The sludge is deep out there

December 8, 2013 Leave a comment

Every now and then, I enjoy having a “double-take” at financial news articles and seeing what’s behind the story, while I “try to hear what’s not being said”, or perhaps, not being written.

Many financial news articles are designed to mislead and frighten and some of them are just worryingly funny.

Some of the stuff I have seen in only the past couple days include:

“Australian Dollar falls for the sixth straight week, its longest since 1985”. Holy cow!, makes it sounds like the Aussie has fallen below 55 cents. Another journalist writes, “and it looks set to extend its decline into the seventh week”. How does she know this?

“CEO celebrates their stock price rising 40% on day of IPO”. So either your bankers did a bad job valuing your business, you did a bad job representing your pre-IPO shareholders or you have incentives tied to the performance of the stock’s public price.

Qantas CEO cries foul over uneven playing field compared to Virgin’s ability to raise capital. Seriously! I wonder what Ansett or anyone else who has tried to compete against QF think.

As CEO of Woolworths nears his retirement, the ownership of their “poker-machine business does weigh on his conscience.” OK, Grant. You’ll get by, I’m sure.

If clients only knew of the lack of investing experience and competence possessed by “Chief Investment Officer’s” that are hired at certain brokerage and investment houses

Fund Managers tell the public that they should be investing overseas (outside of Australia) because it’s apparently not practical and too difficult to be a direct share investor in international equities. No, it’s not. I’ve been doing it directly for myself and clients for over 20 years. Amazingly, these comments from a fund manager happens to coincide whenever they launch their first international (product) fund.

For those who only wish to hear what they want to hear, this post is not a gripe nor soured with grapes. It’s meant to alert people to the bullshit they are fed in the financial press.

Filed under Finance & Investment

How To Go From Sinophile to Sinophobia – Ask Australia

November 14, 2013 Leave a comment

A country’s Foreign Affairs  isn’t only about setting policy but you need to understand economics in order to achieve your diplomatic objective.

Having a few politicians who are certified Sinophiles isn’t an automatic pass either.

Unfortunately, politicians and their advisors often aren’t financially literate let alone considered to be business people and because of this, they fail to understand how to deal with other countries over the length of many economic cycles.

In Australia’s case, it was the only large developed economy to survive the 2008 Global Financial Crisis. The fact that it has hasn’t posted a year with negative economic growth for 22 years in another anomaly.

Over the past 10 years, Australia’s economy benefitted from China’s appetite for its commodity resources (see China’s stimulus) and we loved them for it but after a while Aussies weren’t happy with what panned out, as the social and financial divide was then blamed on a “Two-Speed” economy.

When a large trading partner saves your economy, you say “Thank You”.

You don’t;

  1. antagonise them by placing U.S. Marines in Darwin and lie about the real reason they are there.
  2. call them dirty polluters (even though you have been one for a 100 years before them)
  3. revile the fact that their students come to Australia to study and “take away places from Aussie students”.
  4. ban their large telecomm networking company from participating in the construction of your own National Broadband Network
  5. obstruct and oppose their companies from buying assets (farms) from a willing seller in a free market enterprise system &
  6. charge their citizens more tax if they choose to buy property in Australia.

Oh Australia, you just don’t get it.

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How The Economic Machine Works by Ray Dalio

October 8, 2013 Leave a comment

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Asians spend their money on education

October 2, 2013 Leave a comment

It was quite interesting to listen to Michael Milken this week as he hosted his annual Milken Institute event.

To paraphrase, he said;

The top two things Americans spend their money on is Housing (whether it’s renting, acquiring, furnishing, improving) and Transportation;

while the top two expenditures for Asians happens to be Food and Education……

 

Filed under Social Observations

Not snobs – We’re just a bunch of drunks

September 19, 2013 Leave a comment

 

A recent article in The Australian newspaper (see link below) highlighted more than the buying power exhibited by Australia’s dominant supermarkets has over wine producers. It talked about how the supermarket duopoly is selling its own branded wine too.

http://www.theaustralian.com.au/executive-living/fear-and-loathing-in-the-wine-aisles/story-e6frg9zo-1226717170986

A report from Australia’s Bureau of Statistics says that beer consumption amongst Aussies has hit a 66 year low, while wine sales have risen. News agencies have tried to spin their feeble creative minds to develop a story based around our growing sophistication towards finer tastes. Interestingly the report doesn’t tell us at which price point most of the wine was bought at, but I can confidently predict it wasn’t at the middle nor higher end of the price range.The reason that wine sales are growing is because wine is cheap. It is being sold cheaply by the supermarkets who account for 77% of the domestic wine sales. The reason beer sales are falling is because its expensive.

Mainstream consumers are looking for a cheap way to get drunk at the behest of drinking a quality artisan product.

The price of beer has risen over the past 30 or so years, yet we still think you can buy a glass of beer for $1 at the local bowls club.

Some fancy pubs & restaurants charge $9-$10 for a pint of beer and many happily pay for it, because it’s “craft beer”.

Wine producers at the medium to premium end of the market need to continue to focus on improving their brand, the quality of their product & the “love & care” that they put into making their wine. This is their differentiation, just like craft beer makers are doing it.

One benefit of living in “wine country” is that I have friends who are wine makers and mine happen to all be a part of boutique, independent enterprises. They do not try to be volume based manufacturers. They do not create “cookie cutter” batches of wine.

A $9 bottle of wine tastes like a $9 bottle of wine.

If you choose to enter the lower end of the market, you then compete against those who can be the lowest cost producer and have pricing power. This shouldn’t be a surprise.

We drink a $28 bottle of wine because the quality, love & taste shows.

 

 

 

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Price charts don’t tell the whole story

September 17, 2013 3 Comments

Towards the end of calendar year 2007, the stock price of Australian rail & port operator, Asciano (AIO) was trading at $18 per share giving it a market cap of A$4.9 billion and it’s Enterprise Value (market cap plus debt and minus its cash) was A$8.97 billion. They were also near reporting a financial year EBITDA of A$626 million.

Six months earlier, the company had listed on the Australian Stock Exchange and was trading around $25 per share.

Today, the stock price is $5.80 and its market capitalisation is A$5.65 billion and the Enterprise Value is A$8.75 billion. Both figures are near or higher than the values seen at the end of 2007.

Incidentally, its 2013 Financial Year EBITDA was $911 million.

After seeing its stock price fall by more than 70%, how can this company’s worth be higher than its 2007 level?

Asciano now has a float of 975 million shares.

So, we take the 975 million shares and multiply it by $5.80 per share to equal $5.65 billion of Market Capitalisation.

Back in 2007, AIO has 273 million shares on issue which when multiplied by its $18 share price gave it a market cap of A$4.9 billion.

The difference being, Asciano has quadrupled the amount of shares on issue over the past 5 years.

This highlights one example of where you need to do your homework when understanding a company’s value rather than simply looking at a price chart.

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Danish Admiration

August 27, 2013 Leave a comment

During a recent supermarket trip, I was buying some ingredients for homemade pizza and a few extra things. By sheer co-incidence, I bought Danish feta cheese, Danish ham and Danish Butter (Lurpak – Yum).

Carlsberg Labels

This got me thinking about Denmark and its business influence. Various things that were “Danish” started running through mind ranging from furniture design, consumer brands and companies.

Names such Bang & Olufsen, Carlsberg, AP Moller Maersk (shipping), Lego, Vestas (wind turbines), Georg Jensen & Pandora (jewellery) & Novo Nordisk which is a pharmaceutical company boasting a market cap of $76 billion and employing 36,000 people.

Furthermore, when various publications list their most livable cities of the world Copenhagen continues to rank highly in the various judging criterium.

It’s quite amazing how well Denmark punches above its weight in terms of economic activity and business brands.

According to the IMF, it has an annual GDP of $313 billion (ranking it 32nd in the world, while its GDP per capita is an impressive $56,200 per annum, which is 8th highest in the world.

It has a low crime rate, open labour laws, a corporate tax rate of 25%, low unemployment and although part of the EU, it maintains it’s own currency.

Not bad for a small nation of 5.6 million people with a land area which is 30% smaller than Tasmania or a little more than the U.S. state of Maryland.

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Wi-Fi access in aircraft – Poll

August 21, 2013 2 Comments

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Price Is A Problem In The Absence Of Value

August 16, 2013 Leave a comment

The CEO of AMP is resigning, so I had a look at how the stock price has performed under his tenure.

Since being CEO, AMP’s stock has fallen 7% compared to the ASX 200 Index, which has risen 168% over that same time.

Hmmm……

BHP’s recently retired CEO oversaw a total stock return of negative 17% while the benchmark index broke even.

Qantas’ current CEO can brag that his company’s stock price has declined 46% during his watch vs. the index return of + 55%.

Myer’s stock price has left shareholders 14% poorer (and I am counting dividends)  under the current steward but the index has climbed 28% over the same time period.

English: Why Pay More?, No. 112 The High Stree...

But I can hear the cries already. They’re in a tough industry, it’s cyclical, they inherited a bad egg from the previous boss, it’s competitive and margins are tight.

Perhaps the board is equally to blame for poor stock price performance as much the management team that is charged to execute the strategy?

To contrast, the current ANZ’s boss has presided over a 42% total stock return whilst the index fell 3%, Westpac’s stock performance has been an impressive 90%, which handsomely beats the 15% return that the index managed and last of all, had you owned that boring old power utility, AGL when their present CEO took over, your total return is 55% versus the ASX 200’s negative 3%.

Some commentators talk about what legacy a departing CEO has left or the systems they put into place.

Whilst they are being rewarded handsomely (which I don’t object to), shareholders rewards should be somewhat aligned.

Don’t even get me started on their “golden handshake” severance pay.

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Can Qantas stock take-off ?

August 11, 2013 Leave a comment

Qantas 767 after take off

Qantas CEO, Alan Joyce’s recent address at an industry event didn’t give me any incentive to keep digging through the company’s numbers to determine whether the business was worthy of investment.

Mr Joyce’s used the upcoming Australian election as a reason for the conservatism in spending money on flights but once the election is over, he “hopes” confidence will be restored.

The industry in Australia has had extra capacity and this has slowly fallen, yet Mr  Joyce says that they will not rule out adding capacity to the domestic market, basically in order to help them increase their market share. ???&$Y*@#$*@#!)

In a domestic market that is practically a duopoly and where international flights are inter-continental and wrapped up in code shares agreement together with the cost cutting measures conducted over the past few years such as self check-in and outsourcing of maintenance, Qantas still can’t post a net profit.

In fact, Qantas’ stock price has declined 46% since Mr Joyce took over in November 2008, compared to the ASX 200 Index rising 55% over the same time.

Maybe Qantas is a stock worth looking at, after all. Comparing its current valuations to other airlines isn’t inspiring but with a stock price nearing its all-time low, you may need to look at it from the perspective of where the company and it’s figures are going to be, rather than where it currently is.

To start with, imagine what the stock price would do, if Mr Joyce was replaced?

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