Australian Stock Market Report – Trump, French Connection, Sydney Airport & more.
Market Commentary and Stock Tips - 27 April 2018
Trump and his French Connection – Underlying inflation edges up, so interest rates follow suit later this year – Myer gets a new head shop keeper – Sydney airport - a magnet for foreign travelers – Royal Commission puts a new slant on the expression ‘you get what you pay for’.
A rate rise – “who’s it gonna be good for?"
Answer: - Actually it’s good for us! Next question then – And as Professor Julius Sumner Miller used to say - “Why is it so? – Answer – It’s because underlying inflation (excluding volatile items) is at 2%pa and trending up, which reflects an economy which is on the up and up. Co-relatively an economy which is on the up and up, means that activity is buoyant, employment is on the increase, unemployment on the decrease, and this can mean that companies’ businesses, their revenues and profits increase, and generally leading to strengthening share prices and dividends. So if our Reserve Bank increases rates later on this should help to make term deposit holders happier as term deposit rates also increase.
It’s the strongest handshake I’ve seen since Mark Latham greeted John Howard
Did you see this week’s greeting between the Donald and French president Emmanuel Macron – It was like two long lost bosom buddies seeing each other again after a long time apart? But not so fast. The former school boy who married his teacher to become headmaster of France had a few words of wisdom for the Donald, when he said (my paraphrasing) “The US is the one who invented this multiculturalism and now it’s the US that has to help preserve and reinvent it”. Translated, that means the Donald should reverse direction and embrace free trade. The former school boy also had some sober words for the Donald about backing the current Nato/Euro/Us Iran agreement - not backing away from it.
Sydney is not in Saudi Arabia but it’s a Mecca for foreign travelers
Sydney Airport keeps attracting foreigners like bees to the honey pot. Recent figures show international traveller numbers are increasing at an annual clip of 6%-7% and domestic travelers slightly less. But the share price of the Airport has not responded in like manner, largely because some of the market cognoscenti place more emphasis on debt than revenue growth. But my view is that the bottom line for investors should be revenue and dividends, and by the way they just keep on increasing.
Also and not unimportantly, these companies strive to optimally structure their debt obligations. -which they do as a matter of course. The point is, infrastructure type stocks always have high debt loads because of their huge investments. But so long as revenue exceeds interest on the debt, the profitability of the businesses remain intact. By the way the current dividend yield for the airport is about 5%pa.
All roads lead to Rome – or should that be Paris
Macquarie Atlas which is a significant toll road operator in France delivered quietly impressive traffic results for the March quarter. And with continuing improvements in the European economies, this should be a significant positive for Macquarie Atlas even though its toll road operations in the US were a bit soft. However, at current prices Macquarie Atlas looks attractive value and currently pays dividends of 3.6%pa.
Boral - looks like a brick has fallen off the edifice
Boral delivered what can only be described as a somewhat messy trading update this week and provided a range of reasons or should that be excuses about why it’s underlying performance has been less than what had been anticipated. (It cited the weather; operational issues; and commissioning costs associated with its US business among other things). As a result its share price has weakened considerably over recent times and has fallen foul of my selling rule. In brief I believe that there are better options available.
Kogan - that former upstart online retailer continues to perform excellently. But its share price fell because some analysts concentrate on cash flow which is not irrelevant. But is not the main determinant of how the business is going. Accordingly its lower share price makes attractive buying.
Computershare - a most impressive investor day presentation this week and its future looks good.
AMP - has not covered itself in glory at the Royal Commission. However one question I have is that I would like to know how dead people can actually pay for advice that they don’t actually get?
Myer – if over 30 years successful experience in retail in the UK count, the new boss of Myer, John King, might just resurrect the business of this once doyen of Australia’s department stores.
Stock Tips- reserved for clients
- Thursday: Building Approvals
In the U.S.A:
A range of data scheduled --- most importantly there are: - results of Central Bank meeting; Employment/Unemployment Figures and manufacturing figures.
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