We continue to see Amcor as a solid contributor to portfolio returns, especially when complimented with a slightly out-of-the-money call option into November or December.
A combination of the dividend and call option premium produces 10 – 12% annualised cash-flow.
FY18 forecast revenue US$9.6b, EBITDA US$1.5b, Net Profit US$790m, EPS US$0.66 and DPS US$0.49 places the stock on a forward yield of 4%.
Buy on any marginal price retracement.
Sydney Airports continues to perform well….
We own Sonic Healthcare as a key holding in our client portfolio’s.
We own Transurban in or model…..
Amcor is a core buy-write that we’re holding…..
GPT and WFD are our preferred property (REIT) holdings….
Following the sell-off in both AMC and BXB , we now are looking for buying support at or near the current levels. Our short-term momentum indicators have not yet turned positive but we’re likely getting close to valuation support, where increased buying will occur.
We see value in AMC at $14.00.
We see value in BXB at $9.25
SCG and WFD went ex-dividend yesterday at $0.105 and $0.125, respectively. With both names we’ve added tight covered calls to boost the cash flow to 10 – 12% on an annualised basis.
Ansell is a relatively new addition to portfolios and yesterday’s earnings result was slightly disappointing. Again, we’ve been aggressive with the covered calls so we’re not looking for too much on the upside with ANN and we collected between $0.80 to $1.20 for the covered calls. We will look to exit on a rally back towards $23 by April/May.
Amcor reported a terrific earnings result with underlying growth running ahead of market expectations at 5%. This could accelerate up to 8 – 10% in the second half. This supports our $15.50 price target.
CBA’s earnings result tomorrow will be key for the banks. Thus far NAB and BEN have failed to deliver growth on the revenue and profit lines. We shorted BEN from $13.00 and we’ve been aggressive with selling call options over the top 4 banking names.
AZJ reported earnings in-line with market expectations. We remain cautious of the group’s high payout ratio with almost 100% of earnings being paid in dividends. This looks unsustainable in the medium term.
Tomorrow we will be focused on the earnings results for BLD, CBA, CPU, CSL, SHL and WES.
Shares of AMCOR are trading over 4% higher, to one-month high of $15.22, as the company reported a 3.8% rise in underlying net profit to USD 308 million.
The street had been expecting an underlying profit of USD 290 million.
Revenue rose 1.8% to USD 4.5 billion. AMCOR declared an interim dividend of USD 19.5 cents per share, compared to a USD 19 cent dividend during the same period last year.
AMCOR shares are up over 11% since trading as low as 13.65 in mid-November. Technical resistance will now be found in the $15.50 area.
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
On February 13th, Amcor will report profits for the July – Dec 2016 period. We’re looking for the net profit to beat market consensus of $300m.
AMC trades on 17x PE and 4.2% forward yield.
We hold Amcor in our investor model and have been aggressive with selling the covered call strategy. Whilst we like the defensive qualities of the business, it’s at the top end of our valuation range.
Through adding the covered call option we’re generating 10% cash-flow from the dividend and option premium.
After meeting price resistance at $15.00 yesterday, shares of Amcor have opened over 1% lower $14.80.
Earlier in the year, the firm’s multi-currency revenue stream was considered a tailwind. However, with the USD trading sharply higher against the AUD and the EURO, these trends are now seen as a headwind to market earnings forecasts.
This means that our 1H 2017 forecasts are expected to show a marginal fall in profits from US$ 310 million to just above UD$ 300 million, or about 6% lower on a reported USD basis. For the full year in FY 2017, our constant FX forecasts are unchanged at US$ 700 million, which implies 5% YoY growth.
As such, we expect Amcor shares to trade in a sideways pattern over the medium-term and look to buy on a pull back based on the Algo signal alerts. At this point, with the share price in the upper band of the 6-month range, we will sell the covered call option to enhance yield and reduce volatility.
The recent rally from $13.60 to $15.00 may be the best upside performance we see in Amcor for a while. Some analysts are downgrading Amcor from “outperform” to “neutral” as the company’s defensive revenue stream isn’t likely to expand as higher global interest rates affect their expense line and cost of capital calculation. This includes the impact of the USD appreciation against the EURO lowering EPS by about 5%.
With its large US and European asset base, Amcor has been able to maintain lower borrowing costs. However, with Weighted Average Capital Costs, (WACC), increasing from 6.6% to 7.1% in FY 17, bottom line profit growth may not be able to keep pace with rising interest rate.
We see the price impact reflected in the lower high and lower low technical structure in the Amcor chart. Whilst we don’t expect aggressive upside share price targets, we still feel owning AMC and selling covered calls to generate 10% annual cash flow from the dividend and call option premium makes sense.
The trading range is now $14 to $15.50 and investors should consider locking in gains at the top of the range, (or delivering the stock under the call option at $15.50 strike) and looking to buy the stock back on any pullbacks to $14.00.
Amcor is nearing full value based on FY17 earnings outlook.
FY17 revenue AUD$10b, EBIT $1.1b, EPS $0.71 and DPS of $0.58 places the stock on a forward yield of 3.8%. Underlying EPS growth forecast is 8%.
We look to sell covered calls into next year to enhance the yield.
Level 17 Chifley Tower
2 Chifley Square
Sydney, NSW 2000
1300 614 002
Investor Signals Pty Ltd
ABN 44 143 555 453
Or start a free thirty day trial for our full service, which includes our ASX Research.