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.
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Earlier this month we warned readers of the highly attractive pre-delivery finance CRHI was offering customers to win market share. The downturn in the Chinese shipbuilding industry and slippage in vessel delivery saw the Company, for the 6 months to June 2012, report an 82% decrease in net profit on a 37% decline in revenue to RMB5.5b (US$865m). The deterioration in CRHI’s finances over the past eighteen months has been extraordinary: net debt/ equity has jumped from 40% to 143% (US$3.55b/$2.5b), receivables have risen dramatically to RMB4.4b (US$700m), while receivable days have increased from 10 days to 125 days. Over one-third of the receivables are past 180 days, and half of this is past 360 days.
With its eroding credit worthiness, China Rongsheng Heavy Industries has seen its share price decline from HK$8 in late-2010 to HK$1 and it is now selling at 40% of its book value. We will be closely monitoring other Chinese-based steel, cement and shipbuilding companies, especially in the context the iron ore price has just breached the psychologically important US$100/tonne.
Until now, Montgomery Investment management’s (“MIM”) unique intrinsic-value investing approach was only available to those with more than $1 million to invest. And since inception, The Montgomery [Private] Fund has provided those investors with significantly higher returns than the broad market indices.The new The Montgomery Fund is now open to individuals, families and trustees of self managed superannuation funds, comfortable investing less than $1 million.
The minimum investment amount for The Montgomery Fund is $25,000 and investors will receive regular reports that include the top stocks held by The Montgomery Fund.
Links to The Montgomery Fund’s Product Disclosure Statement, which includes the Application Form, the Information Booklet and a Welcome Letter, are available via email and you need to request them by visiting Montgomery Investment Management.
The next step is to carefully read the documents, seek advice where necessary and if you elect to proceed, complete and return the Application Form at your earliest convenience.
MIM looks forward to welcoming you as an investor and to working for you.
Montgomery Investment Management.
The issuer of units in the Fund is the Fund’s responsible entity Fundhost Limited (ABN 69 092 517 087). The Product Disclosure Statement (PDS) contains all of the details of the offer. Copies of the PDS are available from Montgomery Investment Management (02) 9692 5700 or at www.montinvest.com.
An investment in the Fund will only be available through a valid application form attached to the PDS. Before making any decision to make or hold any investment in the Fund you should consider the PDS in full.
In 2008, China implemented a massive economic stimulus program focused on fixed assets, with a concentration on construction. This program may have been necessary for stabilisation, but led to significantly increased capacity, particularly in China’s steel and cement industries. Annual capacity growth in recent years has been double or triple China’s economic growth.
Australia’s material stocks were beneficiaries of strongly rising demand for coal and iron ore, and many were at or near record share price highs in the first half of 2011.
Meanwhile the Shanghai Composite Index at 2100 is at the lowest level since the GFC lows of late-2008.
The consensus view is for increased infrastructure spend from China over the foreseeable future to boost demand and prices. If correct, one might conclude that the slowdown is already “priced in”. However, we have been examining the interim results of Chinese cement, steel and shipbuilding companies. We are seeing severe earnings downgrades across the board: capacity is exceeding production, utilisation is declining, demand is restrained and inventory levels are rising. Excess steel production is being exported and many global steel and material companies are also seeing their earnings severely cut.
While the Chinese command economy might continue building the odd ghost city or expressway into the Gobi Desert, the transformation from fixed asset investment to consumption is less steel intensive. Until the severe downgrade of the Chinese (and international) material stocks becomes consensus, Montgomery will continue to keep our powder dry in this area.
Since reporting season rolled into full swing, we have covered 130 individual annual reports of companies we like to varying degrees.
Twenty-four of those have made the grade for further research and modelling. Some of them we have purchased in the past few weeks and some we have already been holding for a while. This update concerns one of Montgomery’s holdings McMillan Shakespeare (ASX MMS).
Management just reported (after the market close) NPAT of $54.3m – up 25% from last year and diluted earnings per share (EPS) growth of 21%. This is significantly ahead of market expectations for the full year and management’s focus on Salary Packing and Fleet Management Services continues to pay off.
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The full year result by CBA recently was a good reflection of the level of growth Australia is currently experiencing – low. The banks reported cash NPAT was up just 4% for the full 12 months or $278m to $7.1b. However, if we back out the 15% reduction in loan impairment expenses, $191m, despite the oligopoly the big 4 have in Australia, the best they could manage was growth overall of 1-2% in banking, funds management and insurance. The 15% improvement in credit quality was definitely a surprise in the result given the scores of jobs losses recently. A development we continue to monitor closely.
Over the past week more than 100 companies have reported their full year results. These results have begun to flow through Skaffold, resulting in the changes listed below for each company. A membership to Skaffold ensures you are constantly up to date with changes to the quality and valuations of every Australian listed company.
To become a Skaffold member and start taking advantage of market inefficiencies that may transpire during reporting season CLICK HERE
And here’s a list of the elements in Skaffold that change automatically as companies report:
1. Earnings and Dividends, Capital History and Cash Flow Evaluate screens updated with 2012 figures
2. New 2012 Skaffold Score
3. 2012 Intrinsic Value – Actual
4. 2013, 2014 and 2015 Intrinsic Value forecasts
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PORTFOLIO POINT: Ten may benefit from improved market conditions, but the TV network owner needs to make up a lot of lost equity ground for its shareholders.
If you read the financial press regularly (and there are good reasons not to), one topic that may have caught your attention is the difficulties faced by our main free-to-air commercial television networks.
Channel Nine, struggling under the weight of a private equity capital structure, has led the charge, but Seven and Ten have followed not far behind. The news for all three has focused on earnings disappointments, equity raisings, asset sales, and various other “restructuring” initiatives – none of them good for equity holders.
At its Annual General Meeting held in Mumbai yesterday, the Chairman of Tata Steel, Ratan Tata, reported an 89% plunge in its June Quarter 2012 net profit. <http://economictimes.indiatimes.com/tata-steel-ltd/stocks/companyid-12902.cms>
Mr Tata said the Company will need to restructure its operations due to a slackening of global steel demand. From their 2006 acquisition of Corus, around half of Tata Steel’s 24 million tonnes per annum capacity is European based.
Meanwhile, Hong Kong listed China Resource Cement has released a disappointing interim report to June 2012. Accordingly, their net profit forecast for each of 2012, 2013 and 2014 has been cut aggressively. Despite building capacity by 25% to 64 million tonnes of cement per annum, the gross profit margin per tonne for 2012 is expected to be less than half that recorded in 2011. China Resource Cement’s net profit should be around HK$1.4 billion in 2012, down 67% from HK$4.2 billion in 2011.
