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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Origin Energy is trading above value, Oil Search at almost double its value and with a 2012 value of $6.37, Toll is not only mediocre, but also expensive. As for selling out of Wesfarmers to buy into RIO, Roger compares that plan to be like jumping from the fry pan into the fire! In his appearance with Nina May on Your Money Your Call Roger also reveals that of the 1874 businesses listed on the ASX only 600 make a profit, and for him, a tiny 23 fall into his ‘A1’ category of wonderful businesses. Watch the interview.
AGL, like Origin Energy and Arrow, has been expensive for a long time. According to Roger Montgomery this seems to be a general trend in the energy sector. In his appearance on Nina May’s Your Money Your Call Roger also reveals his 2010, 2011 and 2012 valuations for Bluescope and JB Hi-Fi, and discusses the impact of management’s decision to raise JBH’s dividend payout ratio from 50% to 60%. Watch the interview.
In this appearance on Your Money Your Call Roger Montgomery talks about the future prospects of Telstra, QBE, Worley Parsons and compares NAB and AMP’s attempt to acquire AXA to that of WES buying Coles, or Fosters buying Southcrop – disaster! Watch the interview.
The profits don’t justify the share price, which I calculate are trading at more than twice their intrinsic value. Read article.
Only three years ago some very bright private ‘equiteers’ authored a deal to buy Qantas for $11.1 billion. It fell through. Not long after, Qantas shares hit $6.06 and the business was being valued, by my arguably equally-bright fund management peers, at $12.3 billion. Today, Qantas shares are trading around $2.75 and Qantas has a market value of about $6.2 billion. Where did $6 billion go? Read article.
For the past 18 months the region’s airlines have been riding out turbulence arising from a collapse in passenger traffic. But now at least one of the big three Singapore Airlines, Cathay Pacific and Qantas says the worst might be over. Read transcript.
Investors may have been surprised that Qantas didn’t pay a dividend but industry analyst and Roger Montgomery says the surprise should be that the airline turns a profit at all. Listen to Roger’s comments.
Share analyst Roger Montgomery tells the ABC’s Michael Janda that Qantas is lucky to be making a profit at all. Listen to the interview
On Sky Business last week with Nina May, a caller asked for my thoughts on Industrea. I offered to put together an opinion and of course, the only way I know how to do that is to first run it through the model to learn whether or not it is 1) A Wonderful Business with 2) Bright prospects and available at 3) A bargain price.
On the first point, a wonderful business, Industrea lost money until 2006 when it earned just under $2 million. Its not history however that determines your returns. It will be the future performance of the company. More on that in a moment. Last year the profits grew to $15 million but in order to generate that increase the company has raised equity and borrowed additional funds, to the tune of $309.5 million. Dividing the additional profit of $13 million by the additional equity of about $110 million is a return on incremental equity of about 11%. Not great but not bad either. (see note about profit adjustment below which makes this return higher)
According to some analysts and a recent company announcement (for FY10), the profit is expected to rise materially in the next three years to $48 million next year and $60 million in 2012 corresponding to a return on equity of about 25%. Of course the 2009 profit probably wasn’t $15 if you back out unrealised movements in interest rate hedges, amortisation and impairment of Customer Contracts and the like. If 25% returns are the case then the business looks ok except for the fact that debt exceeds equity. Of course if the profit figures come through as expected, then the debts could be paid down considerably, unless the directors choose to pay much higher dividends.
Based on the analysts forecasts for the next three years (of course subject to change in a moment’s notice and without any update here) the value of Industrea is 48 cents rising to 70 cents in 2012. So the prospects for value increases looks ok and the shares are currently at a discount to today’s intrinsic value.
Do I think its a great business? I think there are better quality businesses around unless you can satisfy yourself that this company has genuine sustainable competitive advantages. If you can, and believe the debt will start to decline, then the shares don’t look expensive. Of course this is not a forecast of the share price. Valuing a company is not the same as predicting the direction of the shares. Seek professional advice with someone familiar with your needs and circumstances before acting.
Posted by Roger Montgomery, 18 February 2010.
Qantas reported its half year profit today and the oft’ heard investor refrain “but Roger, its pays me a good dividend” was dealt a heavy blow with the company announcing no dividend would be paid for the half year.
As you all know by now, an airline profit is an accounting construct. If the depreciation charge was replaced by “a provision for replacement cost of aircraft” (my own accounting invention), the charge would be a lot higher and no profits would exist. Indeed, even though I have been saying this since the 90’s, it was evidenced again in Qantas’s half yearly report with $142 million of “additional depreciation”
So how are dividends ever paid?
A quick look at the debt and equity over the year reveals it is the charitable nature of banks and shareholders that keeps the planes in the air. As I write this, the total market value of the company is less than all the money that has been injected into it and left in it over the last decade and a half.
Can you believe a private equity group wanted to pay $11.1 billion for Qantas, or $5.45 per share? Can you believe that the stock market price went as high as $6.06, valuing the business momentarily at $12.3 billion? And they say the stock market and that its participants are rational!
The world’s airlines have accumulated aggregate losses of almost $54 billion over the last decade and in 2010 will lose another collective $5.8 billion[1]
Now don’t get me wrong. I am not saying Qantas isn’t a great Australian icon. Nor am I saying that the team isn’t doing a world-class job. Indeed, Qantas is regarded as the most profitable airline in the world. But you can see yourself that it would be very painful financially to own Qantas outright. From a purely capitalist perspective, I would rather own something else. A term deposit perhaps.
Here is a link to todays ABC Radio Interview about Qantas on The World Today: ABC RADIO qantas interview
[1] International Air Transport Association (IATA) Report 2009
Posted by Roger Montgomery, 18 February 2010.
Qantas had bad news to spare – in the air and on the ground – after a plane with troublesome landing gear was forced to turn back as the company announced a massive fall in profit.
