GPT now trades on a forward yield of 4.8% with distribution per unit in FY17 of $0.24
Owning GPT at $5.00 and selling long dated covered call options into March 17 at the $5.25 strike, creates $0.15 in premium. Add in the December dividend of $0.12 and total cash flow equals $0.27. If exercised, an additional 5% capital gain or $0.25 on top of the $0.27 takes that total return to $0.52 or 10% for 6 months exposure.
The Australian Bureau of Statistics will announce the Domestic Trade Balance for August today at 11:30. The consensus forecast is for a deficit of A$ 2.65 billion. The Bureau reported a trade gap of A$ 3.19 billion in June of this year, an increase of 32% from the A$ 2.42 billion deficit reported in May.
The domestic trade balance has not printed a surplus since May of 2014 with a record high deficit of A$ 4.43 billion reported in April of 2015.
The RBA held overnight interest rates unchanged at 1.50% on Tuesday but expressed concern that a rising AUD/USD could dampen economic growth and cause the trade balance to widen further. We expect a larger than consensus reading could weaken the AUD/USD, support local ASX stocks, and increase the RBA’s easing bias into the end of the year.
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AGL Energy at $18.50 is a buy.
FY17 NPAT forecast +$770m, EPS $1.15, PE 16x, DPS 0f $0.74 placing the stock on a forward yield of 4%.
Sell a tight covered call option into December to complement the return on AGL.
Transurban (TCL.ASX) is now trading back on 4%+ yield on current numbers. Allowing for the increase in yield into FY17 where the dividend should grow from $0.44 cps in FY16 to $0.50 cps in FY17, the stock now trades on a forward yield of 4.5%
With the above metric in mind and the reducing chance of a September interest rate rise in the US, (following Friday’s US employment data), we’re likely to see some buy side interest in TCL and other defensive yield names this week.
Look to establish an entry point within the $11.30 – $10.70 range.
Boral has been triggered by the algorithm engine as a “buy alert”.
Fy17 NPAT is forecast to be up 10% ($280m) on last year, based on EPS of $0.38 cps, placing the stock on 17x PE and assuming $0.24 in dividends, Boral trades on a forward yield of 3.8%
The stock has pulled back 15% from the late August high. Buy within the $6.40 – $6.00 value range.
Amcor (AMC.ASX) acquired Sonoco’s North American rigid plastics operation for $280m. The acquisition will be EPS accretive by 2 – 3%. Amcor management expects to save $20m+ in synergy benefits.
FY17 Amcor should generate revenue of USD$9.7b, EBIT USD$1.1b, EPS growth of 8% and DPS of USD$0.44, placing the stock on a forward yield of 3.8%
We like AMC and see this as a suitable buy-write candidate for client portfolios. The stock trades ex-dividend tomorrow AUD$0.29.
Buy today and sell $17.00 calls into January.
Today’s report is a summary of what I’m watching following some of the recent price action in the market. On the 30th of August I wrote a blog post under the heading “Property Trusts” and the commentary there still remains relevant. If the Fed Reserve doesn’t raise rates in 2016, we’ll see the yield names rally 5% to 10%. With this in mind, WFD, GPT, SCG are worth keeping on your watch list. AGL, TCL, BXB, IAG, SUN and BLD have also been triggered by the algorithm engine as buying opportunities that should be tracked for an appropriate entry point.
Other names that we’re waiting for a buy signal on include JHX, SGR, QUB, RMD, TWE, SHL, CWN, AMP and NVT. Out of this group, QUB and CWN are the closest to the entry condition being triggered.
The AUD/USD, in particular, looks vulnerable to further downside range extension. After posting a technical double top at .7755 on August 10th and 11th on Thursday, the AUD/USD finished the week with two consecutive losses for the fist time in almost two months and the first close below the 30-day moving average since July 25th. Technically, the pair has been in a strong uptrend over the last three weeks but the RSI has now rolled over below the 50.00 level.
The 11.3% surge in building approvals (reported this week) was 10 times more than expected and the strongest reading in over two years. However, it was not sufficient to lift the Aussie above the high of .7580
Harvey Norman (HVN.ASX) FY16 NPAT $350m and final dividend of $0.17
FY17 outlook for 5 – 7% EPS growth on $1.8b in revenue and EBIT of $530m. Assuming total FY17 DPS of $0.27 the stock is trading on a forward yield of 5%.
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