Insightful Insights

Reporting season is a busy time for us at Montgomery Investment Management. Studying results announcements is one of the ways we try keep on top of what is happening in the market and identify economic trends and investment opportunities.

We do this in a fairly systematic way.  Every day we review, evaluate and catalogue every last results announcement made that day.  As I write, we have reviewed several hundred sets of financial statements and the accompanying commentary, representing around $700B of aggregate market capitalisation, with many more still to come.

This analysis draws our attention to individual companies that are performing well, and complements the automated stock screening tools we use, including Skaffold.  It also gives us a sense of broader economic trends and the relative health of different parts of the economy.

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by Tim Kelley Posted in Companies, Insightful Insights, Market Valuation.

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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.

by Roger Montgomery Posted in Companies, Insightful Insights, Manufacturing.

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With the recent bid announcement regarding Billabong, Roger Montgomery discusses with Ross Greenwood how clever he believes TPG is, particularly as it relates to the long-term performance of entities they sell.  Listen here.

This discussion was broadcast 25 July 2012 on Radio 2gb.

by Roger Montgomery Posted in Companies, Insightful Insights, Radio.

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Roger Montgomery discusses his insights into the perfromacne of Fund Managers on behalf of investors, and the implications of poor fund performance on pensioners in this discussion with Ross Greenwood on Radio 2GB broadcast on 15 August 2012.  Listen here.

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

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Roger discusses how the JB Hi-Fi positive 2012 result conceals future structural difficulties in this Australian article published 18 August 2012. Read here.

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

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Leighton’s half yearly results grabbed headlines when they reported a 66 per cent drop in interim net profit to $114.6 million, at the low end of guidance.

For 24 months, we have been warning investors about the company’s difficulties in collecting receivables in the Middle East and the likely writedowns of the Desal Plant in Victoria and the Brisbane Airport Link. And now a string of results are revealing that these issues are savaging the company’s profits which for the most recent half, were down from $340 million in Leighton’s previous first half, the six months to December 31, 2011.

But the problems may not be over. The early traffic numbers out of Airport Link are much worse than expected – even though the opening of the link has allowed drivers on the road for free – the project may go bust like other toll roads before it. We believe Leighton’s have a deferred equity contribution requirement of $200 million that may still be required to be paid.

In the Middle East, Leighton’s has not been paid for a number of projects and they aren’t small. Imagine building an equestrian centre (see image) and failing to be paid. It would send most companies bust.

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by Roger Montgomery Posted in Companies, Insightful Insights.

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Many believe that understanding economics is the key to being able to predict the stock market.  Curiously the Chinese economy is growing the fastest of all economies and is variously described as the global growth engine.  And the Chinese ripples positively impact many peripheral economies too, as my recent visits to Singapore have shown me.

Meanwhile the US economy is in the doldrums, threatening to fall into another recession with anemic growth, stubbornly high unemployment and continued weakness in housing.

And yet the Chinese market as measured by the Shanghai Stock Exchange A Share index remains 65% below its high of 6391.98 in October 2007.  Perhaps ironically the S&P500 made its high of $1565.42 on October 10, 2007 and today it sits just 11% below that.  If the Total Return index is taken into account, its sits level or just above its 2007 highs.

So all that chatter about recessions, depressions, unemployment and the like counts for very little.  How many children are suffering needlessly because the money spent on economists isn’t directed to the kids?

What we do know is that investors should be looking at individual companies.  Or talking to people on the ground.  In China, balance sheets are deteriorating as receivables blow out while in the US, of the 411 companies listed on the S&P 500 that have reported earnings so far this quarter, 297 have exceeded analysts’ estimates, while less than 110 have missed their forecasts.  And as many of our travelling clients have informed us, things seem to be swimming along in the US.

Keep an eye on individual companies and you’ll go far.  So don’t worry about whether you should say Go Australia or not.  We say Go ARB, Go WOW, Go CCP, Go COH and Go CSL!

by Roger Montgomery Posted in Insightful Insights, Investing Education, Market Valuation.

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by Roger Montgomery Posted in Insightful Insights, Investing Education, Value.able.

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Over the next 20 business days, approximately 1,250 ASX listed companies will be reporting their full year (or interim) results to 30 June, 2012.

Twelve months ago, the consensus forecast for the year to 30 June 2012, was for 20% growth in earnings per share.

Over the past twelve months that number has been progressively downgraded to nil, nought, nothing.

For the year to 30 June 2013, the consensus forecast currently stands at 15% growth in earnings per share.

Insights from the outlook statements will be interesting and it wouldn’t surprise us to see consensus earnings per share growth forecasts for the year to June 2013 to follow the same downtrend as those for the year to June 2012.

At Montgomery, we will be using our proprietary fact-based investment process to analyse the results.

We hope this reporting season will alert us to some new companies which own extraordinary businesses trading at a discount to their estimated intrinsic value.

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

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Roger Montgomery discusses how the latest data reveals that the mining boom has ended, and he discusses the implications of this on mining stocks with Ticky fullerton on ABc1’s The Business.  Watch here.

This program was broadcast 1 August 2012.

by Roger Montgomery Posted in Companies, Insightful Insights, Manufacturing, Value.able.

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