The Good, The Bad and the Ugly

The Good, The Bad and the Ugly

BREVILLE (BRG)

Both Breville Group (BRG) and Flexigroup (FXL) saw solid gains yesterday.

Breville’s share price hit new highs in terms of price (not that we’re looking of course) in anticipation of a solid result. EBITDA was previously forecast to be in the range of $65 to $67 million but not long ago the company upgraded guidance to $71 to $72 million. Investors who are focusing on depressed local retailing and consumption need to have a look at the US retailing index which is up more than 275% since the March 2009 lows. More than half the company’s revenues now come from outside Australia, with roughly a third coming from North America, and growing despite the weak US economy.

FLEXIGROUP (FXL)

Two days ago, Flexigroup announced that it had successfully priced AUD255m of asset-backed securities, supported by a pool of Australian unsecured, retail, “no interest ever” payment plans, originated by Certegy Ezi-Pay Pty Ltd (“Certegy”), a wholly owned subsidiary of FlexiGroup Limited.

This securitisation of Certegy receivables is part of FlexiGroup’s strategy to diversifying its funding sources by regularly accessing wholesale capital markets. The term securitisation is FlexiGroup’s third and its also the second rated by Moody’s.

According to Spencer Wilson, Associate Director in Fitch’s Structured Finance team, “A valuable tool in Certegy’s underwriting strategy is its access to large volumes of historical data, which is then used to identify key risks across product types, demographics and borrower types,” adding “This transaction follows on from the Flexi 2011-1 deal, with notable features being the short weighted average life of the receivables, small contract size and significant levels of excess that are available to offset potential losses”.

FAIRFAX (FXJ)

Fairfax’s decision at the end of June to cut 1900 jobs – almost one-fifth of total staff – and $235 million in costs over the next three years and switching the printed formats of The Sydney Morning Herald  and The Age from broadsheet to compact in March as well as introducing digital subscriptions for these two mastheads early next year suggests to me we will see the company write down the value of its mastheads.

Mothballing the printing presses at Chullora in Sydney and Tullamarine in Melbourne in two years, also suggests a writedown has to be in the offing.

So don’t be surprised.

LEIGHTON (LEI)

For a man who fancies exotic sport cars, Leighton’s CEO Hamish Tyrwhitt was reported by the AFR as being unusually subdued at yesterday’s results announcement.

For investor’s, his comment about Airport Link opening ahead of its (revised) schedule as being “an incredible achievement” needs to be remembered. Why? Well, in my opinion, Airport Link it could go broke and I believe Leightons’ are on the hook for a $200 million deferred capital contribution. I mentioned this a year ago and the recent revelation that Brisbane’s $4.1 billion Airport Link has attracted 77,320 vehicles a day on average in its first week of operation – well below its initial 135,000 target – despite being toll free, is a concern.

Perhaps that’s why the CEO was reported as peppering his discussion of the contractor’s future upon their results announcement with words such as “cautious” and “sustainable.”

More conventionally we remain concerned about Leighton’s debt levels and our understanding that Leightons Al Habtoor business continues to suffer from poor receivables collections. We understand (but remaining willing to stand corrected) that the company, by way of example, has not been paid for the Al‑Shaqab‑Equestrian‑Arena in Qatar (see pic).

MORE BY RogerINVEST WITH MONTGOMERY

Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.