Death of the high PE

Posted on | by Leon Hinde | Leave a Comment on Death of the high PE

We’ve been warning about a number of ASX large cap stocks which trade on 25X earnings and 2% yield and, at best, will deliver low single digit earnings growth.

Two examples are the recent sell signal posts we’ve made on Computershare and James Hardie.

We feel that the day of reckoning is approaching and, in many instances, as seen in CPU & JHX, the selling has already started and we’re now seeing a retracement back to the mean, (and likely beyond).

We’ll leave the 150x PE of Amazon, or the 200x PE of Netflix for a future  posting, but suffice to say; reality will soon hit.

Chart – CPU
Chart – JHXASX:JHX

 

 

 

 

 

 

Algo Signal Update – Graincorp

Posted on | by Leon Hinde | Leave a Comment on Algo Signal Update – Graincorp

We continue to track GNC following the recent Algo Engine buy signal.

GNC has proven tricky in identifying the price reversal, however, we feel it is approaching an oversold level and ready for a bounce higher.

$8.50 is support and investors could build long exposure now with tight stops. a break below $8.50 may set-up a new buying range in or around $8.30.

Keep this one on your watch list.

Chart – GNC

 

 

Algo Update – Short Signal in Domino’s

Posted on | by Leon Hinde | Leave a Comment on Algo Update – Short Signal in Domino’s

The chart below shows the recent Algo Engine short signals in DMP. We look for the price action to test lower levels in the near-term as the lower high structure remains the predominate technical pattern.

Stay on watch as the last and final leg lower in the selling occurs. Investors can expect a sharp rally higher from oversold conditions, once we see DMP trade below $38.

Chart – DMP

 

Ansell – FY17 Earnings

Posted on | by Leon Hinde | Leave a Comment on Ansell – FY17 Earnings

FY17 results for ANN were mixed with revenue growth of 2- 3 %. Cash conversion was strong and lower capex supported the dividend.

With this report, it’s difficult to draw any clear comparisons to past results as added expenses and divestment of businesses segments renders historical divisional comparison meaningless.

We view FY18 guidance as conservative and see the 3% forward yield as an attractive risk reward proposition.

A streamlined operation and moderating raw material costs should see Ansell’s share price trade higher over the next 12 -24 months.

Chart – ANN

 

 

Bendigo Bank – FY17 Earnings.

Posted on | by Leon Hinde | Leave a Comment on Bendigo Bank – FY17 Earnings.

Bendigo Bank delivered a solid FY17 cash profit of $418 million,  which was in-line with consensus.  Improving margin trends and dividend growth helped push the shares of BEN higher in yesterday’s trading.

We feel the regional banks will struggle in the next 12 to 24 months with flat earnings, higher costs and increasing debt debt provisioning.

Assuming flat earnings and dividend growth into FY18, we have BEN trading on a 6% forward yield.

Chart – BEN

 

 

 

 

Aurizon Holdings – FY17 Earnings

Posted on | by Leon Hinde | Leave a Comment on Aurizon Holdings – FY17 Earnings

AZJ reported its FY17 EBIT of $836m and guided towards  FY18 EBIT growth of 8 – 11% or $900 – 960m.

Losses in both Intermodal and bulk divisions were higher than market expectations. Dividends were reduced to $0.225 for the year but this was offset by the company announcing a $300 million share buy back.

We feel FY18 EPS growth may be optimistic and the reduced dividend is something we’ve been flagging as a potential concern coming into this result.

Assuming dividends remain flat over the next 12 months, it places AZJ on a forward yield of 4.4%.

Chart – AZJ