Insightful Insights

  • MEDIA

    Roger Montgomery on Investor Education

    Roger Montgomery
    October 3, 2012

    Roger Montgomery discusses how he engages with his investors in this Professional Planner Online video. Watch here.

    by Roger Montgomery Posted in Insightful Insights, Intrinsic Value, TV Appearances.

  • Takeover bids distract from questions over steelmakers viability

    David Buckland
    October 3, 2012

    The $0.75 bid for Arrium Limited (ARI), formerly One Steel, by a Korean Consortium including their largest steelmaker, Posco, values the company at $1.0 billion. Including the $2.2 billion of debt, Arrium has an Enterprise Value of $3.2 billion. Forecasts for the year to June 2013, has Revenue of $8.7 billion, Net Profit of $210m and an after tax return on equity of 4.6%. The Arrium share price has declined from more than $7.00 in mid-2008. A number of brokers are now valuing the Company north of $1.00 per share.

    This bid is also raising the question as to whether BlueScope Steel (BSL) will propose a merger with Arrium. “Mergeco” would have $17 billion of annualised revenue.
    BlueScope has also seen its share price smashed, down from $8.00 in mid-2008 to the current $0.43 per share. Its market capitalisation is $1.44 billion, and with a forecast net debt of $380 million, BlueScope’s Enterprise value is $1.82 billion. BlueScope has recorded an extraordinarily disappointing four year period to June 2012, with after tax losses aggregating to $2.5 billion while the tripling of their shares on issue to 3329 million shares has been associated with an additional $2.7 billion of capital put into the company.

    Arrium and BlueScope were downgraded to below “investment grade” by the Skaffold screening process in 2005 and 2008, respectively.

    by David Buckland Posted in Insightful Insights, Intrinsic Value, Manufacturing, Skaffold.

  • MEDIA

    What future for department stores?

    Roger Montgomery
    October 3, 2012

    Roger Montgomery has some clear insights into the challenges facing Australian department stores, and he provides them to Ticky Fullerton on ABC’s The Business broadcast 26 September 2012. Watch here.

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

  • Materials prices to collapse further

    Roger Montgomery
    September 30, 2012

    If you think the declines so far in iron ore are significant, you ain’t seen nothing yet.

    I think the declines we have seen in commodity prices still have a long way to go.

    We’ve long argued that a classic supply response would follow the massive investment in exploration and production that itself followed a surge in demand from China that caused prices to reach historic highs.

    But China’s demand – itself was based on unsustainable growth in fixed investment spending – is now fading. China represents less than 11% of the global economy, but it commanded 30% to 40% of total global demand for copper and 60% of total global demand for cement and iron ore thanks to the massive social modification projects that required bridges, roads, ports, cities, subways and skyscrapers.

    This is not sustainable and so demand for the raw ingredients will decline. Additionally, the nature of future growth will change and more consumer driven growth will again demand less materials.

    continue…

    by Roger Montgomery Posted in Energy / Resources, Insightful Insights, Value.able.

  • MEDIA

    Look Beyond The Theme

    Roger Montgomery
    September 29, 2012

    Roger Montgomery discusses why using themes as an investment strategy is fraught with danger in this Australian article published on 29 September 2012. Read here.

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

  • WHITEPAPER

    HIGHER RETURNS AND LOWER RISK? YES, IT’S POSSIBLE WITH PRIVATE CREDIT

    Discover how private credit can deliver higher returns with lower risk in our latest whitepaper. Learn how the Aura Core Income Fund’s AA equivalent rated portfolio has consistently outperformed while maintaining transparency and robust risk management. Unlock the insights to achieve superior risk-adjusted returns today. 

    READ HERE

  • Gunns collapse. If only they’d been Skaffold members!

    Roger Montgomery
    September 29, 2012

    Chalk up another win for Skaffold members.

    Substantial capital losses are difficult to make back and irrespective of whether you are still in accumulation mode, retiring or retired it is essential to avoid major losses. One way to do this of course is to diversify and ensure that losses are mitigated through position sizing. Another technique and the one we will discuss here, is to simply avoid the companies most likely to collapse.

    This week Gunns (ASX:GNS), was placed into voluntary administration and happily for Skaffold members it is unlikely that anyone owned shares.

    Gunn’s was never investment grade. Anyone who purchased the stock from 2003 onwards were taking a massive risk and Skaffold can explain why.

    Skaffold’s Verdict (Figure. 1) is a picture of danger.

    continue…

    by Roger Montgomery Posted in Companies, Insightful Insights, Market Valuation, Skaffold, Value.able.

  • Overnight Wednesday in Europe

    David Buckland
    September 28, 2012

    After jumping nearly 20% over the September 2012 Quarter, Wednesday saw the leading 50 European blue chip stocks from 12 Eurozone countries, as measured by the STOXX, decline by 2.7%. The Spanish market, which had rebounded 35% from its low point in early July, fell 3.9%. On Thursday, Spanish Prime Minister Rajoy announced his fifth austerity package in nine months of Government. The target is to cut the budget deficit from 6.3 percent in 2012 to 4.5 percent in 2013.

    Economists responded by saying “they’ve increased the taxes for next year and cut spending but they didn’t change the growth forecast”. Economists expect the Spanish economy to contract around 1.5%, while the Government is forecasting a contraction of only 0.5%. With their ten year bonds selling above 6%, Spain will likely need to raise the white flag and go “cap in hand” to the European Central Bank for another bail-out. Spain’s declining property market and 25% unemployment is causing a significant solvency issues for their banking system, as the contraction of private sector lending continues.
    continue…

    by David Buckland Posted in Insightful Insights, Market Valuation, Value.able.

  • A good time to consider allocating to equities ?

    Tim Kelley
    September 27, 2012

    At Montgomery Investment Management we don’t claim any special ability to predict where equity markets will go next, but we do know that buying equities when they are relatively inexpensive is a reliable path to better than average long-term returns. One simple way of gauging relative value is to compare the dividend yield for the market as a whole with its historical average (although we don’t advocate valuing individual companies in this way). It’s worth noting that the current dividend yield on the ASX All Ordinaries is around 4.65%, vs an average of 3.84% for the last 20 years (Source: IRESS).

    by Tim Kelley Posted in Insightful Insights, Investing Education.

  • Steel production confirms slowing industrial output

    David Buckland
    September 26, 2012

    Data released yesterday from “worldsteel” on global iron and steel production confirmed slowing output. Global steel production for August 2012 was down 1% year on year. Steel production from the European Union for August was down 15% year on year, taking annual output to 144 million tonnes, or 9.6% of the 1.5 billion tonnes per annum of global production. Chinese steel production has slipped in recent months from an annualised 750 million tonnes to 700 million tonnes, or 47% of global production.
    For 2013, Australia’s Bureau of Resources and Energy have recently cut their iron-ore forecast to US$101/ tonne, while many brokers are still assuming a price of at least US130/tonne. We continue to watch the steel numbers closely.

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

  • US influence on Aussie market waning. For how long?

    Roger Montgomery
    September 22, 2012

    Recently the media cottoned onto the fact that the Australian stock market, as measured by the major indices, has not kept pace with the US market, which is now hitting all time highs (on a total return basis). You can see from Chart 1 that the US market is most certainly outperforming the Aussie market and it seems all the ‘Go Australia’ cries are falling on deaf ears. Indeed, Australia really needs to be shouting ‘Go China’ but more on that in a minute.  Since June 2011 the US market has been pulling away. The reports did not go on to explain the reason for the divergence however we have previously explained that with credit growth virtually non existent the banks would not be able to justify sustained substantial gains and with our thesis on iron ore calling for much lower prices, we couldn’t see how the big material stocks were going to rise.  Combined the banks and materials stocks account for a significant portion of the index weighting and without those sectors running, there is no way the All Ords can.  We also think China has a little to do with it all.

     

    Chart 1


     

    Take a look at Chart 2, which plots the Aussie market against the Chinese Shanghai index. Since about the same time last year, the Chinese market has been falling and given that are large part of our economy is tied to the fortunes of China, it makes sense that the prices of those companies with direct (and indirect through consumer sentiment) exposure and a significant weighting to the index locally, would have an adverse influence on the Australian market.

     

    What is also clear is that our strong Australian dollar is not reflecting foreign demand for our shares.  And what does that tell you?

    Chart 2

    by Roger Montgomery Posted in Insightful Insights, Market Valuation.