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.
Sonic should grow earnings by 8% in FY17 and pay a 4% dividend yield. We’re buying this name and selling tight covered call options to enhance the income whilst allowing for moderate capital growth.
We’ve been buying BXB and selling covered calls at $11 into May as a relatively defensive income play.
Shares of James Hardie have opened over 3% lower on an announcement that a weaker-than-expected December quarter has forced the company to cut earnings guidance.
Shares traded down to a 3-month low of $19.60 as the the company announced that the group’s net profits fell 6% to USD 52.6 million.
This prompted a warning that earnings for the financial year up to March would come in at between USD 245 and USD 255 million, versus expectations of between USD 252 to USD 269 million.
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.
Shares of Tabcorp have opened 3.5% lower as the betting company posted a 5% rise in half-yearly profits.
The firm reported an interim dividend of 12.5 cents fully franked, which was 4% higher than this time last year.
The underlying net profit of $102.7 million for the half year ended December 31st was up from $97.5 million a year ago.
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.
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%.
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.
SHL has strengthened its German footprint with the purchase of two laboratories from Medical Laboratory Bremen for A$90 million.
The deal is EPS accretive in the first year with margin expansion & synergy gains achievable in the near term. We expect Sonic to deliver 7 – 9% EPS growth in FY17 and FY18.
FY17 revenue $5.2b, on EBIT of $920m, Net Profit $$480m, EPS of $1.20 & DPS $0.78, places the stock on a forward yield of 3.6%.
We like Sonic as a core portfolio position, however the low yield and moderate EPS growth encourages the use of a covered call to enhance the cash flow and boost the overall investment return.
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