AMC, CTX, SYD, TCL & TLS

Posted on | by Leon Hinde | Leave a Comment on AMC, CTX, SYD, TCL & TLS

We’re allocating funds to defensive names with moderate earnings growth. By adding tight covered call options we’re boosting the cash flow and generating our return on investment (ROI) through a lower risk, lower volatility investment process.

We’re holding small levels of hedging through inverse ETF’s and are mindful of the increasing number of stocks within the ASX 100 and the US S&P100 that are showing fading momentum. High valuations in many names combined with relatively low revenue and profit growth is likely to weigh on share price performance.

The following names we’re currently buying. AMC, CTX, SYD, TCL & TLS

Chart – Amcor
Chart – CTX
Chart – TCL
Chart – SYD
Chart – TLS

 

 

 

 

REIT holdings – How we achieve 10 – 12% cash flow.

Posted on | by Leon Hinde | Leave a Comment on REIT holdings – How we achieve 10 – 12% cash flow.

The lesson from the GFC when it comes to REITS is to own the best-in-class and ensure gearing levels are moderate. 20 to 35% gearing is okay, 45 -50% gearing is the range that caused problems 10 years ago.

We like WFD combined with a tight covered call option which is delivering 10 – 12% cash flow on an annualised  basis.

Chart – Westfield

 

 

Tabcorp – Value Emerging

Posted on | by Leon Hinde | Leave a Comment on Tabcorp – Value Emerging

 

Tabcorp is a relatively defensive income opportunity for portfolios, with earnings supported by potential synergy savings after the Tatts integration.

The company continues to progress the merger proposal with Tatts and the ACCC is scheduled to release its statement of issues on the 23rd of February.

By applying a covered call option, we’re able to allow 5 – 10% capital growth from the current price, whilst still generating 10%+ in annualised cash flow from the dividend and call option income.

We expect modest earnings growth into FY18, which will place the stock on a forward yield of 5%. TAH goes ex-div on the 7th of Feb paying out $0.125

Our buy range for Tabcorp is between $4.20 & $4.50.

Chart – Tabcorp

US Market – Leading Indicators

Posted on | by Leon Hinde | Leave a Comment on US Market – Leading Indicators

We’ve been watching the rollover pattern in GE and the recent break of price support in Goldman Sachs as potential leading indicators. We now add UPS and FedEx as two additional stocks of interest.

FedEx Corporation is expected to report earnings in March. The report will be for the fiscal quarter ending Feb 2017. The consensus EPS forecast for the quarter is $2.62 whereas, EPS for the same quarter last year was $2.51.

United Parcel Services, (UPS), reported quarterly earnings and revenue that missed Wall Street’s expectations. Fourth-quarter earnings of $1.63 per share on revenue $16.93 billion and weak 2017 guidance, ($5.80 to $6.10 per share), has resulted in heavy sell-side pressure in the stock.

A point of note: In 2016, UPS re-purchased 25.5 million shares for about $2.7 billion.

The graphs below show a concerning trend of downside risk.

Chart – FedEx

Chart – UPS

 

Boral – FY18 Earnings Review

Posted on | by Leon Hinde | Leave a Comment on Boral – FY18 Earnings Review

We thought it worthwhile to review the earnings outlook for Boral, post the acquisition of the Headwaters Group.

In FY18 revenue grows to $6.2b, EBITDA $1b, EPS $0.38 and DPS of $0.24 placing the stock on a 4% forward yield.

We’re cautious of the risks for Boral in achieving these targets and it appears the stock is relatively full value at the current price.

Chart – Boral

 

Ansell – Buy Signal

Posted on | by Leon Hinde | Leave a Comment on Ansell – Buy Signal

Ansell has purchased Nitritex, a UK-based manufacturer of premium clean-room and healthcare Life Sciences consumables. The deal is relatively small at US$60m and will be  near-term earnings accretive.

The transaction adds to income generated outside the US and extends to the Ansell’s expertise across the Life Sciences segment.

We’re buyers of Ansell on the current price pullback. Value exists in the $22.50 – $23.50 range.

FY17 revenue $1.65b, EBITDA of $285m, net profit $170m, EPS $1.10 and DPS $0.46 places the stock on 2.5% forward yield.

We expect underlying business growth into FY18 and FY19 of 6% – 9%.

Chart – ANN

 

European Economic Growth for 2016

Posted on | by Leon Hinde | Leave a Comment on European Economic Growth for 2016

European economic growth for 2016 rose to  1.7%. Inflation is running at  1.8%, which is nearing the ECB’s target of 2% and the jobless rate fell to 9.6%; the lowest figure since May 2009.

This is the first time since 2008 that we’ve seen EU growth prospects tracking near the rate of the US. By any comparison, the economic recovery in G7 countries is still at very low levels and fragile global conditions remain.

Equity market valuations are stretched, and subdued revenue growth will likely lead to analysts’ EPS targets being reduced by 50% for 2017 to reflect actual current growth rates.

Our Algo Engine triggered a short signal in the iShares Europe ETF back in May at $55.75 and the index collapse by 18% within a few months following. Six months on and the index has recovered back to $52 and whilst we don’t have a new short signal present, we’re still cautious that another near term top is now in place.

Chart – iShare ETF (Europe)

Tabcorp – 2nd of February

Posted on | by Leon Hinde | Leave a Comment on Tabcorp – 2nd of February

Tabcorp reports earnings on the 2nd of February.

We assume Tatts merger is completed by middle of this year and generates cost savings post integration of $100m plus.

FY18 revenue $5.2b, EBIT $800m, DPS $0.25 places the stock on a forward yield of 5%.

We’re buyers of TAH at $4.70 and selling call options post the earnings result.

 

Chart – TAH