, the GDP news out of the US overnight and the reason for our market’s rise early on was due to a shock upward revision in 3Q GDP in the US from 2.7% to 3.1%.  Existing home sales also rose 5.9% in November from October, the biggest jump since 2009 and in contrast with analyst expectations of a rise of 2.3%. Both data sets are genuinely encouraging and illustrate a US economy genuinely in uptrend.

Bring on 2013, as a US economy hitting its straps and a centralised communist government willing to throw seemingly unlimited dollars on the world’s second biggest economy hopefully make the lingering GFC of ‘07 and Euro Crisis of ‘12 a distant memory.

Cliff uncertainty drove our market lower but saw cyclicals take the brunt of the fall with defensives showing good resilience. Westpac Bank ((WBC)) Commonwealth Bank ((CBA)) and ANZ Bank ((ANZ)) all showed gains of between 0.5-1%.

The big miners were the largest drag on the market. Rio Tinto ((RIO)) falling 0.90% and BHP Billiton ((BHP)) down 0.92%.

Gold struggled again today as it took another substantial hit overnight and continued slide throughout our session to $1641oz. (current pricing). Newcrest Mining ((NCM)) fell 2 cents to $22.47 and closing in on 3 year lows.

Those who remember the little animal chocolate, Yowie ((YOW)) will be pleased to hear it’s about to hit shelves again with a new and improved (child friendly) design and new listing on the ASX. YOW hit the boards today up 19,400% (reconstructed) as it unveiled a new US based production facility and a new confectionary range due out in Q1 2013. Hooray!

DOW futures are pointing to a disastrously weaker opening, currently down 195 points
 

(For a more comprehensive summary of last night’s market action see FNArena’s Overnight Report.)

This article produced at the request of and is published by FNArena with the expressed permission of 708 Capital.

708 Capital is a full service stockbroking and investment advisory firm. 708 offers investment and market advice to high-net-worth Private and Institutional clients in Australia and across the globe. 708's extensive network of contacts gives its clients exclusive access to ground-level fundraising opportunities and new company listings in a variety of small and large cap ASX listed companies. 708 has a longstanding track record of generating exceptional returns for its clients. Click here 708capital.com.au/contact-us/ for a no costconsultation and portfolioreview or to learn more visit www.708capital.com.au. Note: 708 Capital offers wealth management services for Sophisticated and Wholesale Investors only. We can only assist investors who are classified as Sophisticated Investors or have verified assets over AUD$2.5m.

708capital is a holder of AFSL. No. 386279

IMPORTANT DISCLAIMER - THIS MAY AFFECT YOUR LEGAL RIGHTS:

This document is intended to provide general securities advice only, and has been prepared without taking account of your objectives, financial situation or needs and therefore before acting on advice contained in this document you should consider its appropriateness having regard to your objectives, financial situation and needs. We recommend you obtain financial, legal and taxation advice before making any financial investment decision.

Disclosure of Interests: 708capital receives commission from dealing in securities and its authorised representatives, or introducers of business, may directly share in this commission. 708capital and its associates may hold shares in the companies recommended.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided.