Tag Archives: Telecom/Technology

article 3 months old

Australian Stocks: What Happened Today?

By Max Ludowici, Equities & Derivatives Advisor, 708 Capital

The scoreboard:

-          The ASX200 finished up 22 points or 0.50% to 4617

-          The AUD is still holding above 1.05. Currently reading 1.0517 vs the USD

-          Strong volumes were felt again today with $4.7B of stock changing hands.

Shares on the ASX performed strongly despite profit in the first part of the session to close the day up 22 points or 0.5% to 4617. Fiscal cliff talks remained in focus as President Obama demonstrated his willingness to compromise on the level of annual income that may be subject to higher taxes. Stocks were unable to match the moves on Wall St however showing that momentum may be slowing coming into the final real week of trade before Christmas and NYE. 

Traders should treat the year end and early January period with extreme caution. We’ve had a great move for the last two weeks and we’re entering a period of very low liquidity as traders and fund managers put their feet up which is likely to increase the potential of more volatile trading, particularly as traders will have built up sufficient long positions to be able to short markets and exacerbate any weakness the light trading may cause. There is also a huge option expiry day tomorrow for both index and stock options and will be the last opportunity for institutions to square and rebalance positions prior to the end of the calendar year.

The gold price got hit overnight and the technical backdrop demonstrates that a further slump is likely. Strong data out of the US and a move toward a fiscal resolution is causing gold to lose its safe haven appeal. Spot gold is currently trading at A$1672, 1.5% lower than yesterday’s open. Though more a reflection of continual production downgrades, Newcrest Mining ((NCM)) has been performing woefully since its peak at $30 just 3 months ago. NCM closed today’s trade down 3% to $22.56

Despite a takeover bid actually crystalising for Billabong ((BBG)) at $1.10, the stock fell over 14% intraday after the company cut its earning guidance. BBG closed the day down 13% to close at $0.85.

Miners continued to rise with BHP Billiton ((BHP)) and Rio Tinto ((RIO)) up 1.1% and 1.5% respectively.

Macquarie Bank ((MQG)) followed the positive moves of US investment banks overnight to post a gain of 2.5% to close at $34.82

DOW futures are pointing to a flat opening inline with last night’s close at 13,276.
 

(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.

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article 3 months old

Australian Stocks: What Happened Today?

By Max Ludowici, Equities & Derivatives Advisor, 708 Capital

 

The scoreboard:

-          The ASX200 closed lineball with its opening and yesterday’s close to finish down.4 of 1 point or 0.02% to 4583

-          The AUD held gains to climb higher over the session, currently reading 1.055vs the USD

-          Total volume were strong at over $4.2B

The Australian sharemarket see-sawed between small gains and losses mirroring Wall Street’s session as investors globally digested the US Fed’s latest policy meeting from the overnight session. The Fed’s decision to scrap “operation twist” with outright bond purchasing was neither here-nor-there, the main surprise was the announcement that interest rates will be kept at 0 until unemployment falls below 6.5%. The Aussie market had little direction all day with no significant domestic data being released.

Given the Fed news was lineball with what the market was expecting I suspect all eyes will be on a Fiscal cliff resolution, pronto. Whilst it is fairly well assumed that any big cliff fallout will be avoided, US domiciled traders holding capital gains may decide to liquidate positions before being slugged with additional taxes from Jan ‘13, particularly given the DOW’s almost 7% retracement in under a month enticing them to lock in recent gains. A quick look at the chart of DOW shows stiff resistance and a classic head and shoulders in the making at the 13,270 level. The market has hit and failed to break through the 13,270-ish level no less than 6 times this year. This also comes as Chairman Bernanke reminded markets last night of the real risks still remaining with regard to the fiscal cliff, commenting that the full ramifications are “too big” to be avoided.

The defensives continued their listless slide south/south east with the big 4 going no where, National Bank ((NAB)) closed down 0.2%, ANZ Bank ((ANZ)) finished where it opened. Telstra sustained slide continued with the telco closing down 0.5%. Wesfarmers ((WES)) and Woolworths ((WOW)) both dropped close to1%.

BHP Billiton ((BHP)) continued to climb higher thanks to an upgrade to overweight from marketweight by Macquarie Bank. BHP closed up 0.7% to $36.00. Rio Tinto ((RIO)) pushed higher to close up another 0.9% to$62.75.

DOW futures are pointing to a positive opening, currently up 24 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.

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article 3 months old

Telstra Setting Up Buying Opportunity

Telstra ((TLS)) shares have managed to pique every investor's attention this year, outperforming most other stocks on the ASX as well as every investor's wildest expectations for what was prior a high dividend yielding but perennial disappointing utility-type of stock.

Now that the shares have completed a stellar run since October from $3.90 to $4.39, the TechWizard reports a pullback has become unavoidable. He thinks it will be a healthy exercise as it will set up the shares for yet another stellar run.

The TechWizard is of the view that global equity markets will enjoy a buoyant Christmas rally this year, with share prices in general to rally between now and mid-January. Telstra shares, even though considered a rather safe-haven dividend paying telco, won't be left behind, he predicts.

The most likely scenario, in the Wizard's view, is that Telstra shares will "correct" over a 3-8 day period during which the current overbought conditions will unwind. This will set Telstra shares up for the next move upwards, in his view.

The Wizard reports the buy zone for Telstra shares is between $4.29-$4.18. He notes the MACD indicator is bullish. The Wizard anticipates that, once the current unwinding has run its course, Telstra shares will put in another attempt to better the $4.40 high.
 

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.

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article 3 months old

Australian Stocks: What Happened Today?

By Max Ludowici, Equities & Derivatives Advisor, 708 Capital

The scoreboard:

-          The ASX200 closed on its lows to close up 8 points or 0.2% to 4583

-          The AUD held strong overnight gains, currently reading 1.0528 vs the USD

-          Total volume was strong at over $5B

Shares on the ASX200 continued to climb today, pushing through 4600 to fresh 16-month highs in early trade before closing close on its lows after the defensives dragged the broader index lower. The market opened with conviction across all sectors before a report that the lunatics in North Korea had launched a ballistic missile toward Japan swirled through markets and took the shine off the early move. Bullish economic data out of Germany had the DAX hitting its highest level since early 2008 and helped other European markets and Wall Street push out healthy gains.

A big news story for the morning was the Aussie dollar jumping above 1.05 against the greenback as confidence of a rebounding China got traders confident about prospects for Australian equities in 2013. Improving sentiment in the global growth story pushed the AUD to near three-month highs, despite the negative domestic outlook. The main driver offshore was the German business sentiment index which rebounded strongly to a seven-month high. German’s are traditionally rather conservative, perhaps overly pessimistic and if they seeing bullish signals then they must be seeing something good right? Well that was the way the market interpreted the news at least which bolstered Euro markets and flowed through to strong buying of the AUD which is widely known as a good barometer for confidence surrounding global growth.

Cyclicals again stole the show as the risk-on trade gathered even more momentum. BHP Billiton ((BHP)), Rio Tinto ((RIO)), Fortescue Metals ((FMG)) and Woodside Petroleum ((WPL)) all rose between 1-2%.

Some strength in BHP and WPL can be attributed to BHP’s sale of its stake in the proposed Browse gas-export project in Australia to PetroChina. Browse operator and major stakeholder WPL jumped on the price implications of the deal.  

High-yielding defensive stocks saw more profit taking with Telstra ((TLS)) down 1.4%, ANZ Bank ((ANZ)) down 0.8%.

Everyone is taking notice of our market’s breakout and confident push through the 4550 resistance level to new 16-month highs. Markets generally appear like they will push higher as the Fiscal cliff saga seems to have eroded to a mound and positivity surrounding a rebounding China has investors feeling good.

The big question is whether the move into cyclicals will be from a defined switch out of the defensives OR fresh cash out of term deposits due to a lower interest rate environment. A best guess would be a mix of both.

The reaction of currencies and precious metals will be closely watched ahead of tonight FOMC decision regarding expansion of the current QE plan. Any expansion of QE will likely see gold move higher as has been seen in recent years.

DOW futures are pointing to a negative opening, currently down 11 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.

article 3 months old

Codan’s Technology Signals Strong Outlook

-Robust demand for mining technology
-Daniels acquisition widens market
-HF communications market enduring
-Codan on track for strong earnings
 

By Eva Brocklehurst

Moelis has taken a look at Codan ((CDA)), a company that manufactures a diverse range of high value electronic equipment. It makes gold detectors, so it's been busy. However, it's in the field of radio communication that the company sustains its momentum, albeit not as exciting but very important.

Codan acquired Daniels Electronics for $24 million in August this year. According to Moelis this acquisition has provided substantial synergies and the ability to roll out Daniels' solutions across Codan's global distribution network. Cross-selling opportunities also exist with Daniels' established network of radio communications in North America. So, it's a major step up in increasing global business. Moelis was told by management that, to date, the acquisition is performing to expectations from an operational perspective, with a pipeline of opportunities for FY14 that is well ahead of initial forecasts.

Codan has three key business divisions; radio communications, metal detection and mining technology. According to the company, the acquisition of Daniels heralds a transition beyond its high frequency systems to a wider communications solution. Daniels provides the opportunity to enter the land mobile radio (LMR) market with a competitive and established product line. Codan's high frequency radio transceivers and encryptors - perhaps a bit more pedestrian than GPS or new mobile telephony - are nevertheless widely used and very much needed for organisations involved in emergency, remote and military communications.

Metal detection, which accounts for 55% of revenue, is where Codan's Minelab business finds a growing customer base. It is the supplier of hand-held prospecting units to all those treasure hunters out there. Also, Minelab's gold detectors have advanced features specifically for serious gold prospectors and claim to find gold deeper than any other detector. Sales of these products have grown substantially with sales of gold machines for the artisanal market very strong in Africa. Moelis has been told by management that a number of large gold finds in Sudan underpinned the strength in artisanal gold product sales recently. Following on from this, sales of these products are now happening in Guinea, Nigeria, Tanzania, Cameroon as well as South America. Minelab also has a more sober side to its business. It has developed its metal detectors technology for application in humanitarian de-mining, unexploded ordnance clearance and counter-mine operations.

Mining technology, the company's third segment, is via the Minetec business, acquired in January this year. Here, Codan provides technology to the coal mining and oil and gas sectors with the likes of BHP Billiton ((BHP)), Rio Tinto ((RIO)) and WorleyParsons ((WOR)) among the client list. Products include messaging systems, Wi-Fi solutions, tracking and proximity detection and mining camp entertainment. Entertainment? Yes, supplying TV and radio services to the increasing number of self-contained and remote mining villages that are being built. According to Moelis, mining technology provides around 5% of revenue but offers another strong area for growth given its specialisation in mine productivity.

Moelis said Codan's net profit in the first half of 2013 is expected to be around $25m against $10.4m in the prior corresponding half. This follows growth of 19% in FY12. Despite the uncertain global environment and lumpy nature of project contract revenue, Moelis notes FY13 profit guidance of $40m, would represent over 40% growth if realised. The broker views the FY13 price/earnings ratio of 10 times and a dividend yield of 5% or more as undemanding, despite a more than doubling in the company's share price in 2012. Moelis has rated the stock a Buy with earnings growth of 31% forecast for 2013. The broker's target price is $2.70 (current $2.37). 
 

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article 3 months old

Australian Stocks: What Happened Today?

By Max Ludowici, Equities & Derivatives Advisor, 708 Capital

 

The scoreboard:

-          The ASX200 closed up 42 points or nearly 1% to 4552

-          The AUD is lingering around the $1.048 level and looking toppy as it struggles to push through $1.05

-          Total volume for the day was just $3.5B below the current short term average and helped explain today’s unusual rise.

Shares on the ASX traded with surprising strength thanks to several large offshore buy orders with solid gains seen across all sectors after a neutral night offshore. Poor domestic economic data did little to slow the run higher with the market hitting a six-week high to climb over 1% intraday. Another raft of woeful growth forecasts for the broader Eurozone failed to push European markets lower overnight and kept the US market moving sideways. The poor growth outlook dragged oil prices lower by over 1%.

Several large offshore portfolio buy orders led the market higher as well as expectations of strong employment data for the month of November from the US due out tonight. Traders seemed convinced that this was a certainty and didn’t want to miss out on any rally that may develop tonight.  Continued strength from the Shanghai index also appeared to inject life into Asian indexes.

On the domestic data front, Australia’s trade deficit widened by over $0.66B to $2.1 billion in October. The deficit was the biggest since 2008 and wider than analyst expectations of $2B. The cumulative trade deficit over the calendar year to October was $11.9B. The deficit underscores our dependence on raw materials exports, the prices of which have declined markedly since the start of the year only increasing the deficit gap.

The strength of the banks was reportedly the result of overseas fund purchases. Commonwealth ((CBA)), ANZ ((ANZ)), National  Bank ((NAB)) and Westpac ((WBC)) were all up around 1%.

CSL ((CSL)) rallied strongly all day following an upgrade from Credit Suisse to outperform from Neutral and increasing the price target by 12%. CSL closed the day up 2.5% to close at $54.77

Other standout movers for the day included Westfield ((WDC)), Goodman Group ((GMG)) which jumped between 1.5-3%                                                                                                                                            

DOW futures are are flat at present, currently up 5 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.

article 3 months old

Small Telco Players In Focus

- Stockbrokers see robust outlook for smaller telcos
- Sector delivers earnings certainty
- Citi initiates coverage on iiNet and TPG
- Macquarie initiates coverage on M2

By Eva Brocklehurst

As the telecommunications sector continues to show robust growth, Citi has initiated coverage of two stocks, iiNet ((IIN)) and TPG Telecom ((TPM)). Macquarie, also, has initiated coverage of M2 Telecommunications ((MTU)).

Cit has placed a Buy rating on IIN and a Hold for TPG. Why is IIN preferred? Citi says subscriber growth is slowing in the broadband market and this puts the focus on margin. With regulatory changes happening in February 2013 in wholesale ADSL pricing this could mean higher gross margins and a need for cost rationalisation. Citi believes IIN is better placed in this respect. Nevertheless, revenue growth from mobile and small-medium business segment is set to continue for both carriers. In the case of both stocks the robust share price performance has been supported by earnings growth, from a mix of organic growth and acquisitions. Citi expects there's more of this to come and this would deliver material share price upside, particularly for IIN.

Citi notes valuations are hardly stretched for either stock, with IIN trading on a price/earnings ratio of 10 times and TPG on 13 times estimated FY14 earnings. The broker believes both stocks have earnings growth potential over the next three years. The target price for IIN is $5.01. As subscriber growth stagnates the focus turns to lifting margins from cost savings and new products. Citi sees significant option value in the medium-term, from the National Broadband Network roll out, industry consolidation and cash returns and these have not been presumed in its forecasts. At these levels IIN's valuation remains attractive despite the recent share price outperformance. Citi sees the potential loss of broadband subscribers as the primary risk to its rating on IIN. Also, the potential revenue impact could derail the earnings growth opportunities from regulatory price changes, cost efficiencies and medium-term market share gains.

TPG, should benefit similarly but it has offsetting factors, limiting the upside. What are these? Citi's concerns centre on margin compression and valuation. TPG can still benefit from medium term drivers but with less earnings leverage. For TPG, Citi's target is $2.30. The broker sees TPG as a business which is delivering subscriber growth with good earnings margins and solid balance sheet. On the risk side, Citi cannot rule out increased competition from incumbent operators Telstra ((TLS)) and SingTel's ((SGT)) Optus, and/or new entrants like Foxtel or utility companies. However, this is not new, Citi notes these smaller telcos have been competing with incumbents and new entrants for nearly two decades.

What do other brokers on the FNArena database consider the triggers for these stocks? After IIN reported strong full year earnings back in August several brokers changed ratings, but not in the same direction. Deutsche Bank downgraded to Hold as it saw the stock trading around its valuation, even allowing for the potential to gain scale and cut costs. CIMB, however, moved IIN to a Buy, citing earnings that beat its forecasts. IIN has a consensus target price of $3.93 with a range of $3.50 to $3.93, excluding Citi's outlier at $5.01. IIN counts five Buys, a Hold and a Sell (Credit Suisse). Credit Suisse finds the stock trading above its target price and considers subscriber growth subdued. For TPG there are three Buys, Citi's Hold and a Sell (CIMB). CIMB downgraded the stock to Sell after the company's latest results. The broker could not see the earnings growth reflected in the premium being traded to the sector. The consensus target price is $2.19 from a range of $2.15 to $2.40.

Meanwhile, Macquarie has initiated coverage of M2 Telecommunications ((MTU)) with an Buy recommendation and $4.21 price target. M2 is the largest Australian independent telecommunications network reseller and targets both small and medium sized businesses in Australia/NZ via its Commander brand. The company provides fixed-line, mobile, data (wireless & fixed) and hosting services to both small-medium businesses, wholesale and residential customers by taking advantage of excess capacity available on other telecommunications carrier network infrastructure.

Macquarie finds that the acquisition of Primus Telecom in June 2012 was significant for M2, given the assets acquired (data centres, metro fibre rings, DSLAMS and an IP/Voice hosted solution) and is expected to strengthen M2's position in the NBN through enhanced scale and reach. Macquarie notes management has identified significant potential in combining the two companies in terms of enhanced buying leverage with suppliers, cost base rationalisation and moving customers on-net, which attracts a higher gross margin. Macquarie suspects this will be the key driver of profit growth in the medium term. However, the broker is cautious beyond FY13 as the gains get harder to maintain, given the size of the business and potential for integration issues as well as operating and maintaining telco infrastructure.

Telstra still dominates the market with an estimated 75% of total revenue generated from telecommunications services (and an estimated 80% share of the small business segment). However, Macquarie believes newer entrants, without the encumbrance of network infrastructure, can target specific segments using aggressive and targeted marketing. The broker does sound a note of caution: other than the major carriers, few companies that have attempted to become infrastructure owners have survived independently in the past. Macquarie joins Citi, which initiated coverage of M2 in September, on the FNArena database. Citi has a Buy rating and target price of $4.60. Citi sees upside for M2 with its niche position and synergies from the acquisition of Primus. 

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article 3 months old

Weekly Broker Wrap: RBA Rate Cut Tipped

-December cash rate cut tipped
-Media helped by advertising turn
-Deposit rates lift with ageing population
-Telco revenue to hold up


By Eva Brocklehurst

On Tuesday the Reserve Bank board will conduct it final meeting for the year and the countdown to the end of 2012 will begin. Will there be an official rate cut to add to the Christmas cheer? Well, the cash rate easing that many thought would materialise last month, and didn't, hasn't gone away. After more economic data showing a slowdown in mining investment is not being met by a concerted rebound in non-mining business plans, the major bank economists are still of the view that another 25 basis points reduction should be forthcoming, taking the cash rate to 3.00%.

Westpac economists certainly think another cut is necessary, noting the September quarter ABS survey on capital expenditure intentions was conducted after the iron ore price had recovered from its lows in August and September. Westpac said it would, therefore, be risky to dismiss this slowing in mining investment intentions as an over-reaction to the August/September panic in the resources sector. For ANZ economists there is little to suggest that non-mining capital spending will pick up from weak levels in the next few quarters. The RBA's business credit data for October has revealed that borrowing has been broadly unchanged over the past four months. As a result, the overall investment outlook now appears weaker than previously thought and ANZ continues to expect the RBA to lower the cash rate by 25bps on Tuesday and to maintain an easing bias next year.

National Australia Bank economists have plumbed for a cut in the cash rate too, although consider it still line ball. What's tipped the bank's call is the data released over the past month, which has all but confirmed a weak GDP outcome for the September quarter and provided little evidence of any improvement into the December quarter. The September quarter GDP figures will be published on Wednesday. Not helping the economy is a still high Australian dollar, despite the recent softening in commodity prices, which is keeping pressure on industries outside of mining. Softer commodity prices are also raising concern about the near-term outlook for mining. The inflation outlook remains consistent with the RBA’s 2-3% target, and should provide no barrier to near-term cuts. NAB economists still see potential for another cut next year, taking the cash rate to 2.75%. At this stage the bank's call is May 2013 but if the local data continues to deteriorate it could come as early as February 2013, after the RBA board's first meeting of the year.

CIMB goes out on a limb, saying this downgrade to mining capex should be in line with RBA projections and won't provide the trigger to ease monetary policy this week. Nevertheless, an easing is still expected down the track, just more likely after another CPI reading. The December quarter CPI will be published on January 23. JP Morgan's tip? It's Tuesday. The RBA has forecast an average growth pace of 0.7% quarter on quarter in the second half of 2012 and, JP Morgan believes, on the current trajectory, this will be proven ambitious.

CIMB, along the theme of an improving economy, has looked at media stocks this week and made Seven West ((SWM))  its top pick for any recovery. TV is the media segment that is most leveraged to any rebound  in advertising conditions and SWM (Buy, $1.90 target) is the pick for investors looking to play a recovery theme, given its strong ratings performance. Contrasting this is Ten Network ((TEN)) where the broker has a Sell rating and target of 27c due to dwindling market share and balance sheet risk, which offsets any potential cyclical upside. On the publishing side, Fairfax ((FXJ)) and APN News & Media ((APN)) are expected to benefit from a broader sector re-rating with an improvement in advertising conditions, although revenue gains will be muted by continued structural headwinds. For these two there is a Buy rating and a 90c and 85c target price respectively. CIMB notes TV advertising spending grew 18% in 2010 following the global financial crisis, versus the total ad market's spending of 11.8%. Southern Cross Media ((SXL)) with a $1.35 target is also considered a Buy on valuation grounds. It has a more variable costs base in regional TV and this makes it less leveraged than the metros to the TV ad cycle, CIMB said.

However, a firmer economy doesn't necessarily deliver a return to booming mortgage growth. CIMB has done some analysis showing that, as Australian households continue to age and a large part of the population enters retirement, mortgage penetration will be unlikely to increase as a share of GDP. The broker concludes that the slump in mortgage credit growth and the spike in the savings rate are structural trends, symptomatic of the ageing population, not cyclical fluctuations. That won't be turned around that soon.

Households where the prime earner is 45-54 have the highest total housing asset holdings and highest incomes. This group's housing share of total population peaked in 2005 and will keep falling until the early 2020s as these people increasingly buy financial assets (deposits and superannuation) and reduce debt. CIMB analysis suggests household demand for deposits peaks after 55 years of age. Selecting the 55-64 age group as representing peak deposit demand and the 20s as the lowest, and netting each share of the population off against each other, indicates deposit demand is strong until 2025, at least from a demographic standpoint. CIMB characterises the current loan growth environment as one in which mortgage lending remains structurally weak but somewhat offset by a soft cyclical recovery in business lending growth. This favours National Australia Bank ((NAB)) and, hence, is CIMB's preferred sector exposure.

Meanwhile, one area of the economy not dependent on the disposable income of age is telecommunications. Morgan Stanley has looked at whether the Australian mobile telco industry can continue to grow. Yes, is the answer but a disproportionate share of this growth may fall to the one with network superiority …Telstra ((TLS)). At any rate, growth at all is in stark contrast to European telecoms, Morgan Stanley maintains. The broker does not expect a significant increase in Australian telecom revenue as a percentage of GDP, rather that the blend will change and revenue will continue to hold up well. Mobile will increase its share as the old copper wire revenue decreases to zero and the National Broadband Network grows. Australian telecoms are attractive, according to the broker, as they currently offer investors a 5.8% average dividend yield, a 3% spread over 10-year Australian Government bonds. Telstra's spread at 4% (dividend yield at 6.8%) is considered sustainable over the medium term.

In the construction of portfolios, Morgan Stanley continues to recommend investors maintain a Hold position in Australian telecoms, particularly given sustainability of dividends. Furthermore, Australia's telecom sector is one of only six sectors in the Australian market to experience positive earnings revisions in the last three months. Telstra's positive earnings revision over the past three months was being driven by confirmation of NBN payments rather than mobile upgrades. Positive earnings revisions for the smaller telecom names have been driven by consolidation of the sector and the synergies that come from this. 
 

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article 3 months old

Australian Stocks: What Happened Today?

By Max Ludowici, Equities & Derivatives Advisor, 708 Capital

The XJO put in a solid day of trade following positive leads from the Street overnight as Cliff talks once again stole the show. Both Obama and House of Reps. speaker Boehner said they were optimistic that a deal could be struck over the budgetary issue. The XJO finished the day on its highs up 30 points or 0.7% to points on better than recent volume of $3.5B despite trailing the futures by 10 points for most of the day.

You must now have observed that this is a nightly saga where equity markets around the around the world are totally dictated to by mere words from individual US politicians. This type of weak headline-driven price action makes trading markets incredibly difficult so for those traders out there trying to make sense of things, don’t be too hard on yourself because this is as tough as it gets.

Take some solace from the fact Goldman Sachs chief Lloyd Blankfein described Obama’s fiscal cliff plan as “very credible”, we all know brokers have a vested interest in injecting confidence into markets but this is actually a pretty important development. Both because it means Obama actually has a plan and also because it shows Republican support for the Democrat’s plan. Obama taking the stage to confirm they were actively working on a ‘plan’ may be the next step to putting the issue to bed. Don’t expect the volatility to end before there a signatures on paper though.

On the data front, Aussie Q3 Capital Investment data showed capex had risen by 2.8% q/q (in real terms) in Q3 ahead of expectations of a 2% rise. More importantly total nominal capex in 12/13 was revised 3% lower from the previous estimate. The peak of the mining capex cycle is beginning to bite, BHP Billiton ((BHP)) chief said it was even behind us at the BHP AGM today, so don’t be surprised to see this number decline going forward. Anyone care to bet on an interest rate cut next Tuesday?

Mining services took a beating today following NRW Holdings’ ((NWH)) profit downgrade and sell off yesterday which has now fallen 28.9% in two days. Mining consumables (far more resilient than pure services and capital equipment suppliers) company Bradken ((BKN)) got sold down 7.1% to due to worsening sentiment in the sector. Other players in the space: Cardno ((CDD)), Macmahon Holdings ((MAH)), Ausdrill ((ASL)) all ended the day lower.

Otherwise it was a strong day for across the board with stocks in the defensive and cyclical sectors both ending the day well.

US futures closed the overnight session up 80 odd points then reopened intraday down 5 or so points. They are now tracking up nicely and are currently reading in the green up 18 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.

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article 3 months old

Solid Performance For Technology One

 - Technology One delivers solid full year profit
 - Margin progression a positive in tough market
 - Capital management still expected
 

By Chris Shaw

Technology One ((TNE)) delivered a full year net profit after tax of $23.6 million, an improvement of almost 16% relative to FY11 and slightly better than guidance from management for an increase of 10-15%.

The result was helped by a lower tax rate, but UBS suggests the fact operational results were only slightly lower than had been forecast was a solid performance given the current tough economic environment.

One disappointment was the lack of any special dividend, UBS attributing this to an additional tax concession applied to research and development. This had the effect of reducing Technology One's franking balance, so making a special dividend less attractive. 

Given a strong balance sheet BA Merrill Lynch expects some capital management initiatives in the future. Without any special dividend in FY13, Technology One is still forecast by UBS to offer a yield of nearly 6%, 100% franked.

For BA-ML, a key positive in the Technology One result was clear progression in margins, this as research and development as a percentage of sales fell during FY12. This supports a solid earnings outlook in BA-ML's view, especially given the company has a relatively strong pipeline of work going forward. 

UBS agrees Technology One has made progress both on margins and its cost base, but remains cautious with respect to the medium-term outlook given the potential for contract delays in what remains an uncertain environment in terms of business capex.

To account for this UBS has trimmed earnings estimates in coming years, this as lower initial licensing fee growth and higher distribution and market costs are allowed for in the broker's model. On the plus side, UBS continues to expect Technology One will grow at above market rates given increased market share, growth in new modules and improved profit metrics as R&D falls.

UBS's revised earnings per share (EPS) forecasts for Technology One stand at 8c in FY13 and 9c in FY14, while BA-ML expects outcomes of 8.1c and 9.4c respectively. Consensus EPS forecasts according to the four brokers in the FNArena database covering the stock stand at 8.3c and 9.4c.

Revisions to its numbers have seen BA-ML lift its price target for Technology One to $1.59 from $1.57, while UBS has made a more significant increase and moved its target to $1.50 from $1.30. The consensus price target according to the FNArena database has risen to $1.37 from $1.32 previously.

The database shows three Buy ratings and one Hold for Technology One. Both BA-ML and UBS see enough value to maintain their positive views, this as operating leverage begins to come through and as the company is still expected to deliver better than market growth. 

Shares in Technology One today are slightly higher in a stronger overall market and as at 12.45pm were up 2c at $1.41. Over the past year the stock has traded in a range of $0.93 to $1.425, the current share price implying modest downside relative to the consensus price target in the database. 

 

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