Tuesday, 01 November 2016 08:01

Should investors participate in IPO's

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This article was written for SMSF Adviser online magazine.

 

With the avalanche of new listings coming to market, we consider the issue should investors participate in IPO’s (Initial Public Offers)?

When it comes to investing we all aspire to Warren Buffett, and yet at times investors act more like Gordon Ghecko, the fictional character portrayed by Michael Douglas in the 1987 film “Wall Street”. This is how it seems with the love affair investors have with IPO’s.

Every investors dream of course is to buy into a float, and then sell day one for a handsome profit, otherwise known as a ‘stag’.

We acknowledge how easy it is to fall in love with a new IPO, after all the prospectuses produced usually come complete with stunning pictures of celebrities such as Jennifer Hawkins who made the Myer prospectus worth flicking through. When Pacific Brands pitched to investors the images of Pat Rafter and others in their underwear may have been visually appealing, but certainly not instructive.

Aside from the pictures though, the prospectus almost always outlines a rosy outlook for the business.

The first question we would suggest investors ask themselves is – would they want to have this in their portfolio in 5 years time? If the answer is a clear no – then we suggest extreme caution.

Other than the normal set of investment considerations that investors think about when investing, such as price, management, gearing etc here are a series of additional points when thinking about investing in an IPO.

  1. Investors need to understand who is the vendor of the IPO. Private Equity funds have established a poor reputation for taking over businesses, loading them up with debt after stripping the company of other assets before selling back to unsuspecting investors via an IPO. Dick Smith comes to mind as a perfect example. We are not opposed to buying from Private Equity funds as such, but investors must understand that the vendors in an IPO have a far greater understanding of the business than the investor can gather from reading the prospectus, which puts the vendor at a significant advantage. Conversely the history of Government IPO’s has been a little friendlier for investors, other than of course Telstra II, which is still significantly underwater from its $7 plus offer price.
  2. Once investors have established who is the vendor, it is important to also understand whether the vendor is retaining any part of the company or if it is a full sale. If the vendor is retaining part of the business, investors need to understand if there are any time limitations around this ownership. We also believe that it is also crucial to understand what the IPO proceeds are being used for. Is the IPO simply to reduce debt, or for the vendor to sell out? Or are the proceeds being used to grow the business?
  3. Brokers are remunerated for selling the IPO. While this may sound obvious, it reminds us of the phrase “never ask a barber whether you need a haircut”. Brokers have to sell their services to the IPO vendor, which results in a research blackout on the IPO company. This simply means that it is virtually impossible to obtain unbiased investment research from the broking firm that is handling the IPO. And of course as the experienced brokers will tell you – “the best IPO’s you can never get enough of, and the IPO that you receive your full allocation for is generally the one you don’t want”
  4. One of the best pages of the prospectus is the “Investment Risks” section. In our experience, very few investors read much in a prospectus at all, and in particular do not read or understand the investment risks section. If it is one section of a prospectus that investors read, it should be this section.

So, should you invest in IPO’s? Our view is that while some IPO’s offer good opportunity, greater caution should be exercised by investors when considering IPO’s due to the lower level of information usually available.

 

Saul Eslake, University of Tasmania

Opinion polls, statistical prediction models and betting markets are now all predicting a fairly comfortable victory for Hilary Clinton in the United States presidential election. However, they all said much the same about the prospect of British voters opting to remain in the European Union, before a majority of them actually voted to leave at the Brexit referendum in June.

In Brexit those wanting “change” felt much more strongly about it and were thus more inclined to vote, than those favouring the status quo. This might also be the case with Trump voters. So the possibility of a Trump victory can’t be entirely dismissed – and the possible economic consequences of such an outcome are worth considering.

Precisely because a triumph for Trump has by now been so widely discounted – including by the financial markets – this outcome would prompt a much larger financial market reaction than a Clinton victory.

The unexpected outcome of the Brexit referendum saw the London share market fall by more than 5%, and the British pound by more than 8%, in the following 24 hours. And although the share market has since more than recouped its initial losses, the pound is now almost 18% below its pre-referendum level against the US dollar.

The financial market reaction to a Trump victory in the US presidential race is likely to be sharper. As the Reserve Bank of Australia governor Philip Lowe noted earlier this month, “the possible election of President Trump wouldn’t be as benign an event”, as Brexit turned out to be. A paper published this week by Justin Wolfers and Eric Zitzewitz (of the University of Michigan and Dartmouth College, respectively) suggests that the US, UK and Asian share markets could fall by 10-15%, and that the Mexican peso would fall by 25%, in the event of a Trump victory.

From an historical perspective this is an extraordinary prospect, given that, as Wolfers and Zitzewitz note:

In almost every case back to 1880, equity markets have risen on the news that Republicans win elections and fall when Democrats win.

This is also because, at least superficially, Trump is proposing policies that are more likely to benefit rich households (who are more likely to own equities), while Clinton is explicitly advocating higher taxes on capital.

These findings are more understandable in the light of mainstream economists’ assessments of the likely implications of the policy proposals put forward by the two main contenders. Out of 414 respondents to a survey conducted by the US National Association of Business Economists, 55% thought Hilary Clinton would “do the best job as president of managing the economy”.

Only 14% thought that Donald Trump would (and that was 1 percentage point less than the proportion who nominated Libertarian Party candidate Gary Johnson). It’s perhaps worth emphasising that this was a survey of business, not academic, economists.

This overwhelming view likely reflects three particularly important concerns to mainstream economists about the Republican presidential candidate’s policies.

Differences in policies

Donald Trump’s policies would significantly increase the US Budget deficit. The bipartisan Committee for a Responsible Federal Budget (CRFB) last month estimated that the combination of tax cuts and spending increases proposed by Donald Trump would add US$5.3 trillion to US public debt over the next decade, lifting it from 77% to 105% of GDP.

Hillary Clinton’s policies would add US$200 billion to public debt in the next decade, despite her recent claim that she will ‘not add a penny to the debt’. Mike Blake/Reuters

By contrast, the spending and tax measures (cuts for some, increases for others) advocated by Hilary Clinton would boost public debt by US$200 billion, to 86% of GDP, over the next decade. A more recent analysis of Donald Trump’s tax proposals by the Urban Institute and Brookings Institution’s Tax Policy Center suggests that they would increase US Federal debt by US$7.2 trillion over a decade.

While both candidates assert that their policy proposals would boost economic growth, which would in turn result in lower (rather than higher) budget deficits, the Committee for a Responsible Federal Budget (CRFB) calculates that economic growth would need to average 3.5% per annum over the next decade in order to stabilise the debt-to-GDP ratio without further tax increases. According to the CRFB, that would “likely require a level of productivity growth that has not been achieved in any decade in modern history”. Whereas the same objective would require economic growth averaging 2.7% per annum under Hillary Clinton’s proposals.

In addition to this, Donald Trump has consistently advocated a major upheaval in US trade policies, including the repudiation of the North America Free Trade Agreement (NAFTA) and the designation of China as a “currency manipulator”. This is something which under existing US trade laws would allow the imposition of tariffs of up to 45% on goods imported into the US from China.

The greatest adverse impact of such measures would be on low-income households in the US, as the result of having to pay much higher prices for goods that make up a large proportion of their spending. But there would also be an obvious negative impact on the Chinese economy – since China’s exports to the US account for 18% of its total exports, and just under 4% of China’s GDP.

It’s also hard to imagine that China wouldn’t seek to retaliate in some way against any such measures by a Trump Administration. In a study published by the Petersen Institute, Marcus Nolan, Sherman Robinson and Tyler Moran suggest that in such circumstances, the US economy would experience a recession in 2018 and 2019, with unemployment rising to 8.6%.

It’s hard to imagine how a trade war between the world’s two largest economies, Australia’s largest and third-largest trading partners, could have anything other than negative consequences for Australia.

Current US president Barack Obama tried to forge closer ties with China over his two terms. Stephen Crowley/Pool/Reuters

Another concern for mainstream economists arising from Donald Trump’s economic agenda is his contempt for the independence of the US Federal Reserve. Trump’s suggestion that the Federal Reserve should have been more willing to raise US interest rates this year is not without some basis.

But his personal criticisms of Federal Reserve Chair Janet Yellen, combined with the fact that there are already two unfilled vacancies on the Fed’s Board of Governors, suggests that the Fed could quickly become much more politicised in the event of a Trump victory. That would likely undermine confidence in US monetary policy, potentially leading in turn to a weaker US dollar and higher US bond yields.

Relationships between the US and other nations

Beyond these concerns to mainstream economists, the Republican candidate’s attitude to longstanding US strategic alliances – with European countries, Japan and Korea – threatens to create much greater political uncertainty around the world. It may even prompt an “arms race” entailing greater proliferation of nuclear weapons.

Trump hasn’t specifically listed Australia as being among the US allies who “aren’t paying anywhere near what it costs to defend them”. It could be that Australia’s status, as one of the few countries with which the US runs a trade surplus, puts us in a different category. Nonetheless, a deteriorating regional security environment could result in the Australian government concluding that it needs to spend more on defence.

It’s important to note that not all of the foregoing concerns will be completely alleviated should, as seems more likely, Hillary Clinton becoms the 45th President of the United States. If that result were to be accompanied by a “clean sweep” of both the Senate and (less likely) the House of Representatives, left-wing Democrats such as Elizabeth Warren and Bernie Sanders will have a much larger influence on US economic policy.

The differences between Donald Trump and the left wing of the Democratic Party on trade policy, or on the independence of the Federal Reserve, are in reality quite small. So while a Clinton victory on 8th November is much the better outcome from an Australian perspective, it would not be in Australia’s interests for her to win too well.

The Conversation

Saul Eslake, Vice-Chancellor’s Fellow, University of Tasmania

This article was originally published on The Conversation. Read the original article.

Monday, 31 October 2016 16:47

Centrelink - Asset Test Changes - 1st January 2017

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This article provides a handy reference guide for the assets test changes effective 1 January 2017.

The quick reference tables allow you to look up the rate of annual Age Pension payable for various levels of assets under the current asset test rules (as at 20 September 2016) and the new asset test rules (as at 1 January 2017).

Singles

ASSETS TEST THRESHOLDS AS AT 1 JANUARY 2017

 

Lower threshold1

Upper threshold2

Homeowner

$250,000

$545,600

Non-homeowner

$450,000

$745,600

Assets test taper rate: $3pf for every $1,000 over the lower threshold.

 SINGLE HOMEOWNERS

Assessable assets3

Age pension: Current assets test4

Age pension:

New assets test as at 1 Jan 2017

Annual difference

$200,000

$22,313

$22,313

$0

$250,000

$21,463

$21,501

$38

$300,000

$19,513

$19,162

-$351

$350,000

$17,563

$15,262

-$2,301

$400,000

$15,613

$11,362

-$4,251

$450,000

$13,663

$7,462

-$6,201

$500,000

$11,713

$3,562

-$8,151

$550,000

$9,763

$0

-$9,763

$600,000

$7,813

$0

-$7,813

$650,000

$5,863

$0

-$5,863

$700,000

$3,913

$0

-$3,913

$750,000

$1,963

$0

-$1,963

$800,000

$13

$0

-$13

$850,000

$0

$0

$0

 

 

Couples

ASSETS TEST THRESHOLDS AS AT 1 JANUARY 2017

 

Lower threshold1

Upper threshold2

Homeowner

$375,000

$820,600

Non-Homeowner

$575,000

$1,020,600

Illness separated Homeowner

$375,000

$966,200

Illness separated Non-Homeowner

$575,000

$1,166,200

Assets test taper rate: $3pf for every $1,000 over the lower threshold.

COUPLE HOMEOWNERS

Assessable assets3

Age pension: Current assets test4

Age pension:

New assets test as at 1 Jan 2017

Annual difference

$200,000

$34,766

$34,766

$0

$250,000

$34,766

$34,766

$0

$300,000

$34,299

$34,299

$0

$350,000

$32,680

$33,487

$807

$400,000

$30,730

$32,674

$1,945

$450,000

$28,780

$28,916

$137

$500,000

$26,830

$25,016

-$1,814

$550,000

$24,880

$21,116

-$3,764

$600,000

$22,930

$17,216

-$5,714

$650,000

$20,980

$13,316

-$7,664

$700,000

$19,030

$9,416

-$9,614

$750,000

$17,080

$5,516

-$11,564

$800,000

$15,130

$1,616

-$13,514

$850,000

$13,180

$0

-$13,180

$900,000

$11,230

$0

-$11,230

$950,000

$9,280

$0

-$9,280

$1,000,000

$7,330

$0

-$7,330

$1,050,000

$5,380

$0

-$5,380

$1,100,000

$3,430

$0

-$3,430

$1,150,000

$1,480

$0

-$1,480

$1,200,000

$0

$0

$0

 

Note:

  1. Lower threshold as at 1 January 2017 as per Social Services Legislation Amendment (Fair and Sustainable Pensions) Act 2015

  2. Upper threshold is a calculated value assuming maximum pension at 1 July 2016 is indexed by 1.5% to 1 January 2017. The actual upper thresholds on 1 January 2017 may be different to those shown here.

  3. Assumes assets are financial investments subject to deeming

  4. Age Pension entitlement as at 20 September 2016 is calculated using the current taper rate of $1.50 pf for every $1,000 over the lower threshold. The Age Pension entitlement is the lower of the assets test and the income test. The maximum age pension is estimated by indexing maximum pension at 1 July 2016 by 1.5% and asset thresholds on 1 July 2016.

  5. Age Pension entitlement is calculated using the 1 January 2017 taper rate of $3 pf for every $1,000 over the lower threshold. The Age Pension entitlement is the lower of the assets test and the income test. The maximum age pension is estimated by indexing maximum pension at 1 July 2016 by 1.5% and legislated lower asset threshold as at 1 January 2017.

The information contained in this update is based on the understanding Colonial First State Investments Limited ABN 98 002 348 352, AFS Licence 232468 (Colonial First State) has of the relevant Australian laws as at 1 July 2016. As these laws are subject to change you should refer to a professional adviser for the most up-to-date information. The information is for adviser use only and is not a substitute for investors seeking advice. While all care has been taken in the preparation of this document (using sources believed to be reliable and accurate), no person, including Colonial First State or any other member of the Commonwealth Bank group of companies, accepts responsibility for any loss suffered by any person arising from reliance on this information. This update is not financial product advice and does not take into account any individual’s objectives, financial situation or needs. Any examples are for illustrative purposes only and actual risks and benefits will vary depending on each investor’s individual circumstances. You should form your own opinion and take your own legal, taxation and financial advice on the application of the information to your business and your clients.

Colonial First State is not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and you should seek tax advice from a registered tax agent or a registered tax (financial) adviser if you intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.

22735/FS6613/0816

 

 

Monday, 31 October 2016 15:15

Why Deutsche Bank is no Hindenburg

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This article is an extract from Platinum Asset Management's September 2016 quarterly review

 

Bank's fail because they are 1) illiquid 2) insolvent or 3) both.

Deutsche Bank does not have a liquidity problem.  They hold EUR 200bn of highly liquid assets (12.5% of the balance sheet) which are enough to withstand a serious bank run.  But ultimately is doesn't matter, because the ECB can and will provide unlimited liquidity support to the bank, if needed.

The solvency question in more nuanced.  Normally banks become insolvent because they can't recover money from borrowers or counterparties, they don't have as many assets as they thought.  But the value of Deutsche bank's asset isn't being questioned.  Rather, its the value of their liabilities that has the market in a spin.

According to its latest disclosure Deutsche Bank faces 14 sets of legal actions.  These are contingent liabilities because Deutsche only has to pay if it loses a case.  Both the probability of losing those cases and the amount they would have to pay are unknown today.  Deutsche makes an estimate and has set aside EUR 5.5bn for these contingencies.  It recently emerged that the US Dept of Justice (DOJ) has offered to settle the largest of these actions for EUR 13bn.

Of the EUR 5.5bn Deutsche has provisioned for these contingent liabilties, EUR 3.5bn is thought to be ear-marked for this particular case.  This leaves Deutsche Bank EUR 9bn short.  It also raises the question of whether the EUR 2bn of reserves set aside for the remaining 13 cases is sufficient or if more will be needed.

Answsers are not forthcoming, most likely because they are unknowable.  Remember, this is a proposed settlement, not a penalty awarded by a court.  And the DOJ has a history of 'high balling' and then negotiating down.  For example Goldman Sachs was hit with a similar figure and ultimately settled for US $5bn.  EUR 9bn is therefore a worst case scenario.

Against this EUR 9bn claim and 13 other outstanding cases, Deutsche Bank has EUR 120bn of loss absorbing capital and, under basic assumptions, around EUR 4bn in annual earnings.  There is simply no reasonable chance that these litigation costs will cause a loss to the bank's depositors, clients or counterparties, let alone trigger a systemic crisis.

It is possible, however, that shareholders and the holders of some equity-like instruments may end up taking a hit.  This relates to a second problem.  While Deutsche meets its capital requirements today, the required level of capital will ratchet up each year until 2019, its a moving target.  By the end of 2019 the bank will need EUR 49bn of capital, and it currently has EUR 43.5bn.  This leaves a EUR 5.5bn shortfall that has to be progressively closed over three and a half years.

There are a lot of moving parts.  They may end up settling for well under EUR 13bn with the DOJ.  But equally, earnings are volatile in this business and may end up being significantly lower than EUR 4bn.  There is little in the way of a margin of safety, particularly where fear-driven clients choose to close accounts or cut relationships because of bad press.

However this is reflected in the stock price.  The shares are curently trading at roughly a 75% discount to book value.  This indicates that the market is pricing in a reasonably high likelihood of a dilutive capital raising.

Holders of some hybrid instruments are at risk if the bank's capital falls below a certain trigger level, which would trigger the automatic conversion of these bonds into equity.  This seems unlikely under current circumstances as it is hard to see how the issues described above would erode capital so much as to trigger a conversion.  However they are now vulnerable should the bank experience a second or third unexpected shock.

Hamish Douglass (CEO Magellan Financial Group) talks about 3 macro economic issues that investors should be thinking about at the moment.

Hamish believes that investors need to be thinking about rising long term interest rates, Italian financial system and China.

He is considered one of the best investors in Australia and his views are widely sought after.

He also talks about recent moves he has made in the fund he manages - Magellan Global Fund.

 

Media

Monday, 31 October 2016 14:21

Inghams IPO - we've chickened out!

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GEM Capital has considered applying for stock in the soon to be listed Inghams IPO, and had the opportunity through its investment bank contacts, but have decided not to proceed after careful consideration.

This article is simply to communicate the evaluation process that is undertaken when assessing investment opportunities.

Inghams is one of the largest vertically integrated chicken manufacturers in ANZ with a #1 market share in Australia (40% share) and #2 in New Zealand (34% share). Inghams runs its own stockfeed operations and controls every aspect of chicken growing and processing. Its closest competitor has a 33% market share in Australia and 48% in NZ.

Inghams Group sells to supermarkets (53% of revenue), fast food restaurants (17% of revenue), food distributors (8% of revenue), and ‘wholesale’ providers (butchers, etc, 7% of revenue). Although Inghams has a large number of customers, the top five accounted for 55%-60% of revenue in 2016. We have seen with companies like Coca-Cola Amatil Ltd that large supermarkets like Woolworths Limited and Wesfarmers Ltd have the ability to pass on a fair amount of pricing pressure to suppliers and Inghams will not be immune.

One of the most important aspects of assessing a new listing, commonly referred to as an IPO (Initial Public Offering) is to understand who you are buying from.  In the case of Inghams, the family has previously sold to a Private Equity firm, TPG Capital.  In our experience, rarely do private equity firms pass on gifts to retail investors. (or any investors for that matter)

It is interesting to note that TPG paid the Ingham family close to $900m for the business in 2014, and have since sold all the properties and leased them back, realising around $600m.  Now, two years after acquisition, TPG are selling up to 70% of the business to investors and are hoping to raise around $1.1bn at the upper end.  That means for an outlay of $900m, TPG will receive up to $1.7bn, pocketing a tidy profit of $800m while still owning 30% of the Ingham business.  TPG's remaining 30% stake is escrowed for 6-12 months, but it is unlikely they will be a long term owner of  this business.

If investors take a look at the sensitivity analysis from the prospectus, they will see that small movements in sales and pricing can have material impacts on profitability.

 

 

 

 

 

 

 

 

 

For a company forecast to increase profit by 18.9% to $98.8m in 2017, movement in average selling prices represents a significant risk should the supermarkets wish to use chicken in a discounting war.

While the price at the upper end of the IPO pricing would appear OK at 15.5 times forecast earnings, the price is higher than its smaller rival across the Tasman, Tegel Foods.

This is a low margin, high turnover business.  We don't mind the food production sector and quite like the chicken story, particularly with it's price advantage for consumers over beef.

We just feel that the easy money here has been made by private equity.  Therefore we are not participating in the IPO and will watch Inghams in the aftermarket, in the months ahead.

 

 This information is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. We strongly suggest that no person should act specifically on the basis of the information contained herein, but should obtain appropriate professional advice based upon their own personal circumstances including personal financial advice from a licensed financial adviser and legal advice. Fortnum Private Wealth Pty Ltd ABN 54 139 889 535 AFSL 357306

 

 

 

Monday, 03 October 2016 09:50

European Refugee Crisis - last straw for the EU?

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Germany has taken in 1 million refugees in the last 12 months, and there are plenty of signs that the refugee crisis is taking its toll on social harmony in Europe.

A couple of months ago we spoke with Clay Smolinski on how the European refugee crisis is impacting investment decisions.

 

Here is a transcript of the video for those who prefer to read the interview.

 

Mark Draper: Here with Clay Smolinski from Platinum Asset Management and the Europeans have been through a lot really in the last decade and they’ve got plenty of coming up.

One of them has to do with the refugee crisis  there. So we just want to spend a couple of minutes looking at the investment aspects of the European refugee crisis. Can you just take us through your thinking on that?

Clay Smolinski: Yeah, absolutely. So the refugee crisis for me, the issue is – the risk of it is that it’s another challenge that the political will of the European Union needs to face.

For me the crisis alone probably wouldn’t be a huge deal for the union but the issue is that it comes on top of a lot of the problems, those individual – the union of countries has had to face over the last few years.

So we think about the union. Through the sovereign crisis, they got through the major battle, which was the economic battle needing to cut the budget deficits, needing to where – you know, that higher unemployment that that caused. From the economic perspective, we can fairly definitively point that that battle has been won. The economy is now recovering but that has left that political will far weaker.

Since then we’ve seen that in subsequent elections, more radical left or right wing parties have been voted in. Examples of this would be Podemos in Spain or Syriza in Greece. We now have major members like the UK going to referendum on deciding whether it’s an exit or not and now we have the refugee crisis and immigration is always a very politically-charged issue and it’s clear that the member countries have differed in their views on how to exit, on how to handle it. That just creates – it’s another issue. It’s another reason for people to get upset, the voting populous and maybe vote for an exit.

What is interesting for us as well and is a bit of mitigant to that is how Germany is – has behaved through this and certainly through the sovereign crisis, the response to that crisis was very much dictated by Germany and that has forced a lot of the other member countries to go through a lot of pain.

Now with the refugee crisis, they’ve really stepped to the fore and said, “We’re going to do more than our fair share to handle this. We’re going to take a lot of these people on to our soil. We’re going to provide additional funding to the others to work through this,” and I think it’s their way of standing up and saying, “Look, we know you’ve done your part and now it’s our time to really give back and to show solidarity in the union.”

Mark Draper: So a major risk here would seem political for that in terms of the uprising of hard left or hard right – well, probably hard right in this situation.

Clay Smolinski: It’s very hard to factor that back into a definitive investment decision but it’s certainly something that we need to keep in mind and often when you compare the European market to the US market, the European market does trade at a valuation discount. But I think at least some of that discount is warranted given the – I guess the more uncertain political outlook for that region.

Mark Draper: So be alert, but not alarmed at the moment. It’s a work in progress.

Clay Smolinski: That’s how we’re viewing it.

Mark Draper: Thanks for your time Clay.

Clay Smolinski: You’re welcome.

Media

Tuesday, 27 September 2016 10:37

Bull thesis on Woolworths

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Woolworths is "long on assets and short on market capitalisation" says Vince Pezzullo, Portfolio Mananger, Perpetual Equity Investment Company.

Perpetual started accumulating shares late last year and picked up the buying following first half results. Pezzullo believes management have shifted their focus from sales growth to efficiencly, with sales per square metre now a key metric.

Despite widespread investor concerns about losing market share to Aldi, Aldi recently lost East Coast market share for the first time.  "Our view is that Coles is run particularly efficeintly, if Woolworths is run particularly efficiently, which we think they're on that journey it will be hard for Aldi to grow."

With loss making Masters now closing, and the possibility of a spin-off of ALF Pub Group, the situation is also improving for Woolworths non-core busineses.

"We still like Woolies, we think it's a $30+ stock at some point".

Here are Vince's views on Woolworths, presented in September 2016.

 

 

Media

Thursday, 15 September 2016 19:54

Germany - Powerhouse or Powderkeg?

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Despite signs of economic recovery, Europe, indeed the developed world, has been engulfed by a wave of anti-establishment movements over the past year. What is going on? And why?


Charles Weule's on-the-ground report from Germany, the heart of Europe's immigration crisis, may help shed some light.  Charles was a former analyst at Platinum Asset Management.  We have reproduced this article with permission from Platinum Asset Management.

Preface - by Kerr Neilson (CEO Platinum Asset Management)

The present decade has been a tumultuous one for Europe. More than a handful of countries in the European Union went through a sovereign debt crisis in the aftermath of the 2008-09 global financial crisis and, at least for now, fiscal austerity and unprecedented monetary expansion continue to sit side by side as the twin pillars of economic policy.

A region that was already apprehensive from economic uncertainties was further shaken by the series of Islamic terrorist attacks and the influx of millions of immigrants and refugees en masse from the other end of the Mediterranean Sea and beyond.

The angst and frustration culminated in the vote of the British people on 23 June 2016 to leave the EU, but the chaos that ensued at Westminster suggests that ‘solutions’ and stability, if there were such a thing, are still some distance away.

Of these continual crises, last year’s refugee crisis has been one of the most trying on the cohesion and strength of the EU and was arguably a key factor that shaped the outcome of the Brexit referendum.

While politicians and bureaucrats wonder at the intensity and spread of anti-establishment sentiments and mainstream media busy themselves with denouncing the re-emergence of far-right nationalism, an on-the-ground, first-hand account of the daily interactions between the locals and the newly arrived immigrants may shed some light on the cause of the widespread discontentment and the breakdown of a precarious equilibrium and unity.

And so we present you with this special report from  Charles Weule. Charles is a former investment analyst at Platinum, who now lives and works in Germany. Equipped with a unique linguistic gift, Charles has travelled to and lived in many parts of the world. Having learned Japanese fluently, he went on to become totally proficient in Mandarin.  As with these two Asian languages, his use of German leaves him indistinguishable from a native.

Charles has been teaching languages in Berlin. In 2015 he joined the ranks of thousands of Germans to help – to work with – the one million refugees that have found their way to this new ‘Promised Land’. The seemingly trivial encounters relayed in Charles’ account paint quite a different picture to what one might hear from both Chancellor Merkel and her counterpart in the Alternative for Deutschland (AfD) party.

The picture is not one comprised only of lifeless children washed up on the shores of Greek islands and war-ravaged families marching through the perilous roads of the Balkans. Nor is it as simple as altruism versus xenophobia, good against evil, right versus wrong. Truth and reality is often drowned out by the voices from the two extremities of the spectrum.  

The multiple rounds of financial bail-outs extended to other EU nations did not much diminish the heroic status of Angela Merkel in the eyes of the German people. But when she decided to welcome the countless immigrants fleeing war-torn Syria and Iraq (and whoever else that saw it desirous to join them on the journey) with open arms, many turned against her and sided with neighbouring governments with less magnanimous policies.

The lack of consultation with Germany’s own citizenry as well as other European countries, the lack of consideration given to both short- and long-term consequences, and the sheer unpreparedness for what was to follow – which was so atypical of Germans – annoyed, frustrated and enraged many.

When large numbers of foreigners with different religions, different values and different expectations are suddenly imposed on communities, at least some of their concerns and displeasure seem natural enough. The issue of immigration is much more than economics and politics. It impacts on the collective sense of security, identity and sovereignty of a population, and is emotive at an individual level.

While we may observe from afar the geopolitical crises playing out in Europe and analyse the economic impact of the ECB’s negative interest rates, Charles’ report brings a broader and closer view on the situation in the region and gives us a rare insight into the thinking of ordinary German citizens. He also provides us with a historical perspective. Viewed in the context of the country’s past woes and vicissitudes, the generosity of the German people shines through as all the more extraordinary and their fear and exasperation all the more understandable. It helps to understand how governments’ mismanagement of sensitive issues like mass immigration could lead to popular revolts and irrational outcomes like Brexit, and this may in turn help us prepare for what may be lying ahead.

 To download the full report - which is a fascinating read - click on the download link below.

 

Thursday, 15 September 2016 19:43

New Technological and Machine Age

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Sir John Templeton famously said "The four most dangerous words in investing are 'this time it's different'."  As investors, we need to question whether we are entering a new technological and machine age over the next 10-25 years that could disrupt most businesses and possibly society as we know it.  In this regard, the new technological and machine age may be more important than The Industrial Revolution.  Quite possibly, this time it is different and whilst heeding Sir Templeton's advice, as prudent investors we believe it would be neglectful to ignore the technological developments that are almost certain to provide substantial threats and opportunities to business.

In a recent TED interview, Charlie Rose asked Larry Page (co-founder of Google) what is his most important lesson from business.  He said that he has studied why many large businesses fail and he concluded: "They missed the future".

According to Magellan Financial Group founder, Hamish Douglass, there is mounting evidence that we are approaching a tipping point of exponential technological advancement, particularly through accelerating improvements in artifical intelligence, 3D printing, genomics, computing power and robotics.

In his annual newsletter to investors he outlines what the future technological changes may look like and puts forward several challenges about how they may impact our lives, business and investment.

Click on the newsletter below to download your copy to read.