UK Banker Cartoon
July 3, 2012 Leave a comment
Seriously, someone needs to be arrested!
July 2, 2012 Leave a comment
Tweet that I posted today regarding David Jones –
$DJS.AX – can’t believe investors bought stock on rumours of a bid. Time to check who bought calls before the hoax, oh, I mean the bid.
DJS went into trading halt this morning and re-emerged in the afternoon by falling 10% after there was news of no bid existing. Newspapers will cite something such as the bidder was nervous or the bid was compromised.
Today’s best headline
June 26, 2012 1 Comment
Today, Billabong (BBG.AX) founder, major shareholder and board member, Gordon Merchant, has said he will entertain a takeover bid for BBG even if it’s at a lower price that the prior bid.
Geez, Ya reckon??
After rejecting a $3.30 offer and holding out for a bid preferably above $4.00, Mr Merchant now sees his stock trading at $1.00.
Dear Billabong,
I will bid for the whole company at 28 cents per share, on a pre excessive offensive dilutive capital raising basis.
Lesson: You don’t normally command a premium when you are desperate to sell.
This Is How Director’s & Board’s Protect Their Salaries
June 25, 2012 Leave a comment
The stock price of Australian surf retailer, Billabong (BBG.AX) has declined from $10, two years ago to its current price of $1.83. Excuses for it’s woes have been blamed on slow economic conditions and weak consumer demand. The blame should be placed on management.
Whether it has been ill-conceived ideas to expand into their own branded stores or a belief that consumers will continue to buy T-shirts for $60 simply ’cause the word “Billabong” appears across the chest should have been a warning to investors. Management should have occasionally wandered from the warmth of their offices to see what their market looked like.
When 45 year old dad’s make up the majority of the people wearing your clothes, something is wrong.
What else is wrong is……..is how, in mid-February 2012, whilst the stock price is trading around $1.45, Billabong rejected an unsolicited cash takeover bid from private equity firm, TPG, for $3.30 per share.
Today, Billabong’s is nearly doubling its shares on issue by selling 221 million more shares at a price of $1.02!!!
Have the director’s and board acted in the best interest of their shareholders?
Are they responsible and competent stewards of the company and it’s shareholder’s money?
The regulatory bodies should get busy with some investigating!
Somebody, please, throw in the use of brilliant phrases such as “best practices” and “corporate governance” before shareholders launch a class action lawsuit.
I wonder if board members were paid in shares, (rather than cash) if they would have made a different decision?
Not to be lost in my critique, we should also consider how bad TPG is at valuing this investment at $3.30 per share, only 4 months ago.
ASX 200 Is Oversold
May 17, 2012 Leave a comment
Today, the ASX 200 Index has moved into oversold territory. See the chart below covering Oversold Moments over the past 4 years.
In a recent client note, I illustrated my prediction of the ASX 200 falling to 4,170 around the mid-July 2012 timeframe.
This level was breached today, 2 months earlier than I expected.
My work suggests that the ASX 200 is now creating a base before embarking on a new tactical rally. I have found this current “set-up” similar to previous occurrences where the ASX 200 and the Shanghai Composite indices have troughed 2-4 months before other Western markets.
Combining the “oversold” reading with increasing bearish sentiment, consensus estimates for the ASX 200’s fiscal year 2013 include a P/E ratio of 10.6, a dividend yield of 5.5% and a Price to Book ratio of 1.5.
The ASX 200 is now in a range that I refer to as a “fertile investing habitat”. The Forecast Earnings Yield of the ASX 200 is 9%, which 6% above the 10 Year Aust. Commonwealth Government Bond (ACGB) yield.
Recently, I have written that the Australian equities market is not an “outright” nor a “raging” BUY whilst the 10 Year ACGB yield remains below “at-call” deposit rates and especially the Reserve Bank’s Cash Rate.
Currently, the RBA’s Cash Rate is 3.75% and the ACGB yield is 3.27%. Should the RBA cut rates by another 50 basis points, this yield curve will soon become normal again.
With all this theory and probability, I am only expecting a “tactical” rally, which may zigzag its way higher into November 2012.
Beyond this timeframe, our longer-term cycle work will see us lighten positions as the end of the calendar year nears.
Sometimes, markets move to where they can do the most damage and presently, that direction may very well be UP!
Oversold ASX 200 Moment – 4 years
Why Are Investors Surprised ?
May 17, 2012 1 Comment
If you are transportation
company….
- working on a net margin of 3%,
- trading on a P/E ratio of 14 (vs. the underlying index P/E of 11),
- when Goodwill equals a figure that is half of your Market Cap,
- dealing in a fragmented marketplace with rising fuel and wages costs and
- that has negligible free cash flow;
why are investors surprised when the stock falls 15% on bad news?
In capital markets, it is difficult to pick an investment winner but it should be easy to figure out what to avoid.
Anatomy Of An Overreaction
May 16, 2012 Leave a comment
JP Morgan announced that it lost $2 billion due to either a flawed hedging strategy or just bad trading.
Some reports cite that the loss is more like $1 billion when you account for the gains made on the other side of the hedge which the initial strategy was trying to protect or offset.
My question is to ponder whether JP Morgan’s stock price has overreacted.
The market capitalisation of JP Morgan prior to this news was approx. $161 billion.
It’s stock price has fallen near 14%, meaning it’s market cap has fallen $23 billion and now stands at $138 billion.
I’d like to compare it to BP’s 2010 Macondo oil rig disaster in the Gulf of Mexico.
Sadly, 17 men died as a result of this explosion and it crippled parts of the Gulf Coast economy, not to mention the environmental damage caused.
Prior to the rig explosion, BP stock was trading at $60 per share and its market cap was $190 billion.
2 months later, the stock had fallen to $27 and it market cap was $86 billion.
Today, BP’s stock price has risen 40% from that June 2010 low but more importantly, it’s stock price recovered the decline that it suffered following the sinking of the oil rig, within 4 months.
The financial settlement costs for this disaster is estimated to be near $8 billion.
Both companies; are making a net profit of approximately $25 billion per annum, have P/E estimates of between 6 & 7 for the next fiscal year and are trading just below their book value.
JP Morgan’s error doesn’t seem to be systemic, life-threatening nor open to punitive lawsuits.
Assuming that the JP Morgan loss will be $2 billion, the ratio of the financial loss compared to the fall in the company’s value matches the decline experienced by BP.
It looks like an overreaction.
Are German bonds all that?
May 11, 2012 Leave a comment
North Rhein Westphalia (NRW) goes to the polls this weekend.
The political tension surrounding the elections is about many seats Angela Merkel’s party may lose.
NRW is Germany’s most populous state and it’s GDP equals 22% of Germany’s total and if it were a country, it’s economy would be the world’s 14th largest. With a GDP estimated to be in the range of $550 billion and it carries a debt of approx. $230 billion, which is quite a debt for a state with a population of 18 million.
Actually, its Debt to GDP ratio is quite conservative when compared to the whole of Germany’s which runs at around 85%.
While Germany’s GDP to Debt ratio is below the 105%+ marks that Greece, Italy, Portugal, Ireland and the U.S. carry, it is worth exploring why German debt is more revered than France’s.
France’s Debt to GDP ratio is close to Germany’s, yet their 10 year bond has a yield of 2.80% while Germany’s commands a “safe haven” status of 1.52%.
Why do German 10 year bonds trade at 1.52% and why did investors recently accept a negative yield for their short-term deposits?
Is it because Germany’s debt obligations are perceived to be safer than France’s?
For some background, it’s important to note that European countries gave up their right to control their monetary base when they adopted the Euro. It is the European Central Bank that establishes interest rate and monetary policy.
Yet the Bundesbank has said that “it won’t allow inflation to rise”. Hmm, so if inflation rises in Germany (currently at 2% p.a) and the Bundesbank can’t set interest rate policy – how does it propose to control inflation? Perhaps it can influence it’s government to decrease government spending. I don’t think this would help it’s safe haven bond perception.
A German 10 year bond yield 1.52% seems to be close to the low end of its logical range. If inflation rises, German federal and leading state government debt rises and its GDP purchasing power weakens, I can see these bond yields tripling before they halve.
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