The Month In Review: August 2009
Shannon Rivkin
Reporting Season Kicks Off
August brought with it reporting season for companies with a year-end of 30 June 2009, a financial year which has been disastrous for many listed companies. But what it also brought with it was a flurry of better than expected results which saw the market extend recent gains, with the all-important S&P/ASX 200 rising by 5.5% over the month. But while the market enjoyed healthy gains, there was a clear disparity between certain sectors, which is a trend we feel will likely continue, and hopefully members can continue to benefit from the recent successes we have seen.
One of the clear areas of outperformance in the recovery has been buying into those beaten down, former leaders that have been forced to sell assets and/or new shares to pay down debt, and our first recommendation of the month was to buy Elders Ltd (ELD), the former Futuris Corp, after it had sold off its insurance business to QBE Insurance. We entered the stock at 36.5c early in August and the stock closed at 39c by the end of the month, so members are looking good at the moment.
Asciano Group Ltd (AIO), another newly recapitalised company, finally completed its Security Purchase Plan (SPP) at $1.10 and with the stock closing at $1.59 at the end of August, all members are sitting very pretty. We did actually take the stock’s recovery as an opportunity to sell half our stock at $1.59, and we still feel the outlook looks promising.
While on SPPs, the details of National Australia Bank Ltd (NAB) $750m SPP were announced, and while scale backs were substantial, the fact that NAB closed at $28.48 versus the $21.50 SPP price makes it hard to get too upset. Shareholders are sitting on a 32% profit on these new shares, and our bullish view on NAB has been well rewarded.
After the huge recapitalisation of the equity market this year, as expected, mergers and acquisitions have come firmly back into the spotlight. One company under takeover is Felix Resources (FLX), and we have used the big discount to the value of the bid as an opportunity to buy into the situation. Chances of alternative bids are not out of the question but if not, we will be happy to bank our arbitrage in roughly four months.
On of our big recommendations to jump in before an anticipated capital raising was Amcor Ltd (AMC). The view was that a deal for Alcan Packaging was a near certainty, and due to the strong synergies of the deal, the market was likely to support such a deal. Well, August finally brought an announcement and the stock has flown on the back of the news. Against an entry price of $4.95 and $5.15, AMC closed the month at $5.77 (having paid a 17c dividend during the month), and shareholders will be given the opportunity to buy new shares at $4.30!
One of our stocks in the headlines of late is Consolidated Media Holdings Ltd (CMJ), with media giants James Packer and Kerry Stokes fighting for control of the company. CMJ is effectively a play on Foxtel and Fox Sports and has great strategic appeal, and it was not surprising to see the stakes raised as CMJ sold its stake in Seek Ltd (SEK) and announced a 10% on-market buyback. The ball is very much in Kerry Stokes’ court now, and with CMJ up from $2.74 at the beginning of August to $3.19 a month later, members are enjoying the ride.
As the end of the month approached, our view that different sectors would outperform saw a few portfolio adjustments. We finally sold Wesfarmers Ltd (WES). It’s incredible to think that shareholders who took part of WES’ capital raisings are actually ahead of where they were at the top of the bull market, but this reality has led us to look for cheaper stocks.
One such stock was Telstra Ltd (TLS) on the back of its profit result and incredible free cash flow. TLS continues to be priced as a growth-less utility stock with downside risk to the dividend and regulatory risk, but we have become more comfortable that these risks are now over-played and have recommended the stock on a twelve month, 12% fully franked yield.
The end of the month saw our much-discussed view that listed top-end property looked good for a recovery result in a recommendation on State Street Property Exchange Traded Fund (SLF). After the huge balance sheet restructurings we have seen, we feel that both NTAs and discount to NTAs have risk to the upside, and SLF is an excellent diversified way of capitalising on the strategy.