With the Ten share price up 5% today we reckon some participants must be trading on rumours. In this case, rumours are swirling around the market that Telstra is about to buy Ten. We don’t of course trade in rumours and we won’t be starting now. We are keen however to watch Telstra’s content strategy roll out – in anticipation of the NBN being completed. As we have previously mentioned, by 2017 Telstra will likely dominate the digital delivery of content. The delivery platform will have been levelled and so the competitive focus for Telstra needs to be content. They’ll knock on your door with a big black box and bundled deal offering IPTV, Foxtel, FoxSports and (Ten?) all on the one platform for one great price….
So could Ten be part of that strategy? As is always the case with rumours, time will tell.
Returns from lending people money or from giving them what they want before they can afford it, are enormous. Here we discuss two companies profiting from the impatience of others.
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We often hold a material amount of cash in our funds management operation and, with deposit rates at painfully low levels, we have been considering ways we might work the cash a bit harder. Like many investors, we have focused attention on hybrid securities as one possibility.
Having studied this possibility for a short time we are now focusing elsewhere. Analysis of the terms of some of the recent offerings reveals highly complex instruments with concealed downside risks and an interest rate that falls well short of compensating investors for the hidden downside. A cynical observer might think that some of these products are designed to exploit retail investors who are unable to fully assess the downside risks they are taking on.
Earlier this week The International Energy Agency released its World Energy Outlook. While total US oil and gas production is expected to increase 35 per cent from 17 million barrels of oil equivalent per day (mboe/d) in 2010 to 23 mboe/d in 2020, the transformation is explained by the expected 6 mboe/d surge in unconventional oil and gas production over this decade. Together with the widening of the Panama Canal by 2014, which will allow LNG Supertankers to travel to Asia from the Gulf of Mexico, the US could potentially turn into a cheap exporter of gas, in competition with Australia.
The contractual nature of the resource service sector was highlighted with Emeco’s latest earnings downgrade. Their Australian fleet utilisation has declined from 91% in the 6 months to June 2012 to the current 66%. A combination of weaker demand, contract revisions, and contract non-remewals was to blame. Commentary particularly reflected lost contracts from the iron ore and coal industries. Expectations for the Company’s revenue line has been cut by 20% to around $550m for each of Fiscal 2013 and 2014, while net earnings have been reduced by around one-third to $51m and $58m, respectively. At the current share price of $0.51, some brokers are calling Emeco a buy as it is now selling on a prospective PE of 6X and a one-third discount to its net tangible asset backing of $0.76 per share.
Nevertheless, we remain cautious on the outlook for the resource service companies generally and believe investors should be wary of Emeco’s forecast $443m net indebtedness.