Insightful Insights

  • MEDIA

    Seeking Healthy Results for All

    Roger Montgomery
    October 13, 2012

    Roger discusses his best picks in the healthcare sector in his Australian article published on 13 October 2012.  Read here.

    by Roger Montgomery Posted in Health Care, In the Press, Insightful Insights.

  • Vita Group Investor Report

    Roger Montgomery
    October 13, 2012

    Here at the insights blog we like to encourage deep thought and facilitate genuine community.  To that end we have been thinking carefully about how we publish Harley’s research report on Vita Group – or should I see ‘tome’.  Its great and we really appreciate Harley’s work.  I think you will too.  We have resolved to produce a pdf for you to download and read at your leisure.  Harley, well done and keep them coming.  We now have a system and process for publishing your reports.  If anyone else would like to share their research with the tens of thousands of unique investors who visit the Insights Blog each week and the hundreds of thousands who visit each month, including CEO,s planners, advisors and fund managers, then feel free to submit your reports to Feedback & Support.

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    by Roger Montgomery Posted in Consumer discretionary, Insightful Insights.

  • Did TPG take a look at Skaffold?

    Roger Montgomery
    October 12, 2012

    On Friday TPG pulled their offer for Billabong. We have written about Billabong extensively here at the Insights blog and while TPG pulling out may come as a surprise to many investors and commentators, that’s not the case here.

    Skaffold has had BBG sub-investment grade since June 2011 – eighteen months and worse, its earnings, return on equity and intrinsic value have been in decline since 2007.

    TPG have made a sensible decision irrespective of whether it was their own decision influenced by the loss CVC are taking on Nine or by investors suggesting they might not support the next fund if TPG proceed.

    Fig 1. Billabong Intrinsic value Chart (Courtesy: Skaffold.com)

    Perhaps if CVC had Skaffold when they bought Nine they might have been in a different position today.

    Bottom line, the higher the price you pay, the lower your return. BBG reported equity of $1 billion in June this year and it is forecast to earn just 3.47%. A decent return at present rates of earnings could only occur if the purchase price was a third of the equity (and that’s excluding hundreds of millions in debt), which is about $315 million.

    TPG weren’t proposing to pay $315 million, they were proposing to pay $694 million! The higher the price you pay, the lower your return. You can see in Figure 1 that the intrinsic value is not only substantially lower than the current price, but it has been in decline since 2007. We prefer businesses with rising intrinsic values – they’re the ones that are easier to sell at a profit down the track.

    Now two bidders have walked away after seeing the books. What could small share market investors know (that private equity does not) that warrants their confidence to purchase shares? We reckon some of them might be mistaking speculation for investing. Thanks Skaffold.

    by Roger Montgomery Posted in Insightful Insights, Intrinsic Value, Manufacturing.

  • Is there a ‘floor’ under the gold price?

    Tim Kelley
    October 11, 2012

    Since 2001, the gold price has risen from below $270/oz to almost $1800/oz – a compound growth rate of around 17% p.a. which has made it one of the most rewarding assets to hold over that period. The majority of commentators now seem to be born-again gold bulls, with ever increasing long-term price targets being put forward, justified by gold’s status as an alternative currency in a time of economic uncertainty and unlimited quantitative easing.

    While we can’t see a reason for gold’s run of strength to end in the short term, we are mindful of the long-term downside risks that attach to such a strong rise in price for an asset that does not produce income. Following a spectacular run between 1970 and 1980, it is worth noting that gold lost over 80% of its value in real terms during the following 20 years.

    by Tim Kelley Posted in Energy / Resources, Insightful Insights.

  • Iraq’s news is not all bad

    David Buckland
    October 11, 2012

    According to the International Energy Agency (IEA), Iraq’s oil exports for the month of September 2012 hit 2.6m barrels of oil per day, the highest level in more than thirty years.

    The IEA expects Iraq to more than double its oil exports by 2020 to 6m barrels of oil per day.  At the current price that is export revenue of US$200 billion per annum.

    Iraq’s official target is for exports of 12 million barrels of oil per day.  Comments from the contracted producers, Royal Dutch Shell, BP, Exxon Mobil, Lukoil and CNPC from China, in terms of the potential doubling or quadrupling of Iraq’s oil exports over this decade will be worth following.

    by David Buckland Posted in Energy / Resources, Insightful Insights.

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  • MEDIA

    What are Tim Kelley’s insights into the Australian Banks?

    Tim Kelley
    October 10, 2012

    Do Ten Network (TEN), Seven West Media (SWM), Aurora Oil (AUT), Origin Energy (ORG), Santos (STO), Cedar Woods (CWP), Slater and Gordon (SGH), IMF (IMF), Roce Oil (ROC), The Reject Shop (TRS), Challenger (CGF), Bluescope (BSL) or Adelaide Brighton (ABC) achieve the coveted A1 grade? Watch this edition of Sky Business’ Your Money Your Call 10 October 2012 program now to find out, and also hear Tim’s thoughts on the big Aussie banks. Watch here.

    by Tim Kelley Posted in Companies, Financial Services, Insightful Insights, TV Appearances.

  • MEDIA

    Retail Upheaval

    Roger Montgomery
    October 10, 2012

    Roger discusses the recent developments in respect of Channel 9 and CVC, and the ongoing pressure on Australian retailers from online purchasing with Ticky Fullerton on this edition of ABC1’s The Business broadcast 10 October 2012.  Watch here.

    by Roger Montgomery Posted in Consumer discretionary, Insightful Insights, TV Appearances.

  • Low rates not all good

    Roger Montgomery
    October 10, 2012

    Investors in the Montgomery [Private] Fund recently received the latest monthly investment report.

    We will not normally publish our thoughts from our monthly reports as these are reserved exclusively for investors, however the impact of the RBA’s interest rate decisions affects all investors and savers and the government should be on notice…

    On Tuesday October 2, 2012 the Reserve Bank of Australia cut its target for the cash rate. This is the rate at which banks borrow from and lend to each other on an overnight, unsecured basis. The rate was reduced to 3.25%. Another cut by 25 basis points would take the rate to the 3.00% we saw at the low point of the GFC. This is astounding because Canberra has long had us believing the economy was on a dream run. As you know we have not held that view and these cuts along with the latest rounds of quantitative easing in the US and unlimited bond buying in Europe only serve to remind us that all is not well and there is no pickup in sight.

    More concerning for investors and retirees is the fact that Australia’s ten year Government Bonds now yield 2.93%. While this rate compares favourably with ten year Government bond yields in Japan, Germany, the US and the UK of 0.8%, 1.5%, 1.6% and 1.7%, respectively, there is nothing favourable about working one’s whole life to accumulate $1 million (and be labeled a millionaire) only to have it earn $29,300 per year for a decade. Government bonds are supposed to be low risk but there is nothing riskier than being guaranteed to lose purchasing power.

    The unintended consequence of low rates of course is to punish those who have been prudent with their finances and reward those who are profligate. But low rates are a necessary evil if economic activity is sought to be activated. The only problem in our view is that rates are inelastic in their effect on spending and investing intentions as they go lower. If a 3.25% doesn’t spur you into action and borrow money – assuming of course the banks are willing to lend it – then a 3.00% rate isn’t going to make much difference.

    What is needed is confidence. Only confidence will end the great deleveraging we are witness to and which we have described previously. And only when the deleveraging ends will investors, who are less selective than us about which stocks they buy, see returns better than the guaranteed losses they currently prefer by investing in cash, bonds and annuities.

    by Roger Montgomery Posted in Insightful Insights.

  • Sirtex Medical announces the 33rd consecutive quarterly increase in dose sales

    Roger Montgomery
    October 5, 2012

    Yesterday, Sirtex Medical Limited (SRX) announced, for the September 2012 Quarter, dose sales of its SIR-Spheres microspheres targeted radioactive liver cancer treatment grew 37 per cent on the previous corresponding quarter.

    This was the 33rd consecutive quarterly increase in dose sales achieved by the Company.

    The US recorded a 42 per cent increase, Europe, the Middle East and Africa (EMEA) was up 26 per cent while Asia Pacific grew by 33 cent.

    In the year to June 2012, Sirtex Medical’s revenue was $86.6m (+19%) on dose sales of 6,141 (+ 23%). Each dose sold for an average of A$14,000.

    The SRX share price jumped 10.3% yesterday to $10.18 and has increased 67% from $6.09 since 30 June 2012.

    Both the Montgomery [Private] Fund and The Montgomery Fund are shareholders in Sirtex Medical Limited.

    by Roger Montgomery Posted in Insightful Insights.

  • Bond holders performance outlook? More punishment to come

    Russell Muldoon
    October 4, 2012

    Following on from Tuesday’s 0.25% rate cut, economists expect the Reserve Bank of Australia to again cut by 0.25% in November 2012. The cash rate would then stand at 3.00% which is the same rate we saw at the low point of the GFC. This should give readers some insights into the slowdown being recorded at present. And as some commentators are predicting Australia’s terms of trade to soon decline by 15%, year on year, there is no pickup in sight.

    This is reflected in Australia’s ten year Government Bonds currently yielding 2.93% which compares with ten year Government bond yields in Japan, Germany, the US and the UK of 0.8%, 1.5%, 1.6% and 1.7%, respectively. Whilst this is great news for anyone with debt, savers are being punished and are earning less than the long term rate of inflation. Worse when taxation is taken into account. We believe investors in Australian and indeed the world are in one of the greatest bubbles in the financial markets today. One in which they are happy to take negative returns but yet still face the risk of losing a lot of their capital when inevitably one day economies get moving again.

    This to us is not a viable investment strategy.

    by Russell Muldoon Posted in Insightful Insights.