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Analysts Eye

Friday, March 12th, 2010

Plenty to Smile About

Investors have plenty to smile about as the reporting season winds down.

This week was the anniversary of the market turnaround from the worst destruction of shareholder wealth in living memory. In Australia we have seen our market up 55% on the ASX200 from its March lows. Overseas market turnarounds have been even more impressive with the Unites States seeing the S&P 500 up 70% and the NASDAQ up a staggering 75% while in the UK and Europe, markets are up around 60%. China has seen its market recover over 80% from its market lows.

The recent reporting season has given us pause for thought, with 7% of companies outperforming, 8% underperforming forecasts and the remaining 85% reporting inline (according to Credit Suisse). One key measure of corporate performance is the debt to equity ratio (D/E) and this has seen an impressive turnaround with the market average now 23% compared to over 30% in the previous corresponding period.

A raft of capital raisings to the tune of $100 billion in the past year has offered support to corporate balance sheets; however this has come at the cost of the dilution of shareholder equity. Earnings have fallen 13.7% due to this dilution (according to Macquarie). Corporates have been keen to hold on to cash, as evidenced by dividend payouts falling around 6% (according to JBWere) however this is a significant turnaround from the previous corresponding period where there were cuts to dividends of 22%.

It pays to be vigilant during the reporting season as traders can attest in the recent company performances. Those stocks that reported outperformance have in turn outperformed the share market benchmark by around 8.5% and on the flip side the underperformers have underperformed the index by 8.4%.

A quick synopsis of the results saw:

- Big four banks – upside surprise with the bad debt provisions falling more than expected, the sector is still a key driver for performance on the ASX.

- Insurers – were a mixed bag. Generally margins improved significantly, but Suncorps banking arm disappointed and QBE missed forecasts.

- Miners – profits were hit by a rising Aussie dollar and falling commodity prices over the reporting period. However the focus is still firmly on the strong Chinese and Indian demand which continues to underpin the outperformance of the materials sector in the ASX. Capital expenditure (Capex) will remain subdued for the remainder of the year, as miners still focus on cost cutting.

- Misses – those that disappointed saw their share price punished as was evidenced by: Gunns (GNS), Toll (TOL), Worley (WOR) and QBE.

What Now?

Brokers estimate in the 2010 forecast that earnings will rise for 6% and looking into the crystal ball, earnings are forecast to continue to rise in subsequent years, 27% in 2011 and 15% in 2012. If these forecasts hold true then they will underpin continuing recovery in the share market performance. 2010 dividend growth will lag earnings growth as corporates continue to place a high emphasis on the health of their balance sheet, this will impact those investors chasing yield.

Tempering these forecasts is the RBA’s determination to restore interest rates to normal (around 4.5% to 4.75%). This will mean that interest rates will no longer be benign and will start to actively drag on corporate EPS.

China is still outperforming world economies and so long as this continues our share market should continue to be in high demand.

Michael Hevern
Head of Research

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Friday 12th September 2008 Cube Morning Wrap

Friday, September 12th, 2008

Presented by Michael Hevern
Cubefinancial

Click here to watch the presentation.

or

Click here to download the mp3 audio recording (1125Kb).

Transcription below:

*********************************************************************************

Good Morning and Welcome to Cube Wrap for Friday, the 12th September. I’m Michael Hevern for Cube Financial.

The information provided within this presentation is general advice only and you should consult the services of a financial professional in order to ascertain whether the information is applicable to your investment strategies and risk profile. Again, it is general advice only.

Well the DOW had a volatile session overnight pending up for the session after being down over 117 points. It finished up around about 164 points. The big news of the session was talk about Lehman and towards the end of the day there was a talk that Bank of America would stop in and offer to purchase Lehman and also that the government may be backing the purchase. The Lehman plunged during the session as confidence about a deal happening waned but towards the end of the day rumors surfaced that Bank of America end of these situations were looking at bailing them out with some sort of government sponsored deal.

We saw the S&P 500 up 1.4% as well and NASDAQ was up 1.3%. We can see there that is a weekly chart. The bargain hunters did step in towards the end of session with Apple up 0.6%, Microsoft up 3.4%, and Cisco up 0.3%.

The ADRs, which would be of interest to us, include ANZ and NAB down 4.5% on the session. BHP down 1.4 and RIO flat for the session. So US steel up 4.3% and Chevron and Exxon up 2.2% and 0.4% for the session. The oil stocks index was actually up again up 1.5%; however, the gold stocks index pullback 2% on the session.

We see that in the UK, the market was down 0.9%, but that was before the rally in the US. This big worry is about the credit crisis restarting in the US. We saw all the banks down between 2% and 4% on the session. Retail stocks as well as consumer confidence obviously weak and discretion expanding is down. Morrison’s supermarket falling 6% on retail falling 6% and the big retailer such as Sainsbury, Tesco, and Marks & Spencer were down between 2% and 6% on the session.

The BG group has spiked up 4.3% after it said that oil and gas producer drilling Iraq, Iran, and oil field in Brazil is estimated to contain the field between 3.3 to 4 billion barrels of recoverable reserves so that is seen in the BG price.

We saw the big miners recovered as the base metal prices increases and we saw Xstrata, BHP and Anglo all up between 1.2% and 5.2%. So, that bode well for our big miners in Australia.

In Europe, we saw the CAC and the DAX. CAC was down 0.8% and the DAX was down 0.5%. We seen in the German markets are affected, the banking sector is suffering as much as in the US and the huge bank performance is down 31%. Generally down 3.7% up overnight and Credit Swiss down 2% adding to the pullback in that market.

In Japan, we saw that market down 2%, again there is re-servicing and taking control there. We are still treasuring around the March lows and they closed towards the 6 month lows there. Concerns of flowing growth and concerns in the financial system in the US moving crossing to Japan. We saw Mitsubishi and Missupo down 5% for the session. Nomuru holdings was down 5.9% and that is on the biggest Japan brokerage houses there and the exporters Canon and Honda were down 3% and 2.5% for the session. Hitachi was also down 5%. So, big exporters suffering in the Japanese market at the moment.

In commodities, we saw oil teetering on that 100 dollar mark. It just finished just below the 101 dollar mark. Saudis have come out and said that they will not cut production according to guidelines from Opek and that put a big pressure on the oil market. Also, we saw the damage from Hurricane Ike and Gustav not being as extensive as first thought. This negativity in the oil price sliding to the gold market with gold down below 750 and I guess next level you look at there is 700 dollar level. US dollar up and oil down. News story there, we saw the rest of the commodities were generally up, but silver was down 3%, gold down 2.2% on the session. So Westpac was down 1.7% on the session, copper up 1.4%, lead up 3.4%, zinc up 2.6%, and aluminum flat as well as nickel was flat as well. We saw the stock commodities are flat as well.

In the out market, we saw a sell off yesterday, which was a surprise. We did say on Wednesday that we are going to test the July lows and I think we closed within the couple of points of that yesterday.

The SPI is up over 43 point overnight, so we will expect our market to stabilize. Of news in our market, banks have come out and said there are still concerns about banking majors in particular ANZ and NAB were highlighted.

The RIO has come out and said that they have taken a stake in extra resources and 15% stake in the Perth base in Kalahari Minerals and uranium clay so RIO obviously positioning itself there to be a major participant in that market, if and when Uranium does start o find a place, AWB won’t back it’s right to export that was previously and it will be competing with AVB and Grancorp for sales.

United Group reaffirmed that they are in line for a 20% profit growth in the next financial year and that may help the price there and has a pull back in the last few days and Wencheson have chased in the 235 million dollar stake in MIS at 635 a share down market to open higher and we will be looking for some bargain hunting there with many of the stocks this week being signed off by headily.

Should you have any questions about the information provided within this presentation, please call the equities and options desk or the CFD advising desk on the numbers provided, and as always trade carefully.

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Thursday 11th September 2008 Cube Morning Wra

Thursday, September 11th, 2008

Presented by Michael Hevern
Cubefinancial

Click here to watch the presentation.

or

Click here to download the mp3 audio recording (1102Kb).

Transcription below:

*********************************************************************************

Good Morning and Welcome to Cube Wrap for Thursday, 11th of September, I’m Michael Hevern for Cube Financial.

The information provided within this presentation is general advice only and you should consult the services of a financial professional in order to ascertain whether the information is applicable to your investment strategies and risk profile. Again, it is general advice only.

Well the Dow recovered slightly overnight. It was fairly broad-based recovery actually on the S&P 500 with two stocks up through a big one that was down. The big news of course was the continuing backlash of Lehman’s third quarter loss that they reported $4bn biggest in their company’s history, which dates back around about 150 years though they have not been listed since the 90s. The Dow was up 0.3% and S&P 500 up 0.6% on the session.

We saw the NASDAQ recovered somewhat as well, but you can see they are chart that is still in control there, would need to close above the 2300 really in order to show that this is going to be turned in that market. Still looking to tentatively test this July to March lows and the big news in the NASDAQ market was the fact that the Texas instruments stuck to their earnings forecast and that helped the market.

Lehman’s reported a $4mn of quarter loss, the stocks fell further 6% after falling over 45% on the previous session and energy stocks did help the US markets with Demon Energy stocks breaking their loosing streak and we see that the oil index stocks were up 4% on the session and the gold stocks index was up 4% as well on the session.

We saw stocks like Newmont up 2.6%, Chevron and Exxon up around about 3% on the session. On the NASDAQ front, we saw that Texas being the big story there, Exxon Mobil was up 2.7% on the session and Texas Instruments were also up, RDM is up as well on the tick run, up 3.7% on the session.

Financials did weigh on the market, were rather mixed on the US down market with Washington Mutual down 20% after its fears that it maybe in the fall of its debt going forward.

The FTSE in the UK, we saw that market slipping 0.9% on the session, is on the back of low commodities and banks are concerned of what is happening in the US. We saw metal prices pulling miners down and banks low on the consent of Lehman Brothers.

Banks generally were down between 2.8% and 5.3% in the UK while retail stocks were also down that was lead by next down 2% after less than 12% fall of first half profits and its rival market dimension was down 4% on the session as well. We saw miners, Xstrata, Rio, and Eurasian Natural Resources all down between 3% and 8.8% on the session.

In the drug marketing sector, we saw Glaxo Smith Kline was up 2% after it said it is going to pay as much $1.5bn were needed to develop new drugs against the inflammatory disease with Anglo-German volume tick sales there and we also saw the retail or property sector recover slightly, they will cover on the UK as British land and land securities around 4.83% on the session after positive broker comments on that sector.

In the Nikkei or the Asian markets, we saw the Nikkei down 0.4% on the session. Exporters led the way there. Hong Kong was down 2.4% and the Chinese market was fairly flat up 0.23%. We saw banks down in the Japan market down through, Mitsubishi recovering towards the end of the day up 3.2% and Mitsuho planning to improve up 2.8% after being sold off in the previous session.

Sony one of the exporters and Canon fell 2.8% and 3.9% respectively. For every 9 stocks up, we saw 7 declining in the Japanese market, so not overly convincing up move there, but at least it closed positive. Oil down to just over $102 that was despite the fact that they came out yesterday and said that they are going to cut production bonus, might be at 500 million barrels. There is still a concern about this, but we did see energy stocks being picked up as market hunters said that maybe a turnaround on the oil price around the $600 mark.

Gold was down significantly overnight, down over 3.7%, almost $30 closing 862. We saw other commodities mixed with silver down 7%, copper up 0.2%, lead up 1.7%, zinc up 2%, aluminum up 1%, and nickel flat for the session.

We expect energy stocks to recover in the Australian market. Our market is likely to stabilize today after that biggest sell off yesterday, especially in the commodity stocks. We are looking for big catalogues to recover.

So we have in the news today Rio Norwegian Sovereign Fund selling its $1.1bn stake due to ethical concerns about an operation that Rio is involved in Indonesia and has avoided a certain stake in that operation. Seven shareholders have agreed to the $720mn buy back, but Mr. Stokes is not commenting on whether he was selling to that he currently holds 45% stake and could increase his stake to 56%, so we’ll just have to wait and see what happens there. Paper links are auctioning off their Australian manufacturing assets and that is progressing okay. Then the question is what price that will get for it and the money there will be used to shore up its cash banking.

BHP ADRs up 5%, I think Rio was up around about 4% as well in the US, leading despite the comments in the Norwegian sovereign fund. Banks ADRs above between 3% and 5% in the US as well. Property Trusts have the greatest of upgrade in the UK and we saw a bit of buying of the trust yesterday as well towards the end of the day, so this is probably something to look at. We will look to open up higher and look to see some recovery in this big sell off yesterday.

Should you have any questions about the information provided within this presentation, please call the equities and options desk or the CFD advising desk on the numbers provided, and as always trade carefully.

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