Wednesday, January 31, 2007

A Quick Analysis of 0 -10c stocks with PE under 10

Topic Discussion
I am going to start a series of articles that give my quick perspective on a number of stocks. They will be very brief but hopefully I give you a quick rundown on the stocks and why I would or would not look further into them.

The only criteria is that the stocks need to have a PE or 10 or less.

ASX:SCE - SunTech Environmental Group Limited - This is an investment company trading in China and Hong Kong. They are under tight regulatory restrictions due to the Chinese government and I don't see any major upside potential. Last report showed dramatic losses in profit. Decision : Not worth looking into further.

ASX:RMG - RMG Limited - This company is primarily a provider of receivables management services. RMG was initially formed by a merger of 22 Australian and New Zealand companies to create a major regional provider of receivable management and information services across Australia, NZ and Asia. This company is making a large loss and was delisted once and put into the hands of creditors. Decision : Not worth looking into further.

ASX:MSI - Multistack International Limited - This company operates in the heating, ventilation and air conditioning industry. Recent Numbers from half Yearly report show revenue dropping significantly but profits up substantially. Looking further back through the history of the company they are continually losing revenue. Decision : Not worth looking into further.

ASX:NWA - New World Alloys Limited - This company is a minerals exploration and development company. Even thought they are producing cash flow it is still not enough to cover expenses. Also the rest of the fundamentals do not look good for this company. Decision : Not worth looking into further.

ASX:TDR - Toodyay Resources Ltd - This company is a mining and exploration company. Formally known as Gympie Gold which went into administration due to a fire. They are chewing through the cashflow. Decision : Not worth looking into further.

ASX:PMX - Palamedia Limited - This company specialises in the production of business and finance content which is supplied to a variety of audience segments through electronic publishing and broadcast agreements. The fundamentals are only showing a profit do to sale of assets last year. Cashflow is being burnt quickly. Decision : Not worth looking into further.

ASX:MOD - Medical Corporation Australasia Limited - This company is involved in investment in healthcare and the research, development and commercialisation of medical products. There revenue last year was zero but they do get tax concessions for Research and development. They have a large bank and they have purchased some products. Decision: Need to see more from its new products before further investigation.

ASX:ASU - Alpha Technologies Corporation Limited - This company designs, manufactures and distributes a range of temperature and other sensors. They are showing continued record profits and seem to be expanding at a constant growth rate. Decision: POSSIBLE BUY

ASX:PKT - PocketMail Group Limited - This company operates as a provider of simple and affordable mobile e-mail services and devices but has recently bought a company that is involved in Uranium Mining. Management are just jumping around looking for the hot sector. Decision : Not worth looking into further.

ASX:ACX - Acma Engineering & Construction Group Limited - This company provides services related to steelwork construction, primarily to Agricultural businesses and the petroleum industry. This company has been in voluntary suspension. Too much risk here. Decision : Not worth looking into further.

ASX:CDH - Chongherr Investments Ltd - This company principally operates in the quarrying of sandstone and exporting the blocks to Asia and Europe. They are making a profit although it was dropping. But further analysis shows a major contract win and a new mining lease. There may be some potential for the company. Decision : Further Investigation needed leaning towards possible buy.

ASX:IEQ - International Equities Corporation Limited - This company is principally involved in the investment and development of property, and the management of the Seasons of Perth hotel. This company is making a profit but property developments currently being undertaken are chewing through the cash. Decision : Further Investigation needed leaning towards possible avoid.

ASX:LAS - Lasseters Corporation Limited - is an online casino operator, providing casino gambling services to the international market. Interesting area that has a lot of competition but also a lot of takeovers and mergers. Management is making tough decisions about losing the majority of revenue from the US. They will make a loss this year but could warrant investigation in the 2008 year if they return to profitability. Decision : Further Investigation needed leaning towards possible wait before buy.

ASX:MME - MTM Entertainment Trust - This company is a property trust. Together with its controlled entity, The Worlds Biggest Screens Pty Ltd, it operates IMAX theatres and invests in the leisure and entertainment property market. I couldn't see them making money in any recent reports. Decision : Further Investigation needed leaning towards possible avoid.

ASX:HGL - Hudson Investment Group Limited - This company is mainly involved in property investment, management and development in Australia and New Zealand. They are making cash but the Debt to equity ratio is almost 200%. Too high with too much risk associated. Decision : Not worth looking into further.

ASX:AUX - Ausron Limited - This company's main activity is the commercialisation and development of salt tolerant eucalypts and forestry management and related services. They appear to be selling all assets and not knowing what they want to do. Decision : Not worth looking into further.

ASX:GBA - Grandbridge Limited - This company is an investment company offering a range of corporate advisory services. They seem to have various investments that are uniquely positioned. Still they are losing cash each quarter and not worthwhile as a long term investment.Decision : Not worth looking into further.

ASX:GUL - Gullewa Limited - This company has investments in several sectors, including listed equities, property, telecommunications, exploration and mining. This company has been performing well. I do not know enough specifics on the investments but they are showing good returns. Decision : Further Investigation needed leaning towards possible buy.

ASX:LAF - Lafayette Mining Limited - This company is a minerals exploration and development company operating in the Philippines. This country has political risks and currency risks. But saying all this the company may be turning things around. Decision : Further Investigation needed leaning towards possible buy.

ASX:DVM - Digital Media Online Limied - This company is a digital and media technology company that seek to capitalise on the growing market of point-of-sale indoor media advertising. They are chewing through the cash with no real revenue. Decision : Not worth looking into further.

ASX:BPK - Bremer Park Limited - This company focuses on the manufacture of timber products. it is going through tough times and I see no reason they can turn this around. Decision : Not worth looking into further.

ASX:CDL - Canada Land Limited - This company principal activities include the development and management of residential and commercial property in the transportation hub of Guangzhou, in the Peoples Republic of China. China is being very restrictive on investments and this adds risks to this company. The Debt to Equity Ratio looks good and the stock price is sitting at a 12 month high. The NTA backing has increased to 15c. This stocks looks to be producing the growth needed and should be investigated further. Decision : POSSIBLE BUY

Well I hope that has helped a few people who are on less money and are looking for the smaller stocks. There is always a greater risk and reward when dealing with these types of stocks due to the wild swings which can occur. Still there are opportunities to be found and exploited.

Good Luck Investing.

Blog Carnivals

I have submitted a few of my articles to blog carnivals as a way of promoting the blog.

I also feel that there are some good articles out there that a lot of people miss reading simply because they do not know they exist.

Try out these two carnivals that both feature some of my articles.

Carnival Of Personal Finance

Carnival Of Investing

Good Luck Investing

Monday, January 29, 2007

If you ask me, NAB has poor management

The annual meeting of the National Australia Bank Limited (ASX:NAB) will generate questions from shareholders and the Finance Sector Union. However,shareholders will also be asked to approve a $1 million retention incentive for the bank's finance officer as part of a package of short-term share incentives for senior managers, including CEO John Stewart. The Finance Sector Union is concerned over the relocation of jobs to India, as 250 credit-processing jobs have already gone. NAB shareholders are generally content, as the bank's share price rose by 20% in 2006.

I have to ask why the banks finance officer thinks he should get a $1 million retention incentive. Any sane person could produce the same result without the incentive. This looks like management trying to scratch each others back and wasting shareholder money. Banks make money cause the have lots of fees, they don't make it cause they have this one person on the team. If National Australia Bank was making a higher profit margin than the other banks then I could understand some sort of incentive but $1 million is way too steep and seems ridiculous.

While banks are a good investment long term you need to have the right type of managers in place that will not abuse the system and NAB does not look like they have it sorted yet. I will steer clear of NAB and instead look to invest in the management of other banks such as Macquarie Bank Limited(ASX:MBL) and St George Bank Limited (ASX:SGB). At least I have confidence in the management of these other banks.

Good Luck Investing

Who is after Multiplex ?

Listed property trust, General Property Trust Limited (ASX:GPT), has denied that it is bidding for Multiplex Limited (ASX:MXG) after speculation was rife that it was in a joint bid with Babcock and Brown Limited(ASX:BNB). Recently, the construction company revealed that its largest shareholder, the Roberts family, had been approached but they had not mentioned who was the bidder.The potential bid lifted Multiplex's share price by over 17 per cent to$A4.85 to a market capitalisation of over $4 billion.. A private equity firm now seems the most likely bidder.

This is good for shareholders of Multiplex who have stuck with the company through the tough times.There is no word on the current bid price or any other deals but the market must expect an extremely high price at the rate it lifted the shares. Personally the poor management of projects has kept me clear of the company and I am just happy that the long term shareholders have received some payback for their trust in the company.

Good Luck Investing.

Coles in an interesting deal

I just found an interesting tidbit of information on Coles Group Limited (ASX:CGJ).

Apparently Coles Group Limited (ASX:CGJ) has assisted major beef supplier Australian Country Choice (ACC) quite substantially over the last few years. It has helped the group buy agricultural properties in Queensland worth millions of dollars. ACC has spent $A21m on purchasing properties over the past decade, and an arrangement between Lee and Coles requires that the retailer reimburse ACC the cost of mortgage or interest repayments for property purchases relating to the servicing of Coles supermarkets.

Coles has no ownership rights over the properties despite the arrangement, and the retailer has not included amortisation costs associated with the property purchases in its annual accounts. The Coles board approved the arrangement in the mid-1990s.

Sounds like a good deal for ACC but a very poor deal for Coles Group. I can't believe the board approved this sort of arrangement. This shows Coles management is not as good as it should be and those responsible should have a query placed on them over the deal. In the end it is the shareholders who are losing out.

Good Luck Investing.

Telecom NZ selling Yellow Pages ... Telstra in the hunt

Telstra Limited (ASX:TLS) is expected to bid against private equity firms for Yellow Pages, Telecom Corporation of New Zealand's (ASX:TEL) directories business. Fairfax Media Limited (ASX:FJX) and the Seven Network Limited (ASX:SEV) are no longer trying to acquire the business, with the remaining bidders comprising of private equity firms. Some of these bidders are rumoured to include Kohlberg Kravis Roberts & Company, The Blackstone Group, CVC Capital Partners, CCMP Capital, The Carlyle Group and Pacific Equity Partners. Indicative bids for the operation, which analysts have priced at between $A1.5bn and $A2bn, are due in early February 2007. Telecom NZ wants to finalise the sale by June 2007.

Looking at this from Telstra's position I wouldn't be happy. They are going to be fighting against a number of firms which in recent times have shown that they overvalue businesses. The amount of firms clambering to purchase this asset will surely inflate the price and will result in a no win situation for any of the bidders. On the other foot though we are going to see a very good price coming in for Telecom NZ. They are selling an asset which is going to achieve a price far above the true worth. This is a good sale for Telecom NZ shareholders.

Good Luck Investing

Sunday, January 28, 2007

Magazine Tips and their effect on shares

As any good investor should and would do, I read the various stock market magazines that are available. This includes the free ones which circle the web to those which are purchased at the newsagent.

One of the magazines I regularly read is the "SmartInvestor". I find a number of longer term tips here which prove to be profitable. Apparently others are catching onto this as well. I didn't get a chance to look at it early this month and only got to it this weekend. I usually grab a highlighter and rummage through the pages looking for fundamentally sound companies that are being touted as the next big thing. I then use my own judgement on whether or not the company is a worthwhile purchase.

This month I highlighted the following stocks for the following reasons :

Brambles Limited (ASX:BXB) : The company is debt free, the balance sheet is undergeared, possible takeover target, rapid organic growth, high rates or return on capital.

Reckon Limited (ASX:RKN) : Operates in a duopoly, More than half its income is from recurring revenue, strong earnings growth, trading at a discount.

Q Limited (ASX:QXQ) : Market capitalisation understates its potential.

Austin Engineering Limited (ASX:ANG) : Surge in workload, EBITDA growth near 40%, management confirmed at least 40% growth for 2007, lots of cash reserves, Price to Earnings of 9.

Phosphagenics Limited (ASX:POH) : Insulin through skin product, P/E ratio of 10.

Mariner Bridge Investments Limited (ASX:MBR) : Great management, possible strong returns, nice trend in chart.

Adcorp Australia Limited (ASX:AAU) : Share price has halved, established provider, conservative price earnings multiple, 11% yield, Low growth outlook set to change, strong cash flow, debt free, acquisitions possible.

Allomak Limited (ASX:AMA) : In LPG industry as a wholesale supplier of LPG kits, Reaffirmed earnings guidance of at least $4.2 million, PE of 8.4 and dividend yield at 8%.

Structural Systems Limited (ASX:STS) : EPS at least 22c, PE of less than 10, significant discount to peers.

SP Ausnet Limited (ASX:SPN) : Fat dividend yield of6.63%, Should be in top 5 yielding companies for 2007/2008.

This is a list of 10 shares which I saw potential in after looking at the magazine. It usually takes me about 30 Min's to get through the magazine and identify the top stocks worth looking at from a fundamental perspective.

So how did these top 10 stocks go ?

The magazine comes out on the 15th Jan 2007. So if we assume we bought at the opening price on the 15th and held till today :
  • BXB - Purchase at $12.82. Now trading at $13.31 (3.8%)
  • RKN - Purchase at $1.02. Now trading at $1.08 (5.8%)
  • QXQ - Purchase at $0.039. Now trading at $0.057 (46%)
  • ANG - Purchase at $0.97. Now trading at $1.30 (34%)
  • POH - Purchase at $0.335. Now trading at $0.34 (1.5%)
  • MBR - Purchase at $2.57. Now trading at $2.50 (-2.7%)
  • AAU - Purchase at $0.54. Now trading at $0.645 (19%)
  • AMA - Purchase at $0.42. Now trading at $0.48 (14%)
  • STS - Purchase at $1.72. Now trading at $1.94 (12%)
  • SPN - Purchased at $1.40. Now trading at $1.415 (1%)
Nine of the ten stocks finished in a profit. The majority of stocks were even higher then the current prices but had declined in the last few days after spiking earlier in the week.

The profit on some of these shares is remarkable. The highest was an astounding 46%. The lowest was a meager loss of 2.7%. Five of the ten stocks produced more than 10% profit. The average profit was 13.44%. This works out to be a return of approx 161% a year.

Lets assume this works every month (I can't say this is true as I have only got a couple of months of data). Lets also assume you could make a rough 10% on your money which is a 3% discount to this months result. Compounding this through a year actually produces a result of 213% return. Assuming you start with 10K and invest evenly every month you would reach 100K within 2 years 1 month. You would reach a million within 4 years 1 month.

Is it worth following ... well the small amount of research suggests there is a case to follow this unique system. While I can follow this easily it is a bit hard for other people to reproduce the same results, as I selected 10 stocks which I thought had potential. There is a lot more than 10 stocks in the magazine.

Why not pick up a magazine you had from a while ago and try it out ... it might just turn out to be an interesting and profitable experiment.

Good Luck Investing.


Im sorry that I have not posted over the last few days.

The Austrlaia Day long weekend kept me busy and I am only now catching up with the news from Thursday and Friday (overseas). I'll try and get a few stories posted in the coming days that identify some interesting stocks worth analysing.

I will also be launching a new blog in the near future which should be interesting. It will be based on Shareholder disounts. I believe this site will be beneficial for a lot of investors who are looking for that extra reason to buy and hold a share.

In the mean time I hope to get an article on the "Importance and effect of Magazine Tips" posted later tonight.

Good Luck Investing.

Wednesday, January 24, 2007

AUB going well but still overpriced

Austbroker holding Limited's (ASX:AUB) strategy of investing in majority stakes in owner-operated insurance brokers has impressed many investors and analysts. Under the group's strategy, it supplies back-office and support functions, while local managers run day-to-day operations. Austbrokers holds equity interests in the 34 insurance broking businesses within the Austbrokers Group. In addition to its core general insurance broking business, the Austbrokers Group cross markets other financial products and services suitable for its client base, including premium funding, life insurance and superannuation and financial planning.

The company's shares have risen significantly from their $2.00 sharemarket listing price and are currently trading at $5.15. Many brokers anticipate Austbrokers stock will continue to perform well. Greg Ward, of Goldman Sachs JBWere, claims the shares are worth $A5.01, based on factors such as the group's business model and low requirements for working capital.

I find it interesting that the stock is trading above the target price of $5.01 yet is is being recommended as a share that will perform well. I have had a look at the chart and there is no way you would want to be involved in this share at this point in time. It has spiked considerably this month and its fundamentals are not undervalued. At best I would say it is priced just about right or slightly overpriced.

Good luck investing.

CPI figures mean rates on hold

An increase in interest rates next month is less likely following a reported fall in inflation. Data released by the Australian Bureau of Statistics put inflation for the year to December at 3.3 per cent While this is still above the central bank's 2 to 3 per cent target range it is a much better trend as the figures actually fell by 0.9%. This was largely thanks to a drop in petrol and banana costs.

Over the twelve months to December quarter 2006, food prices rose 8.6 per cent, mainly due to a sharp rise in fruit prices (+72.2%). The only significant fall in food prices was for poultry (-3.0%). Fruit prices rose dramatically due to the weather conditions affecting Australia.

The most significant price falls for the quarter were automotive fuel (-12.4 per cent), fruit (-5.2 per cent), pharmaceuticals (-5.0 per cent) and audio, visual and computing equipment (-2.7 per cent).

The most significant offsetting price increases were domestic travel and accommodation (+6.2 per cent), vegetables (+4.1 per cent), rents (+1.0 per cent) and house purchase (+0.5 per cent).

So what does this mean for the market ? Well quite simply it means there is less likely a chance for a rate rise which means that there is more stability in the market. Stability should lead to a continuing rally in the market for at least the short term.

Oil has began to rise again this month but it is still at a very low price compared to a year ago. I expect that oil will again be a major impact on inflation in the next few months and this may lead to a rate rise further down the track. But we will need to wait and see ....

The picture is coutersy of www.nicholsoncartoons.com.au

Good Luck investing.

Tuesday, January 23, 2007

Dogs of the ASX 200 2005 review

There is a well known method known as the dogs of the dow. The theory is that the stocks which performed the worst this year will have the chance of improving the best the next year.

Some research was done in the last year to see how this performed on the ASX for 2005. It took the ten stocks which had the highest dividend yields and compared them to the market return.

Of the 10 stocks :

  • 9 out of the 10 showed a positive gain ( the lowest gain was 11.4% )

  • 5 out of 10 stocks outperformed the market after dividends were included

  • 4 out of 10 stocks had a higher capital gain than the market

I believe last year wasn't the best year for testing this theory as it is a theory that holds its position in negative years. Interestingly the gain of the market was 25.5% (after including dividends ) and the return of the ten stocks was 24.78%. Slightly under performing the market. If we take out the losing stock the average gain was 28.7% which is a nice gain on the market average.

I will be interested to follow this for the next year and see how it performs ...

Good Luck Investing.

Alinta proposed buyback running into road blocks

The proposed management buyout of Alinta is getting hit with a lot of roadblocks. Firstly the backlash over an alleged conflict of interests by adviser Macquarie Bank has undermined the deal causing shareholders to be very angry. The buyout has also stirred up and encouraged rivals to emerge. The rivals are rumoured to include Singapore Power's SP AusNet, CKI's Spark Infrastructure and Origin Energy.

Meanwhile senior Macquarie Bank (ASX:MBL) executives are believed to be deeply unhappy about the damage to the firm's reputation caused by its involvement in the proposed management buyout.

This is a good sign for Alinta shareholders as there may be a bidding war for the company. It is also good to see Macqaurie Bank is embarrassed about their handlings in the buyout. This shows management are looking at the best long term interests for the company. Alinta management on the other hand can not be trusted after the proposed buyout as it feels like amnagement was trying to pull one over the shareholders and get the company cheap.

GPT going green at a cost

Australian property company GPT Group Ltd (ASX:GPT) has decided to purchase a proportion of its energy from renewable sources in 2007.

The move follows a World Wide Fund For Nature campaign that asked corporations to examine building-related greenhouse gas emissions. The main issue is that renewable energy sources are more expensive than traditional fossil fuel-generated electricity. But depstie this GPT has agreed to use up to 25% green energy. WHile this won't save the company any money it will eliminate approximately 23,000 tonnes of carbon dioxide per year.

GPT has entered into an agreement with Origin Energy Ltd (ASX:ORG)

Reading up on this article I initiually thought this was a stupid idea by management. Why increase your costs when you are not being forced. It seems to go against all business sense to nominate yourself to pay a higher cost when there is a cheaper alternative and there is no difference in quality. But then I started to think about it more and did a bit of research. Its not going to cost an extragant amount to change over the renewable energy and I am sure they have got into a deal with Origin Energy. Then there is the pretigue of being an environmentally friendly company. This is where they hope to make their gains. If they are perceived as an environmentally friendly company then they will get the "socially responsible" funds to invest with them. This can be a huge chunk of money coming their way and it could, if it works, increase the share price substanially. Only time will tell.

Good Luck Investing.

Monday, January 22, 2007

Price Earnings Value of ASX 200

I came along a set of interesting numbers which I have put into a graph below. These numbers reflect the ASX 200 (which comprises of the top 200 shares on the ASX) price to earnings for the past 5 years.

Looking at the graph you can see that this is in a steady downtrend.

This would suggest to those viewing it that the current bull market run of 3 years is not overextended. If you were viewing this data without knowing how the market has performed you would probably assume the market has dropped or remained steady.

So why has the avg P/E ratio dropped ?

My speculation is the resource boom has caused dramatic increases in some of our major companies such as Woodside Petroleum Ltd (ASX:WPL), BHP Billiton Ltd (ASX:BHP), and Rio Tinto Limited (ASX:RIO). Along with this banks such as National Australia Bank (ASX:NAB), Commonwealth bank (ASX:CBA), Westpac Banking (ASX:WBC) and ANZ Banking (ASX:ANZ) have continued to increase the profits to record levels. The stock market rising has also boost the fees chargeable for financial firms such as AMP Limited (ASX:AMP) and Etrade (ASX:ETR). This flows through to other sectors which support these companies such as IRESS Technologies (ASX:IRE).

Another reason could be that there are a record number of Listed Property Trusts (LPTs) in the ASX 200. This companies historically have lower Price to Earnings ratios and higher dividend yields.

Is the Market Overheated ?

To determine if the market is overheated I started to look at the sector breakdown and found some interesting statistics. Of the ten sectors that make up the index, 70% (7 out of 10) were showing Price to Earning ratios of 20 or more. The average is 16.5 so a ratio of 20 shows that sector is around 20% overpriced. The only three sectors not overpriced were financials, Materials and Telecommunications.

I wrote this article to show that all statistics on the market are not equal. If I broke this down further I would be able to specifically pick out stocks which are over priced in each sector. I would also be able to highlight which companies in each sector are currently showing value and could be a potential takeover target or are set for a turnaround.

So to answer the question on whether the market is overheated : YES !!!!

70 % of the market is running at historically high price to earnings and there is only two ways for this to remedy itself. The first is the prices retract to the historical mean which is around 15-16 for the ASX 200 or companies produce dramatic earnings increases in the future to justify the high price to earnings of today.

Good Luck Investing.

Saturday, January 20, 2007

Portfolio update

I thought I really should update the performance of the portfolio as it has been a rough week for some of the stocks.

I have decided to sell out of AVE at this point in time as I think it is going to be a bit stagnant looking at the chart. I will look to reenter the share if it drops back to a bargain price again.

The portfolio now shows :

RHD Bought at 65c now trading at 72.5c for a PROFIT of 7.5c (11.5%)
SCV Bought at 80c now trading at 81c for a PROFIT of 1c (1.25%)
FEA Bought at 63c now trading at 63.5c for a PROFIT of 0.5c (0.8%)
CKL Bought at 59c now trading at 59c for BREAKEVEN (0%)
MCP Bought at $2.65 now trading at $2.72 for a PROFIT of 7c (2.6c%)
AVE Bought at $2.19 now trading at $2.65 for a PROFIT of c (21%) -- SOLD
MPH Bought at $0.225 now trading at $0.23 for a PROFIT of 0.5c (2%)

Cash : $45,955
RHD : $11,153
SCV : $10,125
FEA : $10,079
CKL : $10,000
MCP : $10,264
MPH: $10,222

Total : $107, 789

Month 1: Profit of $4,688. Annualised this is a gain of 56%.
Month 2 (to date): Profit $3110. Annualised this is a gain of 37%.

Closed Trades :
ITD Bought at 41.5c SOLD at 57.5c for a PROFIT of 16c (38%)
AVE Bought at $2.19 SOLD at $2.65 for a PROFIT of 46c (21%)

The return this year is 7.7% for this portfolio. Still there is not many shares to buy which may mean that the portfolio could become stagnant in the next few months while I am searching for undervalued shares.

Good Luck Investing.

Berkshire Hathaway Inc Letters - Warren Bufett

Everyone in the world who has ventured into investing has heard of the extraordinary investments made by Warren Buffett. He is regard as the top investor of our time and it is amazing how different his philosophies are from the majority of the fund managers out there.

The best place you can read up on Warren Buffetts style is through his letters to the Berkshire Hathaway inc shareholders. The letters he has written from 1977 through to 2005 are available on the companies website. You should definitely have a read if you want to see a master at work.

The best way to emulate a master investor is to know as much about him as possible. Here is a timeline of Warren Buffetts life so far and a short biography is available here.

Even the wikipedia has a section dedicated to Warren Buffett.

I learnt a lot from reading the letters and reading about Warren Buffetts life and I can not overstate the importance of researching his management style if you want to be a successful fundamental long term investor. He is by far the most influential person (along with Graham) for today's fundamental investor schools. He has a lot of person qualities that you should try to emulate when dealing with the market if you also want to be successful.

Good Luck Investing.

Friday, January 19, 2007

Playboy features Austrlaian products in Christmas wish list

Housewares International Limited's (ASX:HWI) Breville brand of electrical appliances is proving popular in the Uinted States. It has been so popular that a major mens magazine ("Playboy") has featured a Breville expresso machine in its 2006 Christmas gift guide.

Breville will shortly introduce a new blender in the US, where the retail market for such products is worth an estimated $700m. Housewares CEO Joe Hersch notes that this is larger than Australia's entire market for smaller household appliances.

Housewares is a company I have been following for a while. It is sitting on a good PE ratio under 14 and has a good PEG ration at 0.75 Estimates for the company is for it to grow by approx 15% in earnings for the next several years. They are currently trading a mere 2% from there all time high and this news may commence a new uptrend. The dividend is sitting nicely at around 6%. Now that I have stated the good things here are the negatives. The company has a chiooy share price with no real trend. It has a high debt level which may not be sustainable. It also has been increasing its payout ratio for dividends meaning they may need to cut the dividend soon. The last parout ratio was over 100% of earnings. All of these signs have kept me from investing in the company. And I dare say I will once again steer clear even on this good news. I want to see the debt level drop below 30% before I feel comfortable. For those interested interest cover is onlu 4 times and this is adds a fair bit of risk.

Good Luck Investing.

Hasties winning more contracts in Dubai

Hastie Group Limited (ASX:HST) which specialises in refrigeration and air-conditioning has won a major contract in the United Arab Emirates. Hastie Group announced it has signed a $52 million deal to fit air conditioning in a large Abu Dhabi shopping mall. Investors took the news well and pushed the shares immediately 11 per cent higher to a record $2.88.

This announbcement followed on from a 2006 announcemnt where Hasties had won a $40 million contract for air-conditioning in Dubai as part of a joint venture with the Al-Futtaim Group.

Hasties looks to be growing substantially and management appears to be doing a good job. The PE ratio is sitting at the amrket average of 15 but the stock is at its highest level ever. This is a good sign for the company and earnings estimates expect it to grow around 10% a year. Dividends are sitting at 4% and overall this looks to be a moderate purcahse with little technical or fundamental risk.

Good Luck Investing.

Now there is an iPod Index .. No Joke

A new index has been created by CommSec. The index announced is called the "iPod Index". It has been created as another way of measuring purchasing power parities. The light-hearted index follows in the footsteps of the Big Mac Index which was introduced in 1986. According to the iPod Index, there is a chance that the Australian dollar may fall by 15% against the US dollar. No currency model is perfect, but the iPod Index has a distinct advantage over the Big Mac Index in that iPods are almost all made at a single point in China, whereas Big Macs are assembled on-site. Other than the variable of transport costs, the iPod may prove to be the more accurate index. For the record, Brazil has the dearest iPods and Canada has the cheapest.

CommSec is owned by the Commonwealth Bank of Austrlaia Ltd (ASX:CBA).
Good Luck Investing.

Thursday, January 18, 2007

KME makes intelligent purchase

Kip Mcgrath Education Centres (ASX:KME) has been one of my selections for a while (since 80c) and it has done quite nicely for me. They have come out today and announced that they have purchased 40% of GGG Pty Ltd.

I have copied some of the paragraphs from the announcement below and highlighted the important points.
GGG Pty Ltd is the owner of the computer program QAX which is a computer based program for teaching mathematics to children from Kindergarten to the end of high school. This will extend the age group KME caters for from 6 to 16 years, to 4 to 18 years of age.

The developer of QAX is a franchisee of KME and has the largest Kip McGrath centre in the world. KME believes that the addition of QAX will add to the number of students in centres and increase revenue received from franchisees all over the world.

QAX will be offered to existing franchisees at an additional cost and will therefore be a source of income for KME. QAX fits in with the core business of teaching supplementary education to school age children. QAX is already used in some Australian KME centres as well as 42 schools in Queensland and has 50,000 students using the program. It is the intention of KME to sell the program to schools in other states of Australia and for franchisees all over the world to use the program.

The purchase price of the 40% stake in QAX is $1.4M and the funds will be 100% borrowed by the company. KME has an agreement in place for the purchase of a further 10% of the company, enabling KME to take a controlling interest in the business. It is believed that the acquisition will be immediately EPS positive in this half, after interest, and will add significantly to profit in the 2007-08 year and subsequent years.

The company has an agreement to buy the remaining 50% of GGG Pty Ltd for a capped
amount should the other shareholders wish to sell in the future.

This is quite a good announcement for the company and I think it is keeping within the core business environment in which they operate. I like any companies that make strategic purchases so that they are immediately EPS positive.

Good Luck Investing.

Perpetual news can not sway analysts

Perpetual Limited (ASX:PPT) announced its funds under management have exceeded its expectations for the first half of 2006-07 to reach $36.8 billion. The funds increased dramtically due to a 12.1 per cent gain on the All Ordinaries Index. However analysts are saying that Perpetual's growth rate is slowing as more funds flow to cash and credit funds with lower margins. Their expectations are based on the growth of perpetual being heavily dependent on investment markets. At this time Perpetual is trading on a multiple of 22 times 2007 earnings which is extremely high and I would suggest is overvalued.

Its interesting how many people just invest in managed funds and super funds without researching where they are putting their money. They expect that the "experts" are going to do everything for them and in boom times they are happy. But think back a few years ago when funds were returning -20%. I suspect perpetuals funds will continue to increase as a lot of their customers are on regular investment plans and superannuation will continue to be put into the funds for many years to come.

The stock is trading a good dividend yeild but the PE ratio and PEG ratio figures make me vary that this stock is overpriced. I would not be entering a position in this company until its priced dropped far lower.

Good Luck investing.

tabcorp sitting on billions

Tabcorp Holdings Ltd ( ASX:TAH) is predicted to be able to unlock up to $3.5 billion through rationalisation according to analysts. UBS analysts say Tabcorp could sell and then lease back the assets related to Conrad Jupiters casino on the Gold Coast and the Star City casino in Sydney. The funds could be used for acquisitions or returned to shareholders. The rethink on Tabcorp has been prompted by the $AUS17.1bn private-equity takeover of US gaming operator Harrah's Entertainment, much of which will be funded by mortgage-backed securities.

If management was to do this it would show a short sighted view on the business. I feel the longer term benefits of owning the property would far outweigh any immediate gain. Still traders could make a nice packet out of this restructure if it was to occur.

As far as tabcorp management I have to think they will go for this ploy as they do not seem to understand the future direction of some of their markets. The racing market is steadily moving towards the use of betting exchanges instead of totes, yet tabcorp has not introduced their own betting exchange. Their response to this has been to reduce their takeout for a few months on selected races. This gimick may create a slight increase in tote pools in the short term but the long term trend is still negative.

Tabcorp is an interesting share and at the current price ( PE Ratio around 17) I still don't see any good reasons why I would want to enter a position while the long term risk is still not addressed.

Good Luck Investing.

CSR rumour causes price surge

CSR Limited (ASX:CSR) shares continued to rise yesterday despite management denials of takeover talk. The company told the sharemarket it had no knowledge of a rumoured $A4.30-per-share offer. Nevertheless the shares jumped six per cent to their highest level since May 2006. The widely differing nature of CSR's main businesses - sugar, building materials and aluminium - in a time of intense private-equity activity has convinced many in the market that the company is an extremely likely takeover target by various players.

CSR Limited is a good company that is diverse enough to sit through the troughs in each sector of its operations. The only thing I don't like about it is that none of the operations seem to match up in anyway and therefore I wonder at managements effectiveness of essentially running three different businesses.

Speulators are again clutching at straws here as management has no idea about this takeover talk. Still this could get people thinking and it may lead to a takeover by a rival company or a private equity firm who may piece meal it and sell it off to other businesses at a later date.

Good Luck investing.

Cudeco in the (bad) news again

The board of Australian copper mining speculator is CuDeco Limited (ASX:CDU) has divested in excess of $A13m worth of stock via Martin Place Securities and Bell Potter Securities. Cudeco has been in the news within the past few months for outrageous stock movements based on speculation of large copper deposits being found. Executive chair Wayne McCrae, known for frequent transactions of a similar nature, noted that the funds freed up would be allocated to paying tax on a controversial options package and the acquisition of the company that was later transformed into CuDeco. Investors are still waiting for more detail from assaying work carried out on drill samples from the company's Queensland project.

CuDeco is a speculators dream but an investors nightmare. For this reason I have steered clear of it but thought I would post this story for one good reason. It shows very poor management. Cudeco has one of the worst management's I have seen. Controversial option packages and news releases that speculate on discoveries should not be something an investor looks for in a possible buy.

My only suggestion is stay clear of this company.

Good Luck investing

Rio Tinto Record 121 Million Tonnes in WA.

Rio Tinto Limited (ASX:RIO) has also announced that during calendar 2006 it produced an all-time high of 121 million tonnes of iron ore in Western Australia. It increased its exploration expenditure from by $33 million in 2006 (an increase of more than 10%). Meanwhile a subsidiary coal mining business Coal & Allied has forecast a reduction in interim profit for the second six months of 2006 and is due to a serious backlog of some 55 ships waiting to load coal at the Newcastle terminal in New South Wales.

I haven't read up on why 55 ships are backlogged but that can't be a good thing as ships are very expensive to send around the world. I am sure management will be addressing this and while it is a subsidiary company that is making a reduction in profit, it is a large reduction. The reduction sits at around $100 million. Considering this is almost two thirds of last years profit it needs to be addressed quickly.

Overall, I don't think this will affect the Rio Tinto price dramatically as they are well diversified.

Good Luck Investing.

Woolworths seeking approval to buy The Warehouse Group

Woolworths Limited (ASX:WOW) has announced it is bidding to acquire The Warehouse Group in New Zealand. Formal approval to make an offer is being sought by Woolworths from the NZ Commerce Commission, which had already received a similar request from NZ-based Foodstuffs. At present, both own stakes of 10% each in the target, which has turnover per annum of $A1.7bn.

Majority owner Stephen Tindall is sitting on 50% after his plan to take the business private failed due to Woolworths' and Foodstuffs' investments. The rival bidders have each argued that the other should not be allowed to acquire The Warehouse Group on competition grounds. Interestingly Woolworths may just be doing this to stifle the Foodstuffs bid. I don't really see any reason other reason Woolworths would get involved now apart from trying to disrupt the FoodStuffs bid. Of course if one company gets approval then the other company will more than likely get automatic approval to make an offer. This could be good for shareholders in the company but I believe it will make Woolworths and/or Food stuffs pay a premium for the business. If this doesn't pan out I would expect the share price to decline and languish at a discounted rate for quite some time.

Good Luck Investing.

Wednesday, January 17, 2007

Poker and Investing

Being an experienced and very keen Texas holdem poker player ( I usually play at night while I am writing up things for my blog) I found this article quite interesting.

It relates the game of texas holdem to investing. IN particular he came up with 3 common rules that work in both arenas:

1. Know When to Fold’em

You don't want to be holding onto a losing hand once you know you are beat. In the same sense you don't want to be holding a stock when you know you got it wrong and you are making a loss.

2. Know your Odds.

You need to have a good grasp of the odds in poker if you are playing with cash. There are some hands which are more likely to occur and there is odds on whether you should play depending on how much money is in the pot. In investing you need to know your rough risk/reward ratio. It is no good trying for a small 2% gain when you know there is a potential for a 10% loss if you get it wrong.

3. Be Patient

Patience is the key in poker. As long as you have a chip and a chair you are still in the game. But if you play every hand dealt you are quickly going to lose your chips. Its the same in investing, you don't want to buy every and any stock just cause its there or someone gave you a tip ... which leads into my next point which I have added by myself ...

4. Only play the best hands.

You should only play good hands like Pocket Aces or Ace, King in poker and it is the same in investing. When You get a good hand you bet larger as your odds are getting better at taking this pot. It should be the same in investing. Put more money into shares which you feel are a much less ricker option with a high payoff. This all revolves around portfolio construction which is a huge topic in itself.

Well I hope this was a good read and gave you some insight into both poker and investing. What it really all is about is knowing your risks possible rewards for each investment and playing them so that you get the best profit possible.

Good Luck Investing.

LIC understanding...

The listed investment company (LIC's) market can be a hard place to make money. It is usually good for long term investments and they are managed similar to managed funds except the security can be raded on the ASX market.

If you want to read up on how they work you can get access to a good introduction on the ASX webpage.

Essentially LICs provide exposure to a portfolio of investments on behalf of their investors and may include investments in Australian shares, international shares, fixed income securities, real estate, and unlisted companies.

The reason I am writing this post is in relation to a post I saw at Australian Investing on an investment into LinQ Resources Fund (ASX:LRF). It is stated that the the portfolio is following a purely technical way of trading LIC's and this must be applauded as a good concept. But unfortunately in the case demostrated he has bought the first purchase on false data. The NTA is not a discount of 31% at all and the reasons it is trading at such a high NTA is in fact due to options for directors. After options are taking into account the NTA backing of the fund drops from $1.53 to a$1.28. Looking into the options which are available they will all be taken up.

In this case the NTA backing has dropped from a discount of 31% to a discount of only 19%. This brings it more in line with the other funds but does mean it is no longer cheap.

LIC's are tricky creatures and the only one I am invested in at the moment is MMC Contrarian Limited (ASX:MMA) but I am not happy with the way they are heading. They are suppose to be a long term investor but have had unusually high turnover with no explanation. I will more than likely be out of this fund very soon.

So just remember when LIC's are involved ... buyer beware.

Good Luck Investing.

Telstra on the move up, up and away

Institutional shareholders are becoming more positive about Telstra Limited (ASX:TLS) Its share price rose to a 16-month high. It has gained nearly 20 per cent since it was removed from Australian Government control. The T3 instalment receipts have produced a gain of 46 per cent for retail investors and 39 per cent for institutional shareholders.

Analysts are bullish, saying the company's restructuring appears to be moving faster than anticipated. They say competitors are performing poorly and solid marketing of Telstra's "NextG" mobile network should reduce the loss of fixed-line customers.

I have to agree removing the government has been a positive move. The shares are going nicely and hopefully for most Austrlaian investors they continue to rise.

Picture is courtesy of http://www.inkcinct.com.au

Good Luck investing.

Oxiana extends life of mine ....

On 16 January 2007, Oxiana Limited (ASX:OXR) released new drill results from its Prominent Hill project in South Australia. They show the ore body extends at least twice as far as previously thought, and suggest the $A775 million copper and gold mine is a long-life operation. Because of this Oxiana is considering an expansion of its $A775m Prominent Hill copper and gold project in South Australia. In July 2005, it was thought that Prominent Hill would have a five-year mine life. Oxiana MD, Owen Hegarty, says the group is now confident that figure may be extended to between 10 and 15 years.

Drill results have indicated that the ore deposit extends up to 500 metres below the planned open-pit project, prompting the company to accelerate its drilling program to more accurately define the resource below the pit. A proven underground resource could support development of a deeper open pit as well as an underground mine at Prominent Hill in the medium term.

Meanwhile Deutsche Bank has reduced its share price target for Oxiana from $A3.07 to $A2.86, due to forecast short-term copper and gold price falls and the strengthening Australian dollar.

Oxiana is at a P/E ratio of 8 but the future PEG is not good. This information adds weight to holding Oxiana if you already have it but the current risks of declining copper and gold prices as well as the rising dollar would keep me skeptical on entering a new position.

Good Luck Investing.

Big wins for Leighton Subsidiary

Leighton Holdings Limited(ASX:LEI) subsidiary, Thiess Services, has secured hundreds of millions of dollars worth of new waste management contracts. Thiess has been awarded a seven-year, $A150 million contract to manage four transfer stations in Brisbane and the Rochedale landfill site. The group has also secured a $A220 million regional waste collection deal covering the Gosford and Wyong council areas in New South Wales. The new contracts bring to $A400 million the collective total of the contracts that Thiess has won in early January 2007.

This is major growth within the one month. This could be a blessing and a problem in disguise. I wonder if these wins will stretch the company expertise and employees. Still it has to show this company knows how to sell itself.

Leighton is still overpriced for me but I will reevaluate if these wins come through to help out earnings.

Good Luck Investing.

David Jones climbs .....

Upmarket Australian department store chain David Jones (also known as DJs) (ASX:DJS) is performing well in early 2007. CEO Mark McInnes has forecast a 2006-07 interim profit of as much as $A70m, which would be an increase of 30%. This is an improvement on previous predictions of a rise between 8.5% and 13.5%.

For the full year, DJs predicts a profit of $A98m, after $A81.1m in 2005-06. Sales growth was better than expected across the stores' range of goods, and vindicated the approach of making affluent consumers the target demographic of DJs. Sales revenue could be as high as $A1.03 billion. Turnover was previously forecast to increase by between two per cent and four per cent. However, strong trading for the previous two months has lifted the forecast of sales growth to nearly eight per cent.

McInnes also noted that booming jobs growth and a strong stock market were driving increased consumer spending.

Unfortunately for me DJ's is overpriced and I am only looking for the undervalued shares. This is a good growth share though as PEG ratio will be under 1 if these figures do materialise.

Good Luck Investing

BHP set to rise ?

The Australian Financial review has noted that warrant trading pertaining to BHP Billition Limited (ASX:BHP)was particularly strong over the first 10 days of 2007. It has been a lot higher than the normal large warrant volumes, due to the company's large size and influence on the market index.

Data from the derivatives markets suggest that Australian and international groups are boosting their exposure to the global miner based on its fundamentals and due to the prospects for the resources sector. In one large recent deal, UBS traded a line of approximately $A200 million worth of BHP shares.

Looking at BHP we see it is acutally a good price. It Price Earnigns ratio is sitting at less than 10 and P/E growth is around 0.70 . Both are good numbers for a very good company. BHP has always tended to be a growth stock and as such pays very meager dividends and in this case it is just on 2%. But if you are looking for a good stock at a reasonable price BHP is hard to go past. It has been as high as $32 in the last year. Looking at the chart I will wait as it is forming a descending triangle pattern on a medium term downtrend. From here the traders could send it either way. Fundamentally though we have the stock in the right price range and it is worth adding to our watchlist.

Historically BHP trades around 11 to 20 PE ratios. This is below the historical value and I believe is set to take a substaial move in the right direction.

Good Luck Investing.

Shareholder Incentive Schemes

There is an intersting article in the Age today on shareholder incentive schemes ( also known as shareholder benefit schemes). Discount and benefit schemes encourage new investors in the companies concerned, whilst maintaining loyalty and support from existing shareholders.

Coles Group Limited (ASX:CGJ) had the best known incentive scheme a while back with the Coles Myer discount card but that was elimiated in 2002 due to a lack on instituional support.

Banks such as St George Banking Limited (ASX:SGB) and Commonwealth Bank Limited (ASX:CBA) do not offer specific shareholder incentives but loyalty programs exist for the ANZ Banking Limited (ASX:ANZ), Westpac Banking Limited (ASX:WBC), National Australia Bank Limited (ASX:NAB) and Bank of Queensland Limited (ASX:BOQ).

The ANZ Bank has revealed that it is evaluating its shareholder incentives at the moment.

One of the best incventive schemes I could find a few years ago was Club Crocodile Holdings Ltd. This is now named Ocean Capital Limited (ASX:OCE) . It use to be investors with a minimum 15,000 shares were entitled to five free nights per year for two at either of the company’s two Whitsunday resorts. However while the Shareholder accommodation discounts at the properties remain a benefit to shareholders the format is now different. Shareholders now recieve a discounted standby rate of the property without the restrictions normally applied to standby rates. This benefit is available to all shareholders irrespective of the number of shares held.

The only list I can find available is rather old (1999). It is available here.

I will try and create an updated list myself if I get some time.

Good Luck Investing.

Macquarie sacked as Alinta drops....

The Austrlaian and Austrlaian Financial Review (AFR) have both reported that Australian energy utilities group Alinta Limited (ASX:AAN) has severed its advisor contract with Macquarie Bank Kimited (ASX:MBL).

The investment bank had been hired to look at options for a restructuring of the business, but has now been revealed as the backer of a leveraged buy-out proposal for Alinta made by a group of directors and CEO Bob Browning. Alinta suggests a serious conflict of interests, and has issued a set of demands Macquarie must comply with before it is allowed to enter negotiations on the private equity transaction. All mandates involving future work will cease, although Macquarie will be compensated for corporate advisory work already undertaken. New Alinta chair John Akehurst has revealed that Macquarie Bank was already working on the buy-out deal when it was still advising its client, and that it took about a week for it to disclose the matter. Macquarie has stated that it will only participate in the management buy-out if Alinta perceives its advances as friendly.

Alinta has also rejected claims by Browning that Babcock & Brown (ASX:BNB) was interested in a takeover of Alinta.

This is a very interesting twist to the Alinta takeover story and as anyone can see there is a major conflict of interest for Macquarie Bank. The conflict of interests surrounding the buy-out plan is likely to affect the share price of the company and ALinta has already dropped 1% today. Analysts are forecasting that if the proposal does not come to fruition, Alinta stock will languish at about $12, compared with up to $17.24 if a takeover offer emerges.

Catroon presented was done by Nicholson of "The Australian" newspaper: http://www.nicholsoncartoons.com.au/

Good Luck Investing.

Tuesday, January 16, 2007

Petrol at center of news again ...

Fueltrac has hinted that Australia's major retailers may be sustaining artificially inflated petrol prices by offering petrol discount vouchers. Petrol prices have remained around $A1.20 a litre despite predictions the decline in US crude oil prices would result in retail prices in Australia falling as low as $A1 a litre. Fueltrac said prices never declined because major retailers Woolworths Limited (ASX:WOW) and Coles Group Ltd (ASX:CGJ) expanded their petrol discount schemes in the lead-up to Christmas. Customers were entitled to savings of up to 10c per litre once they spent $80 or more, but this kept pump prices at high levels as the retailers moved to maintain profit margins. Woolworths hit back and have said that its petrol prices follow those of other petrol retailers such as Mobil Oil Australia and BP Australia, who are not affiliated with any supermarkets.

It makes you think about competition in the industry where prices can be kept at artficial high levels. And speaking of Petrol Qantas (ASX:QAN) does not intend to drop their fuel surcharge either. They are also getting pressure from competitors as Air Canada is seeking permission to enter the Australian air space.

Good Luck Investing

SAI Global buying up big ...

Standards publisher SAI Global Limited (ASX:SAI) has made its second-largest acquisition by paying $59m for US compliance services provider Midi. This represents a multiple of 9.5 times, based on 2008 EBITDA. Analysts say the purchase is strategic and a good fit. SAI still has more than $A100m to spend on other acquisitions and expects to make two more in calendar 2007.

SAI is not a value stock but is a very good trend trading or growth stock. On a purely technical basis this is a very good stock but I don't think the trend can continue forever. It is already priced at 28 times earnings and is even priced at 22 times 2008 earnings estimates. Still as they say " The Trend is your friend till its not".

Good Luck Investing.

Alinta Takeover .. futher news and speculation

Following on from previous posts on the news on this takeover, Alinta Limited (ASX:AAN) shares rose $A0.36 to $A13.76 yesterday based on speculation that Babcock & Brown (ASX:BNB) may emerge as a suitor. The investment bank, which already owns a stake in Alinta, has declined to state whether or not it is considering making a counterbid for the Australian energy group. The value of Alinta's stock increased by 19 per cent over the four days following the announcement of a management buy-out plan.

So where too from here for investors. Well pretty much sit on the stock and wait and see what happens. There is no use speculating on what might or might not happen. The fact that a buy out has been offered means the company is going well.

Good Luck investing.

Graincorp has risks and opportunities

Graincorp Limited (ASX:GNC) believes they have excellent opportunities ahead. One of these opportunities is the deregulation of barley in South Australia. Graincorp is also confident it will soon be issued with an export licence for wheat, after "single desk" operator AWB lost its monopoly due to a bribery scandal. In the first round of new export permits being awarded by the Australian Government, Graincorp had lost out to Wheat Australia and CBH. While the drought conditions will cause a net loss for 2006-07 of $A30m, the business is forecast to achieve a return on equity of 10% by 2009.

I can see a lot of things which could send this company up much higher but I also see some major risks in the company. For instance they need to create links to suppliers in South Australia, they need to get some experience in Wheat export. There is a reason they were not chosen first round and I haven't investigated them but I am sure they are going to have good competition from Wheat Austrlaia and CBH. Also they are expecting the drought to end this year but what happens if it does not break.

Too many risks for this company which is trading at 17 times estimated earnings for 2008 and by any standards these estimates are based on the drought breaking and several of these opportunities paying off. One to stay clear of at this stage unless there is a dramatic fall.

Good Luck Investing.

MAP selling stake in UK Airport

Macquarie Airports Limited (ASX:MAP) is trying to sell its worst-performing asset which is the Birmingham Airport in the UK. It has a 15.5 per cent stake in Birmingham, the fifth-largest airport in the UK. Analysts believe the lack of control may have contributed to its decision along with the poor numbers bein generated. The facility has been underperforming due to tightness in the discount-flight market, but MAP has no way to influence change.

This shows sound management principles and should be applauded. They are selling out of an underperforming asset which they know they can not improve or value add. You would normally find most managments would sit there and not be bothered to cut the fat from the company, but I am impressed in managements ability to admit they were wrong with the purchase and they are now trying to remedy the situation in the best way possible.

MAP is sitting on a PE ratio of 12-14 with a nice dividend yeild of 6%. Still as essentially a property trust it is not cheap enough and an ideal price would be around $3.10-$3.12.

Good Luck Investing.

Etrade Takeover Speculation

Online broker E*Trade Australia Limited (ASX:ETR) rose 4% prior to an announcement yesterday. The company said CEO Brett Spork would depart in July. This has led to speculation of a takeover bid forcing shares to reach a six-year high. But the company has denied any knowledge of any offers. ANZ Banking Limited (ASX:ANZ) owns 35 per cent of the broker, while America's E*Trade Financial Corporation has seven per cent. Either could be a predator but I suspect that ANZ is the more likely company to commit to a takeover.

A recent post of mine explained how E*trades figures could boost ANZ's profit. I think ANZ has the tremendous growth that is available in this area and it is likely to want to have a larger stake. I have always liked E*Trade as a competitor to comsec and believe these two companies do/will hold the market share for years to come. ETR sits at a reasonabloe price to earnings of approx 12 on expected 2007 earnings. This news could push the company higher and I would not be surprised to see it trading around $4.00 - $4.20 if a takeover offer was put on the table.
Good Luck investing.

Harvey Norman storms ahead as usual

Harvey Norman Limited (ASX:HVN) has issued its turnover data for the second six months of calendar 2006. On a same-store basis, sales were up 7.1% on the previous corresponding period, while the absolute figure was an increase of 16.7% to $A2.71bn. All of Harvey Norman's divisions worldwide except for Asia were included, but not sales at its part-owned Rebel Sport business. For the last three months, including the lead-up to Christmas, turnover rose from $A1.25bn to $A1.46bn year-on-year. The newly bought Retravision outlets in New South Wales have not yet had an impact on the result.

I can not remember a time when the sales figures have not increased. Harvey Norman seems to know what consumers want and/or need. Recently they have had sales grow due to Air conditioners, and plasma tvs. I believe the figures will show that tv's are still the big seller and I wouldn't be surprised if the photo kiosk's they are running are making a bundle too. Its a great company but unfortunately everyone knows this and this price is out of reach at a price earnings ratio of 18. It would be wise to wait for it to drop to a more attractive level. Personally I think this share is worth buying anywhere in the low $3.00-$3.15 range.

Good Luck Investing

Monday, January 15, 2007

US increase Oil and Gas Royalties

A very interesting announcement came out regarding US legislation. Apparently, the Interior Secretary is able to raise the royalty rate of oil and gas leases. And guess what just happened ? In January 2007 the US Interior Secretary, Dick Kempthorne, has increased most of the deepwater oil and gas leases of US companies from 12.5 per cent to 16.7 per cent. Over 20 years, the US Minerals Management Service estimates the new royalty rates for offshore leases to be worth an extra $US4.5 billion. Although Woodside Petroleum Limited (ASX:WPL) and BHP Billiton Limited (ASX:BHP) have declined to comment on the new Gulf of Mexico arrangements in 2007, it is believed that they will examine the US relief legislation closely for
potential impact.

This is a risk that I (and probably a lot of other investors ) was not aware of in regard to these companies. It is something to consider that around 4% of their profit in the region can be taken away with this royalty increase. In some cases this could bring margins down to unacceptable
levels espeically if it happens for a few years running. At the moment the 4% royalty increase should not dramtically hurt either company but it is something to lock away and watch out for in the future.

Good Luck Investing.

Lower Insurance Premiums may give a buying opportunity

Insurance premiums in Australia are suspected to continue downwards during 2007. While this is good for consumers it is not so good for investors in this industry. The reasons premiums have fallen steadily since 2004 is because that is when offshore insurers entered the market. Promina Limited (ASX:PMN) chief Mike Wilkins predicts aggressive price cutting will cause the trend to continue well into 2007. However Insurance Australia Group Limited (ASX:IAG) said underwriters were resisting further cuts and the cycle was near its bottom. So basically there is no concesus on what is happening. At this point of time I would favour that they are going to continue to fall. But despite the fall in premiums the insurance industry is recording record profits, boosted by returns from the equity market.

This is an interesting bit of information for the industry. At the moment IAG and PMN are both sitting at an over valued price based on Price Earnings and the fact that premiums will continue to fall. But they are not extremely overpriced. These two shares are worth watching for future
falls on poor results. Eventually the sprialling lower premiums are going to start heading up and when this occurs the companies will prosper. It is just about getting a good company at a reasonable price and todays price is not reasonable.

Good Luck Investing.