Insightful Insights

  • 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.

  • 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.

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  • 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.

  • David Jones: Non retailers distracted by a takeover?

    Roger Montgomery
    September 21, 2012

    This week David Jones announced their 2012 results and reported a 40% decline in profit. The only positive was that 4th quarter sales fell by just 1% on pcp whereas 1st quarter sales had fallen 11% on pcp. Actually there was another positive; the 35% decline in earnings per share was inline with expectations.

    Separately the company also provided an update to its property strategy. Investors should understand that anything DJS does with its properties is simply a takeover defence against private equity (or Premier Investments perhaps) pulling off the same stunt that was done on Myer. That is; launch a takeover, succeed, sell off the property portfolio and get the business cheaper. if DJS shows it is proactive in this area it becomes much harder from Private Equity to argue that they are “adding value”.

    DJS intrinsic value (see Fig. 1) has now not increased since 2004 and according to Skaffold.com DJS’s intrinsic value is not expected to rise at all over the next two years.

    continue…

    by Roger Montgomery Posted in Companies, Insightful Insights, Intrinsic Value, Takeovers.

  • If Only They Had Skaffold

    Roger Montgomery
    September 20, 2012

    Notch up another win for investors who use Skaffold. Back in August last year I was asked by a viewer on Sky Business what I thought of MacMahon Holdings (ASX:MAH).

    You can watch the video here at 5 mins 20 seconds.

    When asked the question, I looked at Skaffold.com and noting the very small change in intrinsic value over many years I said “This business is not going to deliver sustainable long-term outperformance”.

    Today’s near-40% share price decline, announcement of a cost blowout, a downgrade to previous earnings guidance and the immediate resignation of the CEO Nick Bowen is a blow to those investors who own the shares of MacMahon and do not own Skaffold.

    continue…

    by Roger Montgomery Posted in Companies, Insightful Insights, Investing Education, Skaffold.

  • MEDIA

    How should you view a takeover offer on a company in your portfolio?

    Roger Montgomery
    September 19, 2012

    Roger Montgomery discusses his insights into how to view takeover offers, and in particular he discusses the Sundance Resources (SDL) takeover bid with Ross Greenwood on Radio 2GB.  Listen here.

    This program was broadcast 19 September 2012.

    by Roger Montgomery Posted in Insightful Insights, Investing Education, Radio.

  • China growth fears (continued)

    David Buckland
    September 19, 2012

    Yesterday’s Australian Financial Review highlighted comments from Mark Williams, Shell’s global downstream director.

    “The global economy seems weaker to me than the numbers indicate”, said Mr Williams. “I still expected more suction out of China than we’re getting. I’m just a bit uneasy with what we are seeing in terms of fuel demand and chemical demand”.

    continue…

    by David Buckland Posted in Companies, Insightful Insights.