Investing using Fundamentals on the Aussie StockMarket

Leigton Cuts profit forcast

2009-05-15T08:54:00.000+10:00

AUSTRALIA'S biggest construction company, Leighton Holdings (ASX:LEI), has cut its profit forecast by 10 per cent after slashing the value of toll-road and infrastructure investments. Leighton shares fell more sharply than they had in more than a month, down 8.5 per cent to $22.26, after the group announced that after-tax profit was down 41 per cent for the first nine months of the financial year.The company said full-year profit would be about $430 million, compared with its February forecast of $480 million. Last year's profit was $607.9 million.

Keep in mind here that this is a construction company and they are going to be benefitted big by the budget. they are also looking at investing overseas. Further evidence this was "fear" forcing the sells is that analysts believe that "Leighton are a very well-managed company … given the fact that they've put on about $10 since the start of May, this isn't too bad. It wouldn't surprise me if we see this stock bounce back over the next couple of weeks."Opis Capital analyst Dean Fergie said Leighton was in a comfortable debt position and it was partly the "nature of the macro-economic environment" that these asset prices were slipping.
Worthwhile looking into as an investment.

CSR wary on outlook after $326m loss

2009-05-14T08:53:00.003+10:00

CSR Ltd (ASX:CSR) has emerged from its worst financial performance on record unwilling to provide shareholders with guidance on its prospects in the next year because of the uncertain economic climate.

The company yesterday reported a thumping $326.5 million loss in the year to March 31 after restructuring costs, asset writedowns and the impact of the slowdown on its key building products operations. The loss represents a huge turnaround on a previous profit of $177.4 million.

CSR managing director Jerry Maycock said it was one of the worst results he had ever delivered, and passed on the bad news to shareholders by slashing full- year dividend by 50 per cent to 7.5c per share, down from 15c. The company plunged into the red after significant items blew out to $460.5 million, which included a one-time charge for asset writedowns, restructuring costs and product liability losses.

Is this as bad as its going to get ? My thought is that it will get better for this company with the new budget Infrastructure spending. There may also be a rush to build homes in the next few months with the rush to ensure people take up the first bome buyers grant.

Good Luck

Back ...

2009-05-14T08:27:00.002+10:00

Well its been a while but the market is back to a spot where we can start looking at it fundamentally again.

There are lots of stocks out there that need to be looked at so I'lls tart looking through the news again.

Good luck

Melbourne Cup selections

2007-11-05T17:44:00.000+11:00

Well I know I haven't posted in a while but that is becasue I have been concentrating on my other hobby which is horse racing. There are good parrallels between the two topics of sharemarkets and horse racing.

Anyway I thought I would post my selections here :

Zipping and Master Oreilly are going to be hard to beat. Princess Coup is my other selection. I suspect it will be one of these horses who takes it out.

Throw in Gallic and Purple Moon and Tugsten Strike for the exotics.

Good Luck

Do you believe it can happen ?

2007-09-25T12:10:00.000+10:00

According to NLP (Neuro Linguistic Programming), your behaviours in an activity are affected by the beliefs and values you have associated to it. As an example, say you want to become better at public speaking (behaviour) and you take some classes, but despite all the training, deep down you don't believe you are any good at public speaking, then when it comes around to standing up to speak, your body will respond to your beliefs and your voice will waver, etc. Then, when you get some feedback, you'll filter it through those beliefs, e.g. if there are two people both of whom are equally talented but one has the belief that they are a great public speaker and the other that they are not, then if they both get told that they are really good, one will believe it and use that comment to reinforce their belief further, whereas the other won't believe it and will probably find a way to use it to back up their belief that they are not.

This is all well and good but what has this got to do with Stock market trading? Well, part of your success or failure is related to the beliefs you have. If you don't believe that you'll ever make a profit or successfully trade at a new level of outlay then you will find a way to make that happen. This is where self sabotage appears. Where you do something stupid, knowing it's stupid, but do it all the same. NLP offers lots of processes for changing beliefs but sometimes, just realising that a false belief is present, can help bring it to the surface so you can start breaking it down and challenging it.

Ideally, this is why you find those who succeed are full of confidence. they had the confidence before they began and that is why they succeeded. If you are not confident then you need to work out a way that makes you more confident in your trading. That may be trading at a smaller outlay. For example instead of $20K per trade try to use only $2K.

Good luck Investing.

Short Listed Companies for Consideration

2007-09-18T12:34:00.001+10:00

here is a List of a few companys I think people should take a look at :

ASX: KRS - Kresta Holdings Limited running at a PE of 9.11. Current Prince 30c.

ASX:MCP - McPherson's Limited running at a PE of 9.57. Current Price $3.23

ASX:RHD - Ross Human Directions Limited running at a PE of 9.52. Current Price 60c

ASX:AHD - Amalgamated Holdings Limited running at a PE of 12.67. Current Price $6.59

ASX:CMV - CMA Corporation Limited running at a PE of 9.99. Current Price 50c

ASX:MXI - Maxitrans Industries Limited running at a PE of 12.09. Current Price 61c

ASX:LAU - Lindsay Australia Limited running at a PE of 10.76. Current Price 26c

ASX:TBG - Tutt Bryant Group Limited running at a PE of 11.32. Current Price $1.75

These companies passed my initial filters. From here each needs to be examined to see where it is going in the future, the debt/equity level, etc. But it is a good starting list.

Good Luck

2007-09-18T12:21:00.000+10:00

The US sub-prime mortgage crisis has prompted the Australian Government to consider tightening regulation of the nation's lenders. A parliamentary committee has identified a need for stronger regulation of the lending sector, to ensure that predatory lenders do not cause a liquidity crisis in Australia. The committee has recommended giving the Australian Securities & Investments Commission the power to prosecute predatory lenders who prey on vulnerable consumers. The mortgage industry has welcomed the proposed changes, however the Financial Services Union has some concerns
Someone has to stop people lending money to those who can't afford to pay it. But it is the consumers fault in the end and I don't think we can lay blame on the lenders. Consumers should know whether or not they will be able to afford the mortgage they are getting into, I don't like the current "victim" mentality around the place that a lot of borrowers are taking.

It is their OWN fault if they did not anticipate interest rates rising.

This has caused so much instability in the market there may be a few good buys out there but they are still few and far between.

Good luck

SIMS to explore offshore

2007-09-18T12:18:00.000+10:00

Australian scrap metal recycler, Sims Group, is discussing opportunities for overseas expansion. The company provided no details on discussions with prospects in Europe and North America. On 17 September 2007, it said that profit for the first quarter of 2007-08 was not likely to be above $60 million, a decline of 12 per cent. It expected strong metal prices to lift profit in the second quarter. Its share price fell by $A1.13 to $A32.01

SIMS has a good dividend yeild but is still overpriced at a PE of 16. I would not count of the earnings being lifted on supposed Metal price increases as they should have done much better this quarter with the curent prices. They are worth watching with a possible buy around $25.00

Good luck

Optus Is flat but is the outlook better ?

2007-09-18T12:13:00.000+10:00

Singtel Optus has forecast flat earnings in spite of growing sales. On 17 September 2007, Optus predicted that sales growth would be between 2.5 per cent and three per cent in the year to 31 March 2008, above the industry average of about two per cent. EBITDA fell by 2.4 per cent to $A1.99 billion in 2006-07 and Optus does not expect to exceed this figure in 2007-08. Margins are declining because of the preference of mobile telephone customers for capped plans.

Is this going to be a longterm problem for optus ? My guess is no. they are building their customer base and although EBITDA fell this is an industry wide problem. the phone industry can be a hard place to make a few dollars but in order to reduce overhead costs you need a large customer base on which to spread it. Longer term optus has a good outlook in my opinion.

Rio mine to go ahead

2007-09-18T12:09:00.000+10:00

Rio Tinto (ASX:RIO) has gained environmental support for an iron ore mine in the Pilbara in Western Australia. In March 2007, the WA Environmental Protection Authority rejected the resources company's plans for a $12 billion mine because of the risk to troglofauna. However, the WA Government directed it to reassess its decision. On 17 September, it gave clearance for the project. Rio Tinto will enlarge the mining exclusion zone so that more troglofauna habitat is protected. The decision has disappointed the WA Conservation Council.

It shows what a bit of money can do. The WA government will get a lot more revenue from this going ahead and therefore asked for it to be re reviewed. It must be said this is both a ethical and environmental issue and there may be a slight backlash to the go ahead.

But when you look at RIO you can't be disappointed with their return to shareholders. RIO is a stable resource company and while at a PE of 14 is a bit expensive, it is always worth watching this share

Channel Nine slow on uptake of Digital TV

2007-09-18T12:07:00.000+10:00

Nine Network Australia has refused to disclose when it will launch a new high-definition digital channel. With Seven Network and Ten Network rolling out such new services in December 2007, Nine suggested it is making progress with a new high-definition offering, but said it has no announcement to make in regards to the issue. Goldman Sachs JBWere analysts said with ageing broadcast infrastructure, a limited number of quality programs and strained relationships with its broadcast partners, Nine is unlikely to immediately follow Seven and Ten in launching its digital channel

Nine is falling behind in the stakes to get the digital audience in the future. When you look at it, this may affect major contracts such as the Rugby league as these institutions will look for those companies that can offer the most to the viewers. This can only be seen as a negative for a company that is in a cut throat industry.

babcock and Brown Reorganisation

2007-09-18T12:02:00.000+10:00

Australian investment bank Babcock & Brown (B&B) has announced a reorganisation of its assets. Babcock & Brown Wind Partners (ASX:BBW) will acquire control of more than 750 turbines in the US and Portugal from B&B for around $600 million. CEO, Miles George, said the transaction will reduce the impact of regional wind variability on its performance. The deal resulted in BBW upgrading forecast payouts to security holders by 16% to $0.145 per security in 2008 and $0.155 per security in 2009.

Anything that can stabilise the returns from a company has to commended. but was it worth 600 Million. In my opinion I can't justify the cost. But investors appear to have taken to it.

This company is heavy in debt and would be much better using the money to get the Debt to Equity ratio down to a managable level.

The only good thing I can see about this company is the dividend yeild is at 7.9% but this won't hold if they keep spending money.

Good luck.

Ross Human Directions Limited - BUY

2007-07-05T09:32:00.000+10:00

Hi everyone,

My next purchase since JUM has been Ross Human Directions Limited (ASX:RHD).

The reasons I bought this stock include :

Technical bowl poattern forming in chart.
PE ratio is at 8.6
PB ration is under 1.5
PEG ratio is 0.5
Dividend Yeild is 7% fully franked
PS ratio is 0.16 ( Price to Sales )
EPS are forcast to grow by more than 10% for the next few years
The price is under $1.00
Debt levels are at maageable levels (29%)

Also they have had record profits recently.

I got into this share at 62c but I would suggest it is still a good buy up to 65c.

Of course this is just what I did and is not a recommendation that you buy the share as I do not know your financial position :) ...

Good Luck.

JUM - Taking Part profits

2007-06-20T21:27:00.000+10:00

I sold out of some of my JUM stock today (ASX:JUM).

The reason was that it has risen quickly from 2.3c to 3.2c. That is a huge gain for just a few weeks investment.

I have taken profits out of the stock as I don't want to lose these huge gains. I am still invested in the stock but not as much as I was yesterday.

Good luck.

Record breaking day

2007-06-19T13:28:00.000+10:00

Rio Tito (ASX:RIO) hit the $100 martk yesterdeay in what was a historic day for the ASX.

Its the first share to make that price and although it slipped back before the close it was still a record breaking day.

RIO has been spurred on from the resources boom.

Mind you there are a number of other shares which could have hit that mark already had it not been for share spilt. Harvey Norman (ASX:HVN) comes to mind.

Good luck

KME and WAL lead portfolio in poor day on market

2007-06-13T21:01:00.000+10:00

I bought KME today.

While this has been a selection of mine for a while (bought in at 81c) I think now is a good time to top up the account. The PE is currently sitting at 16 which is high for stocks that I purchase. But the federal budget incentive plus the long term uptrend say this is a raging buy.

I bought in today at $1.395.

Another share which I am still raving about is WAL. I initally bought in at 22c and bought more at 20c and then 17c. It has returned to 20c and I am showing a small profit. When this company decides to do something with the cash it could be a big mover.

Good luck.

Another Great investment at only 2.4c (well I think it is)

2007-06-05T22:15:00.000+10:00

I found another share which I just bought into on Monday.

The share is JUM.ASX

It is an interesting company that makes its money from gambling ( so no good for those of you who don't like gambling stocks). There were 2 big draw cards for me with this stock. The first being the amazing run of record profits. The second being a wise investment by management to buy back up to 10% of the shares on offer. This will greatly improve the EPS.

Another big draw card was the low cost to get into this share. It is only 2.4c

The price earnings is sitting around 10 so it is not overvalued at all. Combine this with record profits year to year and you have a great share. This one reminds me of my (still current) investment in ASU. This stock has potential....

Good Luck

WAL - Wavenet

2007-05-31T12:11:00.000+10:00

I found a company worth buying because of a number of reasons.

WAL.ASX - Wavenet is a very special buy.

When you look at the company you will notice several things.

1. The company has 9.4 million in the bank.

2. The company only has a capitalisation value of 10 Million.

These two lines should signal something straight away.... They are worth only $600,000 more then the money in the Bank. This is made up money, this is actual money in the companies bank account.

Lets have a look at their reports and we see that the first half of this year they produced a profit of 1.3 Million. Lets assume they make a profit of 2 Million for a full year.

So now we know

The company is worth 10 million.

The companies has 9.4 million in the bank.

They are going to make approx 2 million a year.

Does this not scream takeover opportunity. Someone could buy this company for 15 million, and pull out 9 million from the companies bank account (so effectively they have bought the company for only 6 million). They then own a company producing 2 million a year which they bought for 6 million ( that's a return on Equity ROE of 33% ).

Of course I have simplified the maths above and I assumed a takeover premium of 50%. Lets say the takeover premium is only 20% and you find the Return on Equity increases to 66%. Even for a respectable return on equity of 10% the company could be bought at a premium of only 100%.

The other option for this company is to use the money for an acquisition. Regardless of what happens the share price is going to move and its only going to move one way for this under priced stock and that is UP.

Good Luck.

Where have I been ?

2007-05-31T12:09:00.000+10:00

Sorry to all those who ahev been waiting for me to post but I have been really busy.

Lucky for me my portfolio has continued to shine and is up a good percentage this year again.

I will try and get posting again on a regular basis as I find shares worth metioning.

Good Luck.

End Of Feb Portfolio Update

2007-03-12T09:23:00.000+11:00

Once again sorry for the lack of updates. I just have not had the time to post anything but I have kept in touch with the market. There has been some significant movement in the sharemarket recently and I just realised I have not put up the End of Feb figures for the portfolio.

Positions Changed:
None

Current Position:
RHD Bought at 65c now trading at 69.5c for a PROFIT of 4.5c (7%)
SCV Bought at 80c now trading at 77c for LOSS of 3c (-4%)
FEA Bought at 63c now trading at 71c for a PROFIT of 8c (12%)
CKL Bought at 59c now trading at 51c for LOSS of 8c (-14%)
MCP Bought at $2.65 now trading at $2.93 for a PROFIT of 28c (10%)
ASU Bought at 3.3c now trading at 3.1c for LOSS of 0.2c (-6%)

Portfolio
Cash : $51,066
RHD : $10,692
SCV : $ 9,625
FEA : $11,269
CKL : $ 8,644
MCP : $11,056
ASU : $ 9,393

Total : $111,745

Monthly Performance
Month 1: Profit of $4,688. Annualised this is a gain of 56%.
Month 2: Profit of $6,844. Annualised this is a gain of 78%.
Month 3: Profit of $ 213. Annualised this is a gain of 2.5%.

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%)
MPH Bought at $0.225 SOLD at $0.34 for a PROFIT of 11.5c (51%)

Commentary
It is very hard to find profitable stocks even thought the market is very volitile and is falling and rising every few days. I am happy that February ended in a profit although had I been watching it more closely I would have been out of a few stocks with a much higher profit ( we could have ended the month up around 4-5K). Anyway I still think these are the stocks to own and I will be holding them till a later date when I feel the are overpriced.

Good Luck Investing.

Market Stumble...

2007-02-28T08:28:00.000+11:00

I apologise by the lack of posts recently but I have been extremely busy.

But I still thought I should jump on and mention the impending stumble that should happen to the ASX today after the China and US markets took a dive last night.

Will the dive be as much here in Australia ? Probably not as I expect today's drop to be around 3-4% and it will continue to slide till it is off around 10% in the next few months. Its hard for the market to drop too much due to the amount of superannuation money being put into it.

Anyway good luck and I hope you have been waiting for this as I have. There will definitely be some buying opportunities coming up for those who waited for the inevitable drop.

Good Luck.

Shareholder Benefit Updated

2007-02-19T21:00:00.000+11:00

Just to let you know I have added more shareholder benefits to the Shareholder Benefits Blog

The following shares have been updated or added:

ANZ Banking Group Limited (ASX:ANZ)

Good Luck Investing

Etrade buyout offer

2007-02-19T20:25:00.000+11:00

Etrade Limited (ASX:ETR) has either just suddenly acquired knowledge of a takeover talk or they were not telling the truth to the public back on the 16th Jan. See my article here on the inital gossip that takeover talk was underway at etrade.

ANZ Banking Group Limited (ASX:ANZ) plans to beef up the offerings of online broker ETrade Australia if its $268 million bid for the rest of the shares it doesn't already own is accepted by shareholders. ANZ, which owns just over 34 per cent of ETrade, says it is the natural owner after putting forward a $4.05 per share offer.

I also had an article here on how ETrade was going to boost the profit of ANZ and that ETrade might be a good acquisition.

Good Luck Investing.

Funtastic trying to hide takeover talks

2007-02-19T20:08:00.000+11:00

There was some news today on Funtastic Limited (ASX:FUN):

Toy company Funtastic says it has received an approach that could lead to a takeover bid. Day care chain ABC Learning says it has been approached by a third party regarding its stake in Funtastic. Any takeover would have to be approved by ABC Learning. It says the plans are in the early stages. ABC Learning has also reported a 57 per cent increase in after tax half-year net profit to $64 million.

Another article says :

When it came to playing down a takeover approach, Australian toy company Funtastic took no chances. In a mastery of understatement, the company confessed it had received a “confidential, preliminary, incomplete and currently unfunded,” proposal. So top secret and confidential was this approach that Funtastic shares, which fell sharply in November after the company predicted that its results would not meet expectations, jumped more than 5 per cent on Friday, prompting a query from the stock exchange regulator. The shares traded up almost 10 per cent further on Monday to A$1.94. So preliminary, that the company’s biggest shareholder, ABC Learning Centres swiftly followed with a statement that it too had been approached about its 18 per cent stake in Funtastic but that no decision had been made. And so incomplete, that they’ve already got round to talking funding. In fact, this approach was obviously so trifling that, more than five hours later, Funtastic’s statement was still strangely absent from the ASX announcements section of the company’s website. A.B.C, Australia’s top childcare centre operator, said it had not made a formal approach to Funtastic itself but had been approached by another party.“A.B.C. has been approached by a third party in relation to a joint transaction which, if implemented, would result in a change in control of Funtastic,” A.B.C. said in a statement.

Looks like Funtastic has finally got a move on. I have been preaching the value in this company in various posts such as here, here and here.

It has been a main part of my portfolio for a fair while now and I have made gains from $1.20 up to the current price of $1.90

I believe the price on offer if it comes will be in the $1.90 - $2.10 range although it may even be higher. The prospects for this company are being driven by the current baby boom occurring around Australia due to the baby bonus being offered by the federal government.

I am interested in seeing the price that may be offered but at this stage it is still in very early dealings and the whole thing may fall through. It is interesting to see the understatement being made on the takeover. It may be looked into in the future by regulators as directors not making all information available to the public timely is rather reckless.

This is one to watch in the next few weeks.

Good Luck Investing.

Market Above 6000

2007-02-16T20:00:00.000+11:00

I know this is a late post but congratulations to traders for pushing the market over 6000.

No matter where you look these days analysts are stating that the market is approaching full value, is fully valued or is overvalued. I am one of the analysts saying the market is definitely overvalued.

The market is trading at a PE of 17 which is higher than the adjusted ( for booms, crashes) PE range of 14.5-15.5. This means the market is overpriced by at least 9.6%

I have also been reading that people were amazed at how quickly the market shot up 1000 points. This is only 20% and the last year has been a good year for the market. It took 11 months to make the range.

Anyway lets hope for some sideways movement or even a bit of a decline as the market is defying gravity at the moment. And as they say the further it goes up ... the further, and quicker it drops.

Good Luck Investing

Launch of Share4holder Benefits Blog

2007-02-13T20:42:00.000+11:00

How many times did you look for shares that gave you that bit extra, or as a superfund how many times have you had to be careful on the shares you are purchasing as they have additional shareholder benefits that can cause legal issues ?

Well here is an easy way to find out those shares that have an extra bit of punch for the shareholder. I have launched my shareholder benefits blog and I hope to add 1-2 shares per week to the blog analysing the benefits which are currently offered.

I have launched the blog with an analysis of two companies that offer discounts to hotels and theme parks.

The blog is located at : http://shareholderbenefits.blogspot.com/

Please come and visit and gain some insight into those shareholder discounts and shareholder benefits you never really hear about but always wanted to know about.

Good luck Investing.

United Group results look satisfactory

2007-02-13T12:54:00.000+11:00

Engineering firm, United Group Limited (ASX:UGL), has performed satisfactory in the first half of 2006-07. It posted a net profit of $35.3 million, which was actually slightly lower than the same period from the previous year due to an $18.1 million write-down. But fortunately EBIT improved 23% to $62.3 million and revenue increased 18% to $1.3 billion.

United Group predicts growth to be strong in the second-half of 2006-07.

United Group is sitting on a price earnings (PE) ratio of 19 and a dividend yield of 3.3%. This is fairly standard in the market and unless they can find more growth in the second half of the year I don't see any value in the company. The $18.1 million write off hurt the result significantly but it does show the underlying fundamentals of the company are sound. My only concern with the company fundamentals is the 50% debt to equity. This is fairly high and a downturn in the industry will be a major issue for the company.

At this point of time I say wait for a better price.

Good Luck Investing.

Coles still a takeover target

2007-02-13T12:36:00.000+11:00

Analysts from Investment banks are convinced that a further takeover proposal for Coles Group Limited (ASX:CGJ) will be forthcoming.

The retail group's management is adamant it will maintain an integrated company with stores rebranded to Coles, but many investors are hungry for a split of assets. Such a sale could attract up to $20 billion, with the supermarket section itself worth $A13 billion.

Coles is due to release its half-year profit figures in March and there is speculation that this may be the trigger for takeover movement. The recent takeover bid was $15.25 per share and even then the board's position was that it undervalued the company. Since the takeover rejection the Coles share price has slowly risen to $14.70.

As far as valuing the company, it is currently sitting on a PE of 23 with a PEG ratio of 2.28. These are fairly high but are lower than its major competitor Woolworths Limited (ASX:WOW) which sits on a PE of 26. Analysts expect Woolworths to make a gain of 30% on its EPS in the next two years while they are expecting Coles Group to make a gain of 31%. Based on these figures you have to think that Coles is slightly underpriced to its major competitor but is still overpriced based on conventional fundamental techniques.

I suspect analysts are expecting Coles and Woolworths to continue to make profits from the alcohol and petrol stores. They may also be gaining a slight market share from some independent grocers. They could also expect that the companies might get into the pharmacy business which could offer a large growth area. Inflation might also add 4%-5% to the EPS but truthfully I think these estimates are too high. Yes Coles and Woolworths are good companies but you need to get them at a much lower PE ratio if you expect to make a good gain ( double figures in percentage points) you need to get them at a reasonable price.

Good Luck Investing.

Fairfax Record first half profit

2007-02-13T12:23:00.000+11:00

Fairfax Media Limited ( ASX:FXJ) has produced a stunning result by reaching $1 billion in its first half year profit. The results were strong except for a poor result in advertising revenue from New South Wales.

The Chief Executive Officer (CEO), David Kirk, informed the market that there had been a great fluctuation in advertising revenues between the different states. He also comment on rumours that Fairfax had received takeover approaches. He denied that they had been in talks with anyone but did mention that the business was very interested in moving into regional radio.

Within the last two years, permanent costs have been reduced by $44 million. The Age building is also up for sale with a potential price tag of $60 million.

This result shows upper management finally making some nice gains for their hard work. In particular I was impressed with the reduction in costs. I was also impressed at the diversity of the company where they were still able to make a record first half profit despite a poor result from NSW advertising revenues.

Fairfax is currently sitting on a PE ratio of 20 with a dividend yield of 4%. Analysts expect profit to grow in the next two years to 29 cps compared to the current 24 cps. There is a built in premium to this share as it is a potential takeover target and it has a good management operating the business. They are positioned well for the future and if you can pick them up at a PE around 15 you will be getting a good business at a reasonable price. A price earnings ratio of 15 would require a share price of $3.60. Using the future estimated EPS for next year of 27c the PE ratio of 15 would require a share price of $4.05. Still a long way off from the current share price of $5.00

Good Luck Investing.

Amcom admits to talks with Telecom NZ

2007-02-13T12:07:00.000+11:00

As I reported earlier Telecom Corporation of New Zealand Limited (ASX:TEL) has been on the acquisition hunt with the cash they are expecting to receive from their sale of the New Zealand Yellow Pages business. Amcom Telecommunications Limited (ASX:AMM) has admitted that they have had discussions with Telecom Corporation of New Zealand (NZ).

The small Western Australian telco confirmed that industry rationalisation had been discussed with the NZ group. Acquisition of Amcom would give Telecom NZ a controlling stake in Internet service provider, iiNet, as well. This is indeed an added bonus on this purchase. However, any deal will depend on rural company, Futuris Corporation Limited (ASX:FCL), which holds a 47 per cent stake in Amcom. Telecom NZ has also made a $A320 million bid for PowerTel Limited (ASX:PWT).

As I have said earlier I think this could be a good buy for Telecom NZ. The more I think about this deal the more I like it. I think getting iiNet thrown in will be a short term cash earner. Telecom NZ has not had to take the major risk of turning iiNet around (it is slowly happening) as it is a more stable company today then it was several months ago. My preference (and probably Telecom NZ's management) would be to wait till iiNet builds up their subscriber base again and then sell it to a competitor. I don't think Telecom NZ want to be in the business of an Australian Internet provider.

Overall Telecom NZ's management has done well in the face of regulatory issues and is building value for its shareholders. As a longer term share I am wary that further regulatory problems could arise so I don't think it is a great buy at the moment.

Good Luck Investing.

Uranimum mine more than 5 years off ....

2007-02-12T12:34:00.000+11:00

Experts are estimating that the next uranium mine in Australia will take five to seven years to bring into production. Greg Hall, managing director of Toro Energy Limited (ASX:TOE) and a former mine manager at Ranger and Olympic Dam, believes the Australian Labor Party will reject its three-mines policy at its national conference in April 2007, and this will clear the way for a resurgence of uranium exploration activity around Australia. He said additional requirements from China and India would ensure continuing global demand for uranium.

Uranium is the hot stock at the moment and companies that are even mildly associated with it are taking off. Definitely a place for the contrarian fundamental investor to be cautious.

Toro Energy is focused on Uranium Exploration in South Australia. The Companys tenement interests cover in excess of 26,000 square kilometres in the Gawler and Curnamona Cratons. Projects include Kingoonya Project, Narlaby Project, Yaninee Project, Roxby - Acropolis Project, Pandurra Project, Mount Woods - Warriner Creek Project, Radium Hill - Bonython Hill Project, Lake Frome Project and Nonning Project.

It is always a place for speculators though and every investor may want to speculate now and then.

Good Luck Investing.

McGuigan Simeon Wines using muscle

2007-02-12T12:16:00.000+11:00

It seems like McGuigan Simeon Wines Limited (ASX:MGW) want the best of both worlds. Allegations that McGuigan Simeon Wines may have taken advantage of its market position are continuing to be investigated. By 12 February 2007 the Australian Competition & Consumer Commission (ACCC) had interviewed dozens of winegrowers.

Relations between the company and growers have been rocky since early 2006 when it suspended supplier contracts due to an oversupply of grapes. Now the impact of the drought has reversed the situation and McGuigan has demanded the suppliers provide grapes under the contracts. The rub is that spot market grape buyers are paying around $A400 per tonne and McGuigan is offering only $A200 per tonne.

The ACCC action is seen as the last hope for grapegrowers to combat the supply and cost imposition.

What does this mean for investors ? Well if McGuigan get there way then they will be able to increase profit margins but if they don't it could be very costly to them. One thing management shouldn't do is burn your suppliers.

McGuigan is overpriced on any future earnings. Given that management is also creating poor relations with suppliers I would stay clear of the company.

Good Luck Investing.

Tax changes cause concern for some shares

2007-02-08T12:45:00.000+11:00

You will have surely heard already about the tax changes for non-agricultural schemes. If not I have added an excerpt below :

The ending of tax concessions for Australian agricultural schemes has angered MPs and the agribusiness industry. The Federal Government has decided that the Australian Taxation Office (ATO) can cease lucrative tax deductions for the managed investment schemes. The ATO will be allowed to run a test case against the industry. There will be no transitional arrangements to allow restructuring, leading to predictions of job losses. The announcement prompted investors to desert the sector, with the three largest listed schemes losing over $A400 million in value on 7 February 200

This is affecting some of the major players which have alternative investment schemes. Another quote on the shares affected is below :

The Australian Government's decision against non-forestry managed investment chemes (MIS) has caused the shares of several companies to fall. Both Great Southern Plantations and Timbercorp shares dropped sharply in response to the withdrawal of tax concessions on 7 February 2007. Great Southern closed $A0.34 lower at $A2.19 and Timbercorp plummeted $A0.77 to $A1.94. Non-forestry products, including wine grapes, olives and cattle, constitute up to 30% of Great Southern's sales. Companies that use MISs for forestry-related enterprises have not suffered

I have never said that Great Southern Plantations Limited (ASX:GTP) or TimberCorp (ASX:TIM) were good selections as they have always been overpriced compared to their peers in a very competitive marketplace. I have on the other hand considered Forest Enterprises Australia Limited (ASX:FEA) and TFS Corporation Limited (ASX:TFC) as excellent buys. Both of these stocks have performed well due to the undervalued nature of the investments. TFS is uniquely positioned in a profitable niche market that should guarantee success. The only issue I can see is that their location makes them prone to cyclone damage.

Still I have to think the government has the right idea here. People do not understand what they are doing when they invest in these schemes in the hope of saving some tax. While I don't see cattle or grapes as a terrible investment I do see olive farming as purely horrendous.

So lets look at this from a fundamental perspective. How can we make a profitable opportunity out of this ? Firstly stay away from those companies that are focused on olive farming, cattle and grapes. That's easy. But where is the profitable position that can arise from this ? To find the profitable position we need to see where these products were used. The easiest ones are cattle and grapes.

Cattle are sold for meat and thus less people investing in these forms of investment will push up meat prices again (and the drought will also help with this). If you can find a company that uses and sells cattle. Graincorp Limited (ASX:GNC) is one example but it is overpriced at the moment. We need to also find a sector which is depressed.

Grapes are used mainly for wine. The wine industry has recently been struck by a glut of grapes causing unprofitable situations. This should now start to be relieved and we should see the wine companies coming into a boom time in the next few years. This sector is currently depressed so we should be able to get a bargain. Take a look around and see what you can find , you may even find those companies providing services to the wine makers are at a bargain price. One that comes to mind is Challenger Wine Trust (ASX:CWT).

Good Luck Investing.

Telecom NZ on the prowl

2007-02-08T07:08:00.000+11:00

Telecom New Zealand Limited (ASX:TEL) is rumoured to be negotiating a takeover with Amcom Telecommunications Limited (ASX:AMM), which would also net it iiNet. The speculation is that unofficial discussions have been occurring on an $A80 million deal since December 2006. A further rumour says Telecom NZ will purchase PowerTel (ASX:PWT), but the Amcom deal is seen as more likely. Telecom NZ does not need to rush any takeovers, as it anticipates $A2 billion in June 2007 from the sale of its directories business.

This could be a win/win situation for Telecom New Zealand. They are selling out of the directory business at a great price and they may be able to pick up a profitable company (Amcom) at a reduced price. Amcom is sitting on a price earnings ratio of 13 at the moment but this is sure to shoot up today given the speculation.

Telecom NZ itself is sitting on a deflated price earnings of 13 due to thoughts it has limited growth potential. It doesn't help that its debt, while reducing, is very large. The high debt puts any investment into this company risky.

Good Luck Investing.

BHP Record profit - I picked it weeks ago.

2007-02-07T21:16:00.000+11:00

BHP Billiton Ltd (ASX:BHP) has reported a record first-half profit of $6.17 billion. It has also stated that it expects China to continue to drive global demand for commodities.

Net profit was up 41.3% on the $4.36 billion posted for the same period the previous year. Strong demand, high commodity prices and solid production had allowed it to achieve record results in all key earnings measures.

You can probably include India as another place that will continue to drive the demand for BHP Billiton commodities. BHP Billiton has been on a low P/E yield recently and this has driven the price higher as it should from a top notch company.

It has risen more than 15% in recent weeks as it should. At its lowest point it was sitting on a PE ratio of around 8 times earnings. Check out my recent post on BHP and check the date and price. The article is available at http://asx-investing.blogspot.com/2007/01/bhp-set-to-rise.html or try using he link in the side menu for all posts on BHP.

You will notice in my recent article that I saw BHP as a fundamentally sound company at a good price. I also said "I believe (BHP Billiton) is set to take a substaial move in the right direction."

Good Luck Investing.

Carnival Time again

2007-02-07T21:11:00.000+11:00

Here is another carnival with great ideas for investing.

http://makingourway.blogspot.com/2007/02/first-edition-of-30s-and-40s-personal.html

Good Luck Investing.

Portfolio update

2007-02-07T17:54:00.000+11:00

There has been some significant movement in some of the shares of the portfolio so I thought I better update the current position.

Positions Changed:

None

Current Position:

RHD Bought at 65c now trading at 76c for a PROFIT of 11c (17%)
SCV Bought at 80c now trading at 82c for PROFIT of 2c (2.5%)
FEA Bought at 63c now trading at 81c for a PROFIT of 18c (28%)
CKL Bought at 59c now trading at 53c for LOSS of 6c (11%)
MCP Bought at $2.65 now trading at $3.05 for a PROFIT of 40c (15%)
ASU Bought at 3.3c now trading at 3.3c for BREAKEVEN (0%)

Portfolio

Cash : $51,066
RHD : $11,992
SCV : $10,250
FEA : $12,857
CKL : $ 8,983
MCP : $11,509
ASU : $10,000

Total : $116,657

Monthly Performance

Month 1: Profit of $4,688. Annualised this is a gain of 56%.
Month 2: Profit of $6,844. Annualised this is a gain of 78%.
Month 3: Profit of $5,125. Annualised this is a gain of 61%.

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%)
MPH Bought at $0.225 SOLD at $0.34 for a PROFIT of 11.5c (51%)

Commentary

I am very skeptical of this as I am finding it harder and harder to find profitable positions. Whenever I feel I have found one these days it has just moved to far before I can enter. For example I was looking at entering IMD earlier this week and it has moved 10% since I started looking into it.

Good Luck Investing.

2007-02-06T18:33:00.000+11:00

All,

Now that you have read some interesting articles from my own site, why not go and read some great articles from the carnival of investing. Once again I have an article featured in this interesting social idea.

http://www.moneysmartlife.com/2007/02/05/carnival-of-investing-super-bowl-edition

This edition features some interesting articles on:

Investing with a low budget
Asset allocation
Portfolio rebalancing
Dividend investment
Plus many more stock analysis articles

Good Luck Investing

Analysis of Shares from 10c - 20c with a Price to Earnings ratio under 10

2007-02-04T08:22:00.000+11:00

Topic Discussion

This is the second article in 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: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:TMR - Tamaya Resources Limited - This company is is an Australian mining company primarily involved in the production of copper and gold in Chile. They are burning through some cash flow but they are also making some earnings. Resource stocks are always risky and this stock is no exception. It is a possible takeover target for its assets but this is not a reason to buy the company. Decision : Not worth looking into further.

ASX:COM - Comops Limited - This company makes its money from the licensing of the five software products owned and developed by COM and to provide professional and support services to new and existing customers. It is sitting near its year high at the moment yet is still sitting on a P/E ratio of 5.5 This stock got my interest but after reviewing the quarterly report I have a few questions about it. The most important is that the company has dramatically increased staff costs but has not increased revenue. Decision : Wait and see if Revenue Increases or staff costs are reduced before analysing further.

ASX:EZE - Ezenet Limited - This companies aim is to develop and supply digital movie services to the hospitality and mining industries in Australia. They have recently became cashflow positive (before capital expenditure) and it is increasing every quarter. They have a strong pipeline of work according to management. While the company looks like they are on track they are more than likely not going to match the profit from last year. Decision: Wait for profit guidance or report before deciding on valuation.

ASX:AIG - Aircruising Australia Limited - This company operates special interest tour programmes under the Bill Peach Journeys brand, both within Australia and to other global regions. The tour programs are separated into three categories: Air cruising, Australian Expeditions and Rail Cruises Australia. The tour programs are targeted at small groups, with all tours including accommodation and meals. They are currently going through tough times but they have been able to increase NTA backing and profits. Management seem to be confident in the company after reading the reports. Decision: Wait for profit guidance or report before deciding on valuation.

ASX:RPC - Repcol Limited - This company is a specialist manager and purchaser of debt ledgers acquired from Australian credit providers. The company provides an end- to- end service with operations in Perth, Brisbane and Bangalore, India. RPCs competitive advantage is its low cost business model with operations ramping up in Bangalore, India. They will be making a loss this year hence the decline in its price. But it has gone about restructuring the business and expect an increase in profit in future years. This stock has declined from 70c to 12c. Decision : Wait to see if restructure has fixed costs before analysing further.

Well that is a few more shares covered but unfortunately there were no possible buys found in this range. There were a number of "wait and see's" though and those that like to gamble might take a stake in those companies. Personally though I like to make sure the company is sound before I buy into a company.

Good Luck Investing

Positions Update Early February.

2007-02-03T19:59:00.000+11:00

Time for an update this month.

Positions Changed:

I have sold out of MPH at the current closing price.
I have bought into ASU at 3.3c for $10,000.

Current Position:

RHD Bought at 65c now trading at 77c for a PROFIT of 12c (18%)
SCV Bought at 80c now trading at 80c for BREAKEVEN (0%)
FEA Bought at 63c now trading at 77c for a PROFIT of 14c (22%)
CKL Bought at 59c now trading at 54c for LOSS of 5c (-9%)
MCP Bought at $2.65 now trading at $2.89 for a PROFIT of 24c (9%)
MPH Bought at $0.225 now trading at $0.29 for a PROFIT of 6.5c (28.8%) -- SOLD
ASU Bought at 3.3c now trading at 3.3c for BREAKEVEN (0%)

Portfolio
Cash : $51,066
RHD : $11,846
SCV : $10,000
FEA : $12,222
CKL : $ 9,152
MCP : $10,905
ASU : $10,000

Total : $115, 191

Month 1: Profit of $4,688. Annualised this is a gain of 56%.
Month 2: Profit of $6,844. Annualised this is a gain of 78%.
Month 3: Profit of $3,659. Annualised this is a gain of 43%.

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%)
MPH Bought at $0.225 SOLD at $0.34 for a PROFIT of 11.5c (51%)

Commentary

WOW ... I can't believe the run I am having this year, if it keeps at this pace I will return a result of approx 60% this year. I am very skeptical of this as I am finding it harder and harder to find profitable positions.

Good Luck Investing.

End of January - Portfolio update

2007-02-02T22:13:00.000+11:00

Well time for the monthly update for January. How did we go ? Its an impressive result if you ask me especially considering only 60% of the available money is invested.

End Of Jan Position:

RHD Bought at 65c now trading at 73c for a PROFIT of 8c (12.3%)
SCV Bought at 80c now trading at 80c for BREAKEVEN (0%)
FEA Bought at 63c now trading at 73.5c for a PROFIT of 10.5c (16.6%)
CKL Bought at 59c now trading at 54c for LOSS of 5c (-9%)
MCP Bought at $2.65 now trading at $2.82 for a PROFIT of 17c (6.4c%)
MPH Bought at $0.225 now trading at $0.29 for a PROFIT of 6.5c (28.8%)

Portfolio
Cash : $45,955
RHD : $11,230
SCV : $10,000
FEA : $11,666
CKL : $ 9,152
MCP : $10,641
MPH: $12,888

Total : $111, 532

Month 1: Profit of $4,688. Annualised this is a gain of 56%.
Month 2: Profit of $6,844. Annualised this is a gain of 78%.

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 11.5% for this portfolio. Still I stress that 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. I will also post an updated version of this for Feb this weekend as I have decided to sell out of MPH at the current price.

I should also have bought into PBA but forgot to add it to the portfolio on the day. I won't be adding it at the current price but I am happy to say it is in my portfolio of stocks that I currently hold.

Good Luck Investing.

PeopleBank

2007-02-01T20:42:00.000+11:00

I bought PeopleBank Australia Limited (ASX:PBA) today after some research last night. I spotted it due to its dramatic fall in the last few days and its subsequent rebound. There was also a good review on Grow your Egg which follows:

Peoplebank (ASX: PBA) is a technology contracting and placement company which
has been listed for around a year. Its share price was near an all time high and
there was no warning of bad news to come. It announced yesterday that because of
changes in product mix, its performance for 1H 2007 would be impacted. The
announcement was a little light on detail and the stock got hammered. They were
forced to put out a second announcement which tried to reassure the market that
they were still on track as a solid growth company.

The company is is engaged in the provision of information technology and telecommunications (IT&T) contracting and recruitment services. Contracting services represented 97% of the Company's revenue during the fiscal year ended June 30, 2006 (fiscal 2006). These services entail the provision of IT&T contractors to the Company's clients under labor hire contracts for an average length of 3 to 6 months. Typically these contracts are renewed depending on the length of the IT Project, with many contractors remaining with the same client for 18 to 36 months. Recruitment services, being the traditional placing of permanent staff with clients for a placement fee, represented 3% of the Company's revenue in fiscal 2006.

There were some interesting statements in the second announcement which included :

The primary contracting business grew approximately 15% in the 6 months to 31 December 2006 with a very high quality customer profile.

The combined NPAT as a result is expected to be about $1.85 million, 5% less than comparative 31 December 2005. (Yet the share price fell 30%. Overreaction ... you decide!!!!)

Projections are for a stronger second half of the fiscal year.

Director forecasts and market conditions indicate full year profit results will be ahead of last year.

Peoplebank has a strong balance sheet, and anticipates no changes to its dividend policies. (Dividend yeild is 4.9% fully franked)

Peoplebank considers itself very well positioned within its industry and is actively pursuing opportunities.

The Directors confidently consider Peoplebank to be a growth stock and are committed to delivering quality earnings to shareholders.

Along with the low P/E of 11.5 at this level. Its earning growth last year was 20% and while I expect it to be a lower increase this year I still expect it to continue to grow for future years.

My initial stock price target for this stock is around $1.50. When it hits this level I will reevalue my holdings.

Good Luck Investing.

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

2007-01-31T21:16:00.000+11:00

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

2007-01-31T21:03:00.000+11:00

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

If you ask me, NAB has poor management

2007-01-29T19:39:00.000+11:00

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 ?

2007-01-29T19:34:00.000+11:00

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

2007-01-29T12:15:00.000+11:00

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

2007-01-29T12:11:00.000+11:00

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

Magazine Tips and their effect on shares

2007-01-28T20:49:00.000+11:00

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.

Apologies

2007-01-28T20:42:00.000+11:00

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.

AUB going well but still overpriced

2007-01-24T21:11:00.000+11:00

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

2007-01-24T20:51:00.000+11:00

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.

Dogs of the ASX 200 2005 review

2007-01-23T21:41:00.000+11:00

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

2007-01-23T12:31:00.001+11:00

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

2007-01-23T12:24:00.000+11:00

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.

Price Earnings Value of ASX 200

2007-01-22T22:00:00.000+11:00

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.

Portfolio update

2007-01-20T15:54:00.000+11:00

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%)

Portfolio
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

2007-01-20T15:31:00.000+11:00

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.

Playboy features Austrlaian products in Christmas wish list

2007-01-19T20:07:00.000+11:00

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

2007-01-19T19:56:00.000+11:00

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

2007-01-19T19:48:00.000+11:00

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.

KME makes intelligent purchase

2007-01-18T20:43:00.000+11:00

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

2007-01-18T12:45:00.000+11:00

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

2007-01-18T12:32:00.000+11:00

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

2007-01-18T10:29:00.000+11:00

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

2007-01-18T10:09:00.000+11:00

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.

2007-01-18T09:40:00.000+11:00

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

2007-01-18T09:30:00.000+11:00

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.

Poker and Investing

2007-01-17T21:32:00.000+11:00

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...

2007-01-17T20:56:00.000+11:00

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

2007-01-17T16:26:00.000+11:00

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 ....

2007-01-17T16:13:00.000+11:00

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

2007-01-17T14:40:00.000+11:00

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 .....

2007-01-17T13:59:00.000+11:00

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 ?

2007-01-17T13:12:00.000+11:00

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

2007-01-17T11:40:00.000+11:00

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....

2007-01-17T11:13:00.000+11:00

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.

Petrol at center of news again ...

2007-01-16T12:11:00.000+11:00

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 ...

2007-01-16T12:10:00.000+11:00

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

2007-01-16T12:06:00.000+11:00

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

2007-01-16T12:04:00.000+11:00

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

2007-01-16T12:02:00.000+11:00

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

2007-01-16T11:59:00.000+11:00

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

2007-01-16T11:57:00.000+11:00

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

US increase Oil and Gas Royalties

2007-01-15T15:01:00.000+11:00

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

2007-01-15T14:21:00.000+11:00

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.

Internet Fraud ... Possible Opportunity for Banks

2007-01-15T13:16:00.000+11:00

The Australian financial services industry has proposed that some consumers be liable for internet banking fraud. On 12 January 2007, the Australian Securities & Investments Commission released the proposals that would make users potentially liable for the full amount of losses unless they have minimum equipment security. The internet industry said that consumer confidence in internet banking would be undermined. Some Australian banks have introduced more security measures to protect against internet transaction fraud.

This will be a sad day for internet banking as the majority of people may not realize that they need to purchase additional equipment to access their own funds. Surely the banks should be liable for the amount if they can not offer the software for free. A lot of computer illterate people who have only just begun to use internet banking will reject it becasue of the risks. If this is the way that ASIC heads I feel there will be a major decline in the use of internet banking in the future. Since the banks are closing branches left, right and center it is going to show a major problem with customer service at most banks.

Looking at this from an investor view point instead of a consumer I can see great gains for the banks. Firstly they can market their own firewall security and onsell it to the customer. Secondly people who don't take it up are liable for the full amount of any loss. This could save the banks millions each year which will add value to shareholders. I really need to reevaluate the banking sector and will try and find some good deals.

Good Luck Investing.

Property not attractive ... Rents need to rise

2007-01-15T09:19:00.000+11:00

Rents are expected to rise as a result of continued Australian Government policies that have affected the property market. Firstly we all know that the housing boom from 2000 was largely a result of the halving of capital gains tax, first home owner grants and the use of negative gearing. From 2006, the new changes to superannuation have prompted property investors to move their funds to super, leading to a large fall in house prices. Property Investors are leaving the market. Rents will have to rise to make property an attractive investment.

A lot of Australian Investors love to own property that is negatively geared and then there are those who look for positively geared properties as well. The problem at the moment is that property has had a very large boom recently and everyone is taking the capital gain while it is on offer and is moving this into their superfund. The reason this happens is becasue a lot of people are negatively geared and are thus losing money each year on the property. A significant capital gain offsets this loss significantly and it might be that interest rate rises have put the pressure on investors which were close to their threshold.

Good Luck Investing.

Value Investing ( Using Fundamental Analysis)

2007-01-14T14:24:00.000+11:00

Definition

Value investing claims that the market sometimes undervalues a stock's true worthbaesd on the financial information which is available to the market.

The theory revolves around the fact that the market is slow to react to news or a changing market condition, but in time it will eventually assign a value that accurately prices a security. It may even be that the market has overreacted to some news pushing the share to an undervalued price.

A value investor looks for a stock that is trading at or below what it really is worth.

The two schools of Thought

There are two distinct ways that a value investor determines if a stock is trading at a bargain price:

1 .One way is to compare the stock (or industry) with other stocks (industries).

Usually the markets run in cycles. If everyone is currently buying resource stocks, perhaps they are selling bank stocks. Bank stocks might be sold off more than what they should have, which could result in giving the savvy investor an opportunity to find a good value in a stock (within a sector) that is currently unloved.

2. The other way a value investor might spot value is to know something about the company that they don't feel is factored into the price.

For example a company might be coming out with a new "Miracle Product." ( For example the I-Pod for Apple.) or assets on the balance sheet may be undervalued. This occured in Bunnings Wharehouse Property Trust (ASX:BWP) a few years ago in regard to the value of buildings.

The biggest criticism of value investing is that it often times doesn't provide instant gratification. this is why most people turn to trading instead of fundamental analysis. Many investors want to see their stock double within weeks of buying it. Value investors often have to wait for a lot longer than that but not always. What is gratifying to a value investor is that their investment usually get triple digit returns.

Good Luck investing.

Principles of Share Trading as aligned with Fundamental Analysis

2007-01-14T13:57:00.000+11:00

The author of ASXNewbie has been posting an article by Charlie Wright on the Principles of share trading.

It has been posted in a three part series. Here are the links to Part1, Part2 and Part3.

I have taken a few comments from the article as they apply to investing with fundamental analysis as well as technical analysis.

Sound money management and risk control are the keys to being a profitable trader. I will say over and over again, it is not the prediction or the latest and greatest indicator that makes the profit in trading, it is how you apply sound trading discipline with superior cash management and risk control that makes the difference between success and failure

This is true of fundamental analysis as well. You need a sound technique for picking quality companies and then you need to apply good cash management and risk minimisation to make the best possible opportunity for a profit.

Have a Healthy Time Horizon.One of the biggest problems new traders have is that they think they will make a large amount of money right away. They think they will get rich quick. This type of reasoning is very similar to the short-term thinking in American business in general, usually managing for the current quarter’s profits, focusing on short-term earnings at the expense of long-term investment and profit growth.

With fundamental analysis we are not in this for the short term 2%-4% profit. We are looking for the shares that are going to increase by 20%-100%. We are looking for quality companies that are undervalued by the market so that when they revert to the mean we can make a significant profit.

Give your trading strategy enough time to work.We tend to be impatient, and we sometimes think that we should get instant gratification. This will not work in trading. The only way you will really know whether you are a successful trader
is to be successful over time. A week or a month will not be enough time to tell you how you are doing. You should be trading with the objective of making money in the long run, consistently, and with the confidence that your strategy will make money given enough time.

Fundamental analysis usually focuses on stocks which are out of favour and are undervalued. It may take time for the market to agree with your perception of the company. It usually will rely on an earnings upgrade or an important announcement before people start to take notice of the company. The only reason to get out of a trade is if you feel the company no longer has the qualities of a good company based on your previous assumptions.

Use historical statistics.I don’t think anyone has ever traded without first looking at historical statistics. Even some traders who deny they are strategy traders have used historical data....Before I would trade it, I absolutely insisted on knowing what the strategy’s personality was and how much money it would have made. Using historical statistics gives you great peace mind, particularly in learning to love losing trades. Knowing the history of a trading strategy can give you tremendous psychological comfort during those tough periods of losing trades and draw down. Historical statistics tell you how much money the strategy has lost in the past, how many losing trades it has had in a row, and the largest losing trade the strategy has experienced. This is very important information if you are learning to accept losing trades. Comparing historical data with the current string of losses and draw down can give you much comfort that what you are experiencing now is not unusual and has happened before. Maybe not in exactly the same manner, but it has happened before.

There are many books which have investigated the use of fundamental analysis techniques over a long time frame ( 25 years +). In all cases it has found the low Price to Earnings, Low Price to Cash flow, Low Price to Earnings Growth and Low Price to Book Ratios have been successful techniques for making above market returns. Knowing this allows us to follow these techniques which the knowledge that we should make a profit longer term.

I have met many successful people, and the one thing that they have in common is that they love what they do. Many have told me they can’t believe that they actually get paid for doing what they do. They have so much fun they feel guilty taking money for doing it. Many successful people will tell you that they would do what they do even if they weren’t paid at all.Successful people don’t work for the money. Work hard and love what you are doing and the money will follow. Successful people work first and count the money later. Sometimes they don’t ever count it, and some don’t even know (or care) how much they have. They just know that they have enough to allow them to continue what they are doing; working hard and having fun. Love trading for its own sake.

This is very true for myself and I believe is a reason why I am successful at selecting shares. I spend hours reading through annual reports and analysing the industry, comparing companies and researching competitors that I get a good feel for the shares that I own. I love feeling that I have put in some hard work and come out with a great result. Even when the market does not agree with my analysis I am eager to await the pending announcements so that my analysis can be confirmed or rebuffed. It is the love of the work that makes you a successful investor.

In the final analysis, any market is just a collection of individuals making decisions and placing money in the market based on these decisions. Most of these individuals are doing what comes naturally to humans, buying low and selling high. Statistics show that 95% of these people lose money. To be a successful trader, you have to do the opposite of what this 95% is doing.

I believe that 95% of people in the market are trading. Only a few select people are taking the time to analyse companies and buy profitable long term gold mines. It is the extra analysis that occurs that is not being done by the 95% of people in the market. Even the managed funds have extremely high turnover these days. Remember commissions hurt and a long term position has a lot less commissions then entering, exiting, reentering, re-exiting .... etc strategy. Losing 2% a year in commissions can cost as much as 22% of your portfolio after 10 years. This is a significant amount.

While this article was aimed at traders I feel anyone who is in the market can gain some insightful knowledge on how to use money management and risk control for investing. It will be very worthwhile that you go and read the entire series so that you can improve your own investing.

Good Luck Investing.

Brewing is out of favour for a reason

2007-01-13T22:37:00.000+11:00

This is a follow up to an article which I wrote a few days ago about the brewing industry.

I have looked at a number of companies which reside in that industry and am sorry to say that none of them look like accepatble investments.

There is a large amount of risk on brands taking off. The companies I looked at were all making losses and did not look like they had the correct plans in place to turn this around. I would not be surprised to find them in financial trouble within a few years.

Good Luck investing.

Telstra pushes out resellers ....

2007-01-12T21:20:00.000+11:00

The Austrlaian reported today that the Australian mobile telephone retailer Gap Telecoms has been placed into administration. The fate of the reseller for telco Singtel Optus is symptomatic of the trend in the sector, worth $A11bn per annum. Already, major Telstra affiliate Fone Zone Limited (ASX:FZN) had been forced to issue a profit warning, and a number of store owners also linked to Telstra are placing their businesses on the market due to what they see as unfair price pressures being exerted by the company.

Specialist law firm Lockwood Marks is also handling a larger volume of complaints by the resellers. A major problem is the market penetration of mobile handsets of close to 100%.

Here is an interesting article that fundmental analysts should take note. It points to major issues with resellers (and in my opinion this will lead to consolidation) and it also points to Telstra pushing its market dominance. This should put on a light globe pointing to a possible competitive advantage that Telstra may be able to use in the future. The Government is not stepping in and neither are any regulators. Worth Watching ...

Good Luck Investing.

Etrade going well ..so lets look at ANZ.

2007-01-12T21:12:00.000+11:00

Etrade is a company I have been following for a while as I believe it with Comsec are the two main brokers for use in Australia.

It was announced today that Online stockbroker E*trade Australia Ltd (ASX:ETR) expects to record profit growth of between 15% and 20% for the first half of 2006-07. The improved result would be associated with its $A51.3m acquisition of HSBC Stockbroking in July 2006.

Unaudited accounts show a rise in EBITDA of at least 75% compared with the previous corresponding period, which should equate to an unaudited increase in net profit before tax of between 15& and 20%. HSBC is expected to contribute around $A3m of the $A13.9m in EBITDA. E*trade is 35% owned by ANZ Bank.

Here is something worth looking at. ANZ is currently at a low PE ratio for banks and this will impact their profit although by only a minor amount. This could be another reason to rereview ANZ as a possible undervalued stock.

Good Luck Investing.

Beyond International no longer International

2007-01-12T21:07:00.000+11:00

Australian-listed Beyond International (ASX:BYI) will leave the international film distribution business due to continuous losses. Managing Director Mikael Borglund said that the distribution division had not been profitable for three or four years and lost $A784,000 in 2006-07. He said that exiting the business would minimise the losses for 2006-07. Beyond will still market and license a catalogue of 150 films, which are mainly Australian. The Australia-based company has not distributed a film since 2001. It has established an arrangement with British firm, Bankside Films, to distribute the eight films it acquired in 2006, and film distribution staff will be absorbed by Bankside

Well this is definately a company we do not want to be involved with. It had an unsuccessful attempt to go globabl and it has cost it a lot of money. A much better option in the film industry is MPH.

Good Luck Investing.

AFI has had a good run....

2007-01-12T21:02:00.000+11:00

The Australian Foundation Investment Company Limited (ASX:AFI) currently has an equities portfolio worth nearly $A5 billion. The group has approximately $A3.5 billion invested in blue-chip companies such as BHP Billiton, Brambles and Coles. AFI has achieved a total portfolio return of 15.2 per cent over the last 10 years, compared with 13.1 per cent for the S&P/ASX 200.

The group recorded a 23.5 per cent net profit rise for the 12 months to 30 June 2006, but it has warned that investors should not expect a repeat of the growth recorded by the Australian stock market in 2006.

When a company starts to get this big it has problems managing its funds. It was able to achieve the growth because of its size compared to other fund managers. It is now starting to get to the case where it is going to have returns similar to the market.

Still an impressive performance.

Good Luck Investing.

ASX Jump[s on Rumour of NYSE takeover

2007-01-12T20:56:00.000+11:00

ASX Limited (ASX:ASX) says it has no information to support speculation that it may join the wave of consolidation among global stock exchanges.

On 11 December 2007, the group's stock gained $A1.60 to close at $A37.45. That followed news that the New York Stock Exchange and Goldman Sachs are leading a consortium that aims to acquire a 20 per cent stake in the National Stock Exchange of India.

In February, ASX Limited will provide a progress report on the Australian exchange's merger with the Sydney Futures Exchange.

Why people even thought the that NYSE would buy into the ASX is beyond me. It is the first Asian region purchase by the company and I am sure they are not going to want to spread themselves thin. Seems that people are jumping at anything these days for a stock to jump.

Good Luck Investing.

Rivals eye Alinta Assets

2007-01-12T20:53:00.000+11:00

The management buyout proposal for Alinta has raised the interest of rivals. The energy company has decided to assess all options after receiving the offer.

Some competitors have acknowledged their interest in a chance to acquire some of Alinta's energy infrastructure assets.

Babcock & Brown, which also holds a stake of about four per cent in Alinta, said that it was always seeking energy assets. Spark Infrastructure said that it would consider any assets that were being sold.

It seems that management might be trying to get a quick buck out of the company. Simply buy it and then sell off the assets piece meal. It will be interesting to see how this progresses. Surely the deal will not be good enough for shareholders to accept.

Good Luck Investing.

Alinta CEO quits on conflict of interest

2007-01-12T20:41:00.000+11:00

The CEO of Australian energy company, Alinta Ltd (ASX:AAN), has quit due to concerns about conflict of interests.

Bob Browning with four other executives have presented a management buyout proposal to the company. Alinta's corporate adviser, Macquarie Bank, is also part of the bid. Serious concerns about conflict of interests have been voiced by investors and analysts and quote rightly so.

Management are the people that know how a business is performing and are best to gauge the future directions and proftiability of the company.

Good Luck Investing.

Predictions from UBS that Banks will continue EPS growth

2007-01-11T13:04:00.000+11:00

Analysts are predicting that earnings by Australia's big banks will continue to grow in 2007. Earnings per share (EPS) growth of 12.4 per cent occurred in the 2006 financial year and UBS Investment Research forecasts the big four banks - Commonwealth Bank Austrlaia Ltd (ASX:CBA), National Australia Bank Ltd (ASX:NAB), Westpac Banking Ltd (ASX:WBC) and ANZ Bank Ltd (ASX:ANZ)- will continue to increase EPS. It predicts EPS growth of 11.1 per cent in 2007 and 9.3 per cent in 2008. UBS expects the strongest EPS growth to be among the big investment banks, Macquarie Bank Ltd (ASX:MBL) and Babcock & Brown. (ASX: BNB).

The banking sector will be doing well out of the recent acquisitions occuring as they will be jumping in for management and financing. Macquaire should be doing espeically well out of it all.

Good Luck investing

Portfolio change

2007-01-10T20:40:00.000+11:00

There has been a change to the portfolio. I have sold out of ITD today for 57.5c

The portfolio now shows :

RHD Bought at 65c now trading at 66c for a PROFIT of 1c (1.5%)
SCV Bought at 80c now trading at 80c for a BREAKEVEN (0.0%)
FEA Bought at 63c now trading at 62c for a LOSS of 1c (1.5%)
CKL Bought at 59c now trading at 60c for a PROFIT of 1c (1.6%)
MCP Bought at $2.65 now trading at $2.86 for a PROFIT of 21c (7.9%)
AVE Bought at $2.19 now trading at $2.80 for a PROFIT of 61c (27%)
MPH Bought at $0.225 now trading at $0.235 for a PROFIT of 1c (4%)

Portfolio
Cash : $33,855
RHD : $10,153
SCV : $10,000
FEA : $ 9,841
CKL : $10,169
MCP : $10,792
AVE : $12,785
MPH: $10,444

Total : $108, 039

Month 1: Profit of $4,688. Annualised this is a gain of 56%.
Month 2 (to date): Profit $3351. Annualised this is a gain of 40%.

Closed Trades :
ITD Bought at 41.5c SOLD at 57.5c for a PROFIT of 16c (38%)

Sometimes you need to close trades even though they could go much higher which is still the case with ITD. But this price is still overpriced and it is always better to be in cash then be risking it in an overpriced share.

The return this year is 8% 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.