QSR hits 52-week high of RM3.64

QSR hits 52-week high of RM3.64

Tags: 52-week high | QSR Brands Bhd

Written by Yong Min Wei
Friday, 09 October 2009 11:04

KUALA LUMPUR: QSR BRANDS BHD [] hit a fresh 52-week high of RM3.64 yesterday, as buying interest in the food and beverage (F&B) retail group continues, premised on the defensive nature of its businesses.

The counter rose to an intra-day high of RM3.72 before closing at RM3.64, with 225,100 shares done. A check with Bloomberg data showed that QSR has been rising daily since the beginning of this week from its close of RM3.25 last Friday.

In a research report yesterday, CIMB Research reiterated its outperform call on the stock, its top pick in the F&B sector, with a target price of RM5.94 from RM5.30.

CIMB said its revised price target yielded a 61% upside, as the research house rolled over its valuation horizon to calendar year 2011.

“QSR remains an attractive growth story with a three-year earnings per share compounded annual growth rate of 11.9%,” it said.

The research house said QSR offered a cheaper entry into the KFC business with the added attraction of the growing Pizza Hut business and higher dividend yields.

QSR owns 50.25% of KFC Holdings Bhd (KFCH), which runs both the KFC and Pizza Hut dine-in and fast-food restaurant chain in the country and overseas, including Singapore and Cambodia. CIMB said QSR commanded 70% of the country’s pizza market and 11% of the Western quick-service restaurant.

“But, investors are paying an undeservedly low price earnings of 3.2 times for the Pizza Hut business when it deserves to trade at a premium given its growth potential,” it said. CIMB added that QSR might open its first KFC outlet in India by year-end.

Under a deal with the global Yum! Group, KFCH would invest US$5 million (RM17 million) in Mumbai and US$1 million in Pune, with the target of opening 10 KFC outlets in Mumbai and two in Pune, with one slated for opening in Mumbai by year-end, it said. CIMB added that the Indian outlets were expected to be profitable in three years.

“KFCH’s entry into India is expected to provide the company with an opportunity to diversify its earnings base and reduce its dependence on Malaysia and Singapore.

“We understand that there are four existing KFC outlets in Mumbai, operated by three franchise holders which have done little to grow the franchise.

There are only about 40 KFC outlets in India while there are 35 McDonald’s outlets in Mumbai alone,” CIMB said. Meanwhile, QSR’s expansion in Cambodia was on track, with its Pizza Hut operations set to break even next year, the research house said.


This article appeared in The Edge Financial Daily, October 9, 2009.

LPI 3Q net profit up 25%

LPI 3Q net profit up 25%

Tags: LPI Capital Bhd | third quarter

Written by Financial Daily
Friday, 09 October 2009 10:50

KUALA LUMPUR: LPI CAPITAL BHD []’s net profit for the third quarter (3Q) ended Sept 30, 2009 jumped 25% to RM32.9 million from RM26.24 million a year earlier due to higher underwriting profit.

Revenue rose 7.8% year-on-year to RM206.63 million from RM191.73 million previously. Earnings per share rose to 23.9 sen from 19.06 sen.

For the cumulative nine-month period, LPI posted a net profit of RM91.12 million on a turnover of RM583.88 million, an annual increase of 27% and 12% respectively. It said this was mainly from higher gross premium underwritten. To-date, it has proposed dividend of 26.25 sen, 4.05 sen higher than the previous corresponding period.


This article appeared in The Edge Financial Daily, October 9, 2009.

UMW shares trading at rich valuations

UMW shares trading at rich valuations

Tags: Brokers Call | OSK Research | UMW

Written by Financial Daily
Friday, 09 October 2009 10:39

OSK Research Sdn Bhd has raised its fair value for UMW HOLDINGS BHD [] shares by 12% in anticipation of better performance at the diversified firm’s automotive, and oil and gas (O&G) units.

The upward revision in UMW’s share price was despite OSK reiterating its sell call for the stock whose valuations are deemed more expensive compared to its peers. UMW shares are also overvalued compared to its net tangible assets (NTA) or book value, according to the research firm.

“Pending further developments from its oil and gas division, we continue to retain our earnings estimates at this juncture,” OSK wrote in a note.

UMW shares are deemed fairly valued at RM5.27, compared with the earlier forecast of RM4.27.

The higher target price for UMW is derived from a higher price-to-earnings ratio (PER) estimates for the automotive and oil and gas divisions. This is in anticipation of UMW, the franchise holder for Toyota vehicles in Malaysia, selling more cars next year.

Meanwhile, the O&G unit is expected to do better on expectation that its earnings would be helped by incoming contracts from oil majors as crude oil demand recovers.

At a PER of 23 times financial year (FY) 2009 earnings, and 16 times FY10 earnings, UMW’s share valuations are deemed costlier than its peers which are trading at 13 times and 10 times, respectively.

“The counter has consistently traded at a premium of 50% to 80% against the auto sector PER, partly due to the oil and gas play since 2007,” OSK said.

UMW’s O&G arm UMW Oil & Gas Bhd will be closely watched as it is expected to seek listing on the Malaysian bourse soon. Its planned flotation, originally scheduled for the third quarter of last year, was postponed twice due to unfavourable market conditions.

The exercise was expected to raise about RM425 million. Following the expiry of authorities’ approval for the initial listing proposal, UMW is now considering submitting a new flotation plan to the Securities Commission.

The proposal has to be revised because the number of operating units under UMW Oil & Gas is expected to more than double to 30 from 14 entities under the original arrangement.

With more operating units on board, UMW Oil & Gas is expected to seek a better value for its initial public offering (IPO).

UMW was traded unchanged at RM6.40 yesterday.


This article appeared in The Edge Financial Daily, October 9, 2009.

Jim Rogers predicts that commodities boom could last 20 years

Jim Rogers predicts that commodities boom could last 20 years
Jim Rogers, the bullish commodities investor, has predicted that demand for raw materials will outstrip supply for the next two decades, fuelling an extended boom.

By Rowena Mason
Published: 11:07PM BST 08 Oct 2009


Jim Rogers predicts that commodities boom could last 20 years. The chairman of Rogers Holdings, based in Singapore, believes the weakness of the dollar will underpin a flight towards commodities.

"I don't see any adequate supply situation in any commodity market over the next decade or two," he said. "The commodities boom is not over and the bull market has several years to go.


"Commodities are the best place to be, if you ask me, based on supply and demand."

Oil could reach between $150 and $200 per barrel, as known reserves begin to decline.

Mr Rogers believes that "unless something happens", crude oil will run out in 15 to 20 years. Although plenty of large oil discoveries have been made lately, the commodity is increasingly hard to extract from the ground.

"The supply of everything continues to decline," Mr Rogers said.

"If the world economy recovers, commodities will do the best, because supply is being restricted. If the world economy does not recover, commodities will still be the best place to be, because governments are printing huge amounts of money."

Mr Rogers, the author of Adventure Capitalist and Investment Biker, said he has not invested in equities apart from in China for the last two years.

He first staked his reputation on announcing the start of a global commodities rally in 1999. The cost of raw materials has risen around 36pc over the last decade.

His comments came as Alcoa, the US aluminium producer, posted surprise profits, boosting mining stock on both the New York and London exchanges.

The company forecast an 11pc increase in demand during the second half, almost entirely fuelled by China.

Global stockpiles of commodities monitored by the London Metal Exchange have surged this year on lower industrial demand during the recession, but analysts believe the market may now be stabilising.

Oil prices broke the $70 mark in the US, rising $2.12 to $71.69 a barrel, while Brent crude climbed $2.50 to $70.54 in London, supported by the weak dollar.

http://www.telegraph.co.uk/finance/newsbysector/industry/6276453/Jim-Rogers-predicts-that-commodities-boom-could-last-20-years.html

Investors should ignore the economic indicators

Diary of a private investor: investors should ignore the economic indicators
While Enterprise Inns shares have risen mightily from their lows, they are still less than two fifths of the net asset value and, good heavens, the company makes profits.

By James Bartholomew
Published: 12:19PM BST 07 Oct 2009

How do the words of that old Brenda Lee song go? Something like, "Here comes that feeling again, and it ain't right!" That was certainly my experience at the end of last week if you take "ain't right" to mean "ain't pleasant".

Markets around the world started falling in a manner horribly reminiscent of a year ago. It is amazing, incidentally, how world markets move together these days. They are like synchronised swimmers diving together, rising up in unison and twiddling their feet in the air all together.

Anyway my shares went down. I lost money – lots of it. I say this with emphasis for a friend who – to my surprise – turns out to be a reader of this column. I asked him, "which Diaries do you like best then, the ones when I tell of my successes or my flops?" He unhesitatingly opted for the latter. So this is for you, David.

Enterprise Inns fell from 135p to 123p between the opening on that Tuesday and the close on Thursday. A different friend emailed me a gloomy broker's report on the company's bonds. This downer written by a close relation of Eeyore may have played a part in the fall of the stock. Enterprise Inns, by the way, was up at 180p at the beginning of September.

So the shares have fallen 32 per cent since then. I had a quite a fair amount of cash invested in it, too. So that is plenty of money that has vanished. I am afraid though, David, that I am still just about in profit overall but my purchase this summer at a price of 167p looks pretty silly.

The report of doom was by JPMorgan. It dwelt on the pubs that had been closed, the ones that had been sold at prices which the broker thought discouraging and the review by the Office for Fair Trading which will come out later this month concerning whether or not it is fair that the pub tenants of Enterprise Inns have to buy beer supplied by the company.

As if that were not enough, he went on about the still weighty overhang of debt and the possibility of a rights issue. After reading that lot, I felt I might as well write the whole investment off and cancel my next holiday.

But something in me – probably the fact of being long of the stock – revolted. I wrote back to my friend who kindly supplied the research: "Hang on a minute. Aren't we in danger of forgetting the main point?" The main point is that Enterprise Inns is not going bust.

Whether it has a rights issue or not, Enterprise Inns is not a dead parrot. It is not extinct. It still moves and squawks. It may not be pretty but it is going to survive. For some nervous weeks earlier this year the shares were valued as though it had no future. Now it has.

And while the shares have risen mightily from their lows, they are still less than two fifths of the net asset value and, good heavens, the company makes profits. In fact it is valued at a mere four times the consensus forecast earnings. The shares still have great potential. The day after I wrote this robust case, the shares fell 6p. Incidentally, I have also lost money recently in Barratt Developments and Harvey Nash.

What about the market as a whole? It is October – a nerve-racking time and everyone remembers how bad it was last year. Perhaps precisely because investors are nervous of this month they might have held back from purchases in September and the market might survive without too much damage.

But frankly there is not much point in trying to guess stock market movements over a few weeks.

The recent falls have been ascribed by some commentators to disappointment with some figures coming from the real economy. I don't believe that.

Those of us with experience going back to Brenda Lee's glory days have learned that the stock market does not swim synchronously with the real economy. Real activity is down in the depths struggling for air but that will not stop the stock market breaching the surface. A bull market started in 1974 when the economy had quite a few more years of misery to endure.

The key things to watch, I believe are low interest rates and quantitative easing. As long as these continue, so will the bull market.

http://www.telegraph.co.uk/finance/personalfinance/investing/6267833/Diary-of-a-private-investor-Investors-should-ignore-the-economic-indicators.html

Would you put your pension on a politician's promise?

Would you put your pension on a politician's promise?
Britain’s state pensions are Ponzi schemes on a scale to make the fraudster Bernard Madoff blush.

By Ian Cowie
Published: 12:17PM BST 09 Oct 2009

Comments 1 | Comment on this article

"Told you so. Sorry to start so smugly, but there really is no other way to put it. This column has often warned about the risks of savers putting their faith in politicians’ promises. Now this week’s Pensions White Paper demonstrates just how dangerous that can be in cash terms.”

That’s what I said in this space on May 27 2006, the last time millions of people’s retirement plans took a knock when politicians moved the goalposts. Back then, it was the announcement that Labour planned to scrap the earnings-related benefits of the State Second Pension, just four years after S2P had replaced the State Earnings Related Pension Scheme (Serps). This week it was the Conservative proposal to make 5.4m people work longer before they can claim state pensions of any description.


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Millions to work a year longer under Tories So this would be a good moment to set out some sad but important facts. Britain’s state pensions are Ponzi schemes on a scale that would make the fraudster Bernard Madoff blush. This week’s National Insurance Contributions (NICs), deducted from workers’ salaries, are used to pay next week’s state pensions. That kind of accounting is called fraud in the private sector – as Mr Madoff can attest – and no insurance company would be allowed to carry on in this way.

The reason is that all Ponzi schemes collapse, sooner or later, when the inflow of money from new mugs proves insufficient to honour promises issued earlier and too many people ask to be paid. That is what is happening now with Britain’s state pensions.

Nobody should be surprised. As regular readers will know, this is the point in the article where I like to quote Nye Bevan – a founder of the welfare state – who disclosed more than 50 years ago: “The great secret about the National Insurance fund is that there ain’t no fund.”

To be fair to politicians of all parties, the chart on this page shows why state pension ages must rise – even if the scheme had been properly funded. Figures from the Office for National Statistics (ONS) demonstrate that men and women are living for more than a decade longer than they did when the current retirement ages came into effect with the National Insurance Act 1946.

Looking even further back, you can see that average life expectancy has nearly doubled since Edward VII was born and the ONS stats series started in 1841. Only in the wacky world of life assurance and pensions could this remarkable improvement be regarded as a problem.

From a historical perspective, this week’s Tory proposal could even be seen as “going back to the future” because, when the Basic State Pension was introduced in 1908, the retirement age was set at 70.

Here and now, I would suggest that anybody aged under 30 today would be rash to expect to receive any state pension before they reach 70 years of age. Certainly, the proposed increase to 66 will not be the last time this carrot is shifted a little further away from the donkey’s nose.

Nor do we have to look too far into the future to see this happening. For example, from next April the NICs deducted from our salaries will cease to buy increased S2P benefits, as flagged up in this space three years ago. Thank heavens about 600,000 people contracted out of Serps and S2P to have their NICs paid into private pensions, ignoring all the actuaries’ warnings since then that we should opt back into the state scheme.

Any of us aged over 50 now can take a quarter of these contracted out pensions as tax-free cash any time we please – but it is important to beware that this threshold will be raised to 55 next April.

When I opted out of Serps more than 20 years ago, I did so on the basis that I would rather build up a pot of private property than rely on an ill-defined share of an unfunded scheme. That remains as true now as it was then.

Put another way, which would you rather have: a tax-free lump sum today or a politician’s promise tomorrow?

Pensions are not the only way
More than 2m people are thought to be older than 50 now but younger than 55 next April. We face a ticklish question that affects all our pension savings, whether they are in private sector plans, Serps or S2P. If we fail to draw tax-free cash before April 6, 2010, these funds will be locked up until we reach 55 years age – always assuming the politicians don’t move the goalposts again.

That postponement could prove very awkward if, for example, you lost your job in the meantime. And, let’s face it, there can’t be many people who are absolutely certain what they will be doing three or four years hence. So it is tantalising to know that a substantial sum of tax-free cash is available now, when you might not need it, but won’t be available in future, when you might.

The good news is that this week’s increase in individual savings account (Isa) allowances for people aged over 50 has the unintended consequence of helping us to avoid this potential cash flow crisis. The maximum was raised on October 6 to £10,200 per tax year, per person – strictly speaking, anyone who will be aged over 50 in April next year.

So a married couple who are both the right age and have not used their current Isa allowance could place up to £40,800 in the Isa tax shelter between now and April 6 2010, when the next fiscal year starts.

This provides some valuable wriggle room for people who might want to draw benefits from their pension savings while they still can, even if they have no immediate need of the cash. The improved Isa limits mean they can continue to keep the money invested in real assets – such as shares, bonds and unit or investment trusts – in the hope of preserving its purchasing power for when they actually need it.

Better still, unlike pensions, there is no need to pay tax on income received from Isas; nor any need to declare Isas in your tax returns. It also goes to show that pensions are not the only way to provide for retirement.

http://www.telegraph.co.uk/finance/personalfinance/comment/iancowie/6274049/Would-you-put-your-pension-on-a-politicians-promise.html

Buffett Selling Means You Shouldn’t Be Buying

Buffett Selling Means You Shouldn’t Be Buying


Commentary by Jonathan Weil



Oct. 8 (Bloomberg) -- It’s not often that Warren Buffett gives the investing public a reason to believe he’s not on their side.

Then again, it’s not every day that Buffett’s Berkshire Hathaway Inc. shows up on the list of selling shareholders in another company’s initial public offering.

This brings us to today’s question: If Buffett is a seller, should you be a buyer? Probably not. This is the same fellow, after all, who is famous for saying that the best time to sell a stock is never.

The possible IPO comes from Symetra Financial Corp., a life-insurance carrier based in Bellevue, Washington. Berkshire began accumulating its 26 percent stake in Symetra in 2004, when a group led by Berkshire and White Mountains Insurance Group Ltd. bought the business for $1.4 billion from the insurance company Safeco Corp.

Symetra filed this week to raise as much as $575 million from new shareholders and said it intends to use its portion of the proceeds for general purposes, which may include fresh capital for its insurance subsidiaries. Naturally, if this is such a good investment opportunity, you might think Buffett would be increasing Berkshire’s stake in the company. He’s not.

Symetra didn’t disclose how many shares Berkshire and White Mountains may sell, though it did say they would continue to own some after the IPO, assuming it goes through. It’s also possible they could decide not to sell any, even though the company’s prospectus identifies them as “selling stockholders.”

Slick Math

When I looked through Symetra’s registration statement -- which is 1,000 pages long, including exhibits -- what struck me was the slickness of its numbers. The first financial metric Symetra touted on the opening page of its prospectus was something it called adjusted book value, which was $1.4 billion as of June 30. That figure turns out to be a lot of hot air.

Symetra’s actual book value, or shareholder equity, was $763.7 million. The company arrived at the $1.4 billion by adding back $642.9 million of pent-up losses, mainly from investments, and acting as if they don’t matter. That’s no small detail. Symetra’s equity looks thin at 3.6 percent of the company’s $21.1 billion of assets. Berkshire’s equity, by comparison, is equivalent to 43 percent of assets.

Additionally, Symetra’s prospectus said the company’s “internal control over financial reporting does not currently meet the standards” required by federal law for publicly traded companies. That’s quite a disclosure, considering Symetra was a unit of a large public company as recently as 2004. It tells you there’s a chance that Symetra’s financial statements might not be reliable.

Mining for Fees

As for the business itself, Symetra’s owners have operated a lot like private-equity deal whizzes, extracting large sums of cash through dividends and fees.

For 2006, Symetra reported net income of $159.5 million and paid $100 million of dividends. In 2007, when net income was $167.3 million, Symetra paid its shareholders $200 million of dividends -- which it financed in part by issuing $150 million of new debt. Perhaps if Symetra hadn’t paid such large dividends before, it wouldn’t need money from the public markets now.

The company hasn’t paid dividends since 2007. Net income fell to $22.1 million in 2008, driven by investment losses, before rebounding to $52.1 million during the first six months of 2009. This year’s earnings come with a caveat, though.

Help From FASB

Symetra’s pretax profit would have been 92 percent less were it not for rule changes by the Financial Accounting Standards Board last spring. That’s when the FASB caved to pressure by Congress and rushed to expand the range of investment losses that banks and insurance companies can exclude from their reported earnings, even when they conclude the losses aren’t temporary.

Additionally, White Mountains collects fees for managing Symetra’s investments -- $57 million in all since the start of 2006. For example, when White Mountains invests Symetra’s money in a hedge fund or in corporate equities, it gets an annual fee equivalent to 1 percent of the investment’s value.

White Mountains’ $14.6 million of fees last year exceeded Symetra’s $13 million of pretax income. Nice work if you can get it. (Symetra’s net income was greater than pretax profit because of a large deferred-tax benefit.) Like Berkshire, White Mountains has a 26 percent stake in Symetra. Berkshire also had been White Mountains’ second-biggest shareholder until it sold its stake back to the company last year.

We can’t blame Buffett for wanting to sell some of his company’s Symetra shares, which amount to a tiny fraction of Berkshire’s $275 billion of assets. Berkshire’s shareholders should be pleased if he can. Symetra also filed to go public in 2007, only to cancel the offering when the IPO market dried up.

You have to wonder, though, why anyone would want to be on the other side of this trade.

(Jonathan Weil is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: Jonathan Weil in New York at jweil6@bloomberg.net

Last Updated: October 7, 2009 21:00 EDT

http://www.bloomberg.com/apps/news?pid=20601039&sid=ah5Yse3JbqFI

No Penny Stock Trading For Me

"The reason that the stock market can be dangerous (or perceived dangerous) for the average investor is because we’re not really dealing with tangible assets here. To look at our supermarket analogy again, if you went to the bread isle and there was a loaf of bread for one dollar and a moldy loaf of bread for 50 cents, which would you buy? Surely, you would pay a little extra money to buy the good loaf!"

http://www.thedigeratilife.com/blog/penny-stock-trading/

Padini expects slower sales growth in fiscal 2010

Padini expects slower sales growth in fiscal 2010


Published: 2009/09/10

Malaysian fashion retailer Padini expects annual sales growth in fiscal 2010 to slow from a year ago as it expands at a slower pace.

The pace at which the company will add retail space will fall by more than half, Padini executive director Chan Kwai Heng said.
Sales for the year to June 2009 jumped 24 per cent to RM477 million from a year ago and net profit was up 19 per cent at RM49.5 million, company data showed.

"That kind of growth could be a bit hard pressed to sustain, because for FY2010 we are not adding a lot more space," Chan said in an interview yesterday.

Padini will add about 40,000 square feet of retail space in fiscal 2010, versus 90,000 sq ft in 2009 and 140,000 sq ft in 2008, said Chan.

Malaysia, Asia's third most trade-dependent economy after Singapore and Hong Kong, shrank 3.9 per cent in the second quarter after a 6.2 per cent drop in the first quarter from a year ago.

Padini's business is growing despite the downturn and the company is rolling out new product lines and opening more outlets.

"The increase in sales is mainly generated from (new retail space)," said Chan.

A company that began as a garment manufacturer for bigger brands in 1971, Padini moved to building its own brands in the late 80's and early 90's when a booming economy boosted domestic consumption in the Southeast Asian country.

The company now sells nine brands of fashion goods ranging from garments to women's shoes and accessories in 12 countries in Southeast Asia and the Middle East.

Foreign retail brands such as Top Shop, Zara and MNG have flooded the local retail market in recent years to tap into the growing consumer market.

Chan said the company has no intention of beefing up its exports in spite of rising competition at home. Currently, overseas sales account for about 10 per cent of the total.

"We do not have a concerted plan or strategy as to what we shall do to go for the export market," said Chan.

"For us, the retail market at home is still so lucrative and it is still doing so well for us, because of that we will really pay attention to this part," he said.

Padini shares have outperformed that of its rivals so far this year but lagged the performance of the wider market.

The stock has risen 14.63 per cent so far this year, compared to the benchmark stock index's 37 per cent gain while competitor Voir is down 10.56 per cent and Bonia has fallen 12.28 per cent. - Reuters

http://www.btimes.com.my/Current_News/BTIMES/articles/padini9/Article/

Futile exercise to chase after bonus issues.

Summary:

Most of the time, such an action will lead one to make losses relatively and during bear markets it will lead you to make absolute losses.  But the most galling aspect of chasing after bonuses is that some of the time, one is being led blindly into traps prepared by crafty insiders or their friends.  In such instances, you are like innocent lambs led to the slaughter.  The chances of you losing a great deal of money is very real.

Since it is very difficult for you to know which bonuses are of the innocent variety and which are not, is it not better to ignore all of them?

The best approach to take is the fundamentalist one; only buy those stocks which provide you with a reasonable return and which have the prospect of providing a constant long-term growth in earnings and dividend irrespective of whether they give bonus or not. 

Heavy selling after Bonus Announcements have been made

The Peril of Chasing Bonuses:  There is strong evidence of heavy selling after bonus announcements have been made

The residual movement is strongly downward soon after a bonus announcement has been made.  This strongly suggests that there is heavy selling by some of the investors.

Who are those doing all the selling? 

The sellers certainly do not come from the general investment public since they all think that bonuses are such good deals that "they would be fools to sell out now".  It seems that the sellers can only be those who know that bonuses are not what they are made out to be and / or those who have managed to pick up shares cheaply. 

The sellers are likely to come from amongst the fundamental investors who understand the meaning of bonus and also the insiders who, knowing more than the public, must have bought shares on the cheap just before the announcement. 

As the decline is the greatest among shares which subsequently do not increase their dividend, a lot of the sellers must be insiders who know that the future of these stocks is none too bright.

Either way, the pititable smaller investors have to pay dearly for their ignorance and fascination with bonuses. 

Local investors/speculators do chase after bonuses

The Perils of Chasing Bonuses:  Local Investors/Speculators do chase after bonuses

It is very surprising to note that the stock price on an average does not reach a peak until several weeks after the announcement.  This is a situation that is peculiar to the local market since in all other markets, the announcement of bonus or split does not attract any buying or upward price movement at all. 

This sharp rise after the announcement can only mean that a large number of local investors still believe that bonuses are of value and they go in to buy the stocks following the announcement with the hope of making further gains.  But sadly, they are likely to be disillusioned because at that point, the price can only move downward. 

Why do they keep on doing this?  Here are the reasons for the chasing of bonuses blindly.

1.  Firstly, there is a deeply ingrained local belief that bonuses are of value.  This is continuously being reinforced by articles in local newspapers which praise companies which give bonuses.  At the same time, insiders with an axe to grind have a strong interest to keep this belief alive.  They, undoubtedly, use all their power with the press to keep the rumour mills working at full speed so as to churn up interst in their stocks.

2.  Second, the concept of *residual movement is totally new to almost all local investors.  Although the residual movement may be negative, the actual price movement may be upward, reflecting the bullish overall market condition.  Typical nvestor who chase after bonuses are precisely the ones who neither understand the finer points of investment nor are they particularly conscious of how the other stocks are doing.  So long as they make some gains from their purchase price, they are happy, not realising that better opportunities exist elsewhere.  This is of course not true for all times.  For those poor investors who buy into bonus-giving stocks just before the market peaks, they are likely to suffer horrible losses.  As usual, those who lose a lot of money tend to keep quiet while those who make some would announce it to the whole world.  As a result, the sad experience of some of those who have chased after bonuses are never revealed and the general public is thus never the wiser.

(*Residual movement is the price movement after the market effect is taken out.)

Insider Trading or Insider Inspired Trading prior to Bonus Announcement

The Perils of Chasing Bonuses:  There is strong evidence for the existence of either insider trading or insider inspired trading prior to bonus announcement

There is clear evidence that the price tends to move strongly upward from between 15 - 20 weeks before a bonus announcement.  This is the approximate point at which most boards of directors make a decision regarding a future bonus issue. 

If the news of a forthcoming bonus is kept watertight, there should be no movement at all until the announcement is made.  The fact that on average, stock experience a residual movement of between 10 - 12 percent in the last three to four months before an announcement means that there must be either some insider trading or insider-inspired trading taking place. 

The amount of movement is not that large on an average but this average conceals the fact that many stocks experience considerably larger movement than this and these are the stocks in which insiders or their "friends" stand to make a lot of money.

A large number of bonuses are not made for financial reasons.

The Perils of Chasing Bonuses:  A large number of bonuses are not made for financial reasons. 

In the US, stock splits are made after a long period of rapid rise in the price of the stock.  This is done largely to reduce the price of the stock to make it more marketable (or so the management believes).  However, the same reason does not seem to apply locally. 

• First, on the whole, there is little upward price movement before the decision to declare a bonus issue is made.
• Second, a very high proportion (about one-third) of the companies fail to increase (on an adjusted basis) its dividend payout after the bonus issue has been made. 

If there is very little upward price movement in the first place and if so many of the companies cannot increase its post-bonus dividend payout, why then do these companies bother to declare a bonus at all? 

The implication must be that a large number of b onus issues are not made for the usual financial reasons (i.e. to lower the price, to reflect higher earnings capacity etc).

It is more than possible that a large number of bonus issues are made for the purpose of giving a temporary boost to the price of the stock.  As to why any company should desire to achieve a temporary boost in the price of stocks, the inevitable conclusion is that a large number of bonuses are made for the purpose of benefiting insiders and their friends.  This is an extremely serious indictment made only after the most careful reflections.

Why some insiders should want to give the price a temporary boost? 

A sharp rise in price provides insiders with the opportunity to sell shares which they had picked up on the cheap before the price was artificially boosted.  This is only the average picture and the average picture is not representative of all the firms which give bonuses.  It does not mean that all local companies which declare bonuses are doing so to benefit from a temporary boost in price.

It is likely that local companies are made up of at least two types.

• The first are those in which the insiders do not have an interest in seeing the price being temporarily boosted, and
• The second are those in which the insiders do have this desire. 

It is likely that the former would not experience much price movement prior to the announcement while the latter would.  This would be the primary way by which we can separate the two classes of companies. 

Are there evidence to suggest a great deal of insider trading prior to some bonus announcements?

4 important conclusions about the local market regarding bonus issues

There are possibly four important conclusions about the local market regarding bonus issues.

1.  A large number of bonuses are not made for financial reasons.
2.  There is strong evidence for the existence of either insider trading or insider inspired trading prior to bonus announcement.
3.  Local investors/speculators do chase after bonuses.
4.  There is strong evidence of heavy selling after bonus announcements have been made. 

What this means in plain terms is that the typical investor who buys the stocks of a company undergoing bonus issue either just before (by basing his purchase on rumours) or just after the announcement of a bonus almost certainly ends up losing money on a relative basis.  That is, had he bought other shares, he certainly would have done better. 

This is totally unlike the US situation where buying the stocks after their splits would result in the investors being even with the market.

The only way to make money from bonuses locally is to be able to buy well before the bonus announcement (about 20 weeks before) and sell almost immediately after the announcement.  In that way, you would stand to make a lot of money.  But to do so consistently, you would need inside information on when a bonus issue is about to be announced. 

Ref:  Stock Market Investment by Neoh Soon Kean

Type : Announcement

Subject : KPJ HEALTHCARE BERHAD (“KPJ” or “COMPANY”)

- PROPOSALS

Contents : This announcement is dated 1 October 2009.

On behalf of the Board of Directors of KPJ (“Board”), AmInvestment Bank Berhad (a member of AmInvestment Bank Group) (“AmInvestment Bank”) wishes to announce that the Company proposes to undertake the following proposals:-

Proposed share split involving the subdivision of every existing one (1) ordinary share of RM1.00 each in KPJ into two (2) ordinary shares of RM0.50 each (“Shares”) in KPJ held by the entitled shareholders of the Company on an entitlement date to be determined and announced later (“Proposed Share Split”);

Proposed bonus issue of up to 105,525,308 new Shares (“Bonus Shares”), to be credited as fully-paid up by the Company, on the basis of one (1) Bonus Share for every four (4) Shares held by the entitled shareholders of the Company after the Proposed Share Split on an entitlement date to be determined and announced later (“Proposed Bonus Issue”); and

Proposed issue of up to 131,906,635 free warrants in KPJ (“Free Warrants”) on the basis of one (1) Free Warrant for every four (4) Shares held by the entitled shareholders of the Company after the Proposed Share Split and Proposed Bonus Issue on an entitlement date to be determined and announced later (“Proposed Free Warrants Issue”).

The Proposed Share Split, Proposed Bonus Issue and Proposed Free Warrants Issue shall collectively be referred to as “Proposals”. The Proposals are inter-conditional.

Kindly refer to the attachment for further details.

Futile to chase up price of shares based on Rumours of bonus issues

It can be very difficult for a layman to know how the reserves of a company come into being.  Very often such reserves are created at a stroke of a pen. 

Unless you can separate the "good" reserves from the "bad" reserves, you should not be excited by the prospect of a bonus issue as a result of an increase in Reserves.

It is futile to chase up the price of shares based on rumours that a particular company is about to make a bonus issue.  The really wise investors or the truly cunning insiders would have got in when the price was a lot lower.  Rumours of bonus issues are usually spread to provide opportunity for people other than the small timers to make money. 

Warren Buffett said:  "The stock market is like God in that it helps those who help themselves, but unlike God, it does not forgive those who know not what they are doing."  You can best "help yourselves" by learning more about the stock market as a whole and finding out more about the companies you are interested in.  If you go in blindly, "not knowing what you are doing", basing your actions on rumours, you will have nobody to blame but yourselves if you lose money.

The Reserves of a company is purely a paper entry.

In order to provide a bonus issue, the company must have this thing called "RESERVES" which can be turned into new paid-up capital to be used for the creation of new shares for paying out as bonus. 

Surely this "Reserves" thing must be something of value?

This term "Reserves" is very confusing to people who are not familiar with accounting concepts.

The "Reserves: of a company is purely a paper entry, purely an accounting convention.  There is absolutely nothing solid behind the term "Reserves".  The "Reserves" you see in the balance sheet of a company belongs in the realm of an accountant's imagination; this is something which exists purely as a written line on the company's accounts books. 

The real strength of a company is not shown by how much it has under the item "Reserves" but under the "Cash" and/or "Short term Investments" items as well as its undisclosed borrowing capacity.  Many a company have gone bankrupt with lots of "Reserves" still on its balance sheet.

What then does this term "Reserves" mean?  The reason why there is an item of "Resreves" in the balance sheet of most companies is due to the nature of our accounting system. 

Assets = Liabilities + Shareholders' Equity*

(*defined as Paid up Capital + Reserves)

Under this system of accounting, whenever, there is an increase in the total assets of the firm which is caused by either the purchase of a new asset or an increase in the book value of an asset (the "book value" of an asset is the value which is recorded in the accounting books of the company, it is not necessarily the same as its real value or its purchase price), a similar entry has to be placed on the opposite side of the balance sheet to keep it in balance.

Let us assume that the left hand side of the Balance Sheet goes up beause the company has purchased an asset.  We know that whenever there is an increase in the left hand side of the Balance Sheet, there must be a corresponding increase on the right hand side.  The right hand side would go up in accordance with how the company has financed this particular purchase.  There are three ways by which it can finance the purchase:

(1)  It can borrow the money;
(2)  It can obtain the money from its shareholders; and
(3)  It can earn the money.

If the firm borrows the money, its Liabilities would go up by an equal amount as the cost of the asset.  Hence both sides are still in balance.  If it obtains money from its shareholders, its Paid-up Capital would increase.  Using these two ways of financing an increase in asset results in no nett change in the value of the company in the hands of the shareholders.

If however, the company has earned enough profit to pay for the purchase, the balancing entry will be put under "Reserves".  Such an increase in the asset of the company will result in an increase in the nett worth of the company.  As the asset purchased will earn more profit for the company which can pay more dividend to the shareholders, the increased dividend payment will increase the price of the share.  Under normal circumstances, the value of a company would increase if it earns money to buy new assets.  But this is a "difficult" way of increasing one's assets for the company must make some money in the first place; there are other easier methods.

The easiest way by which the assets of a company can be increased in its book value is by revaluation.  When the assets of a company are revalued, an imbalance is created in the balance sheet because there is no corresponding increase on the other side.  In order to keep the balance sheet in balance, a similar amount is therefore added to the Reserves item. 

Whenever this happens, Malaysian speculators usually become very excited because they feel sure that a bonus issue is forthcoming since the company now has reserves which can be converted to bonus shares for distribution.  The price of such shares therfore tends to go up.  But why should the price of a company's share go up just because it has undergone a revaluation of its assets?  Is it not true to say that even after the revaluation, the true value of the assets of the company remains unchanged?  What is changed is the value shown in the accounting books of the company.  Surefly, we should price the shares of a company according to its true value rather than the value after a revaluation. 

Furthermore, how can we be sure that the revaluation has been properly carried out?  The experience of many local companies in this respect does not give one cause to have confidence in their ability to value their assets correctly.  In past years, many companies had to reduce the book value of their assets by a huge amount after having previously written them up to an unrealistic level.  Many of them suffer diminution in their assets of $50 million or more.  Valuation is an extremely subjective exercise and no two persons can agree exactly on the value of a piece of asset.

Another method of increasing the reserves of a company which was commonly practised in the past but which is more difficult (because of changes to regulations) to practise nowadays is by the overvaluation of assets to be swapped into the company by an exchange of shares.  We may define a share swap as when a company issues new shares to an outsider in exchange for a piece of asset.  In many of the share swaps carried otu, the assets to be swapped were valued very highly.  As a result, a lot of new shares had to be created to "pay" for the assets.  In some cases, instead of issuing the new shares at its par value or at the nett asset value of the shares, the shares were issued at a highly inflated value, say, $10 per share.  This means that for every share issued, $9.00 can be added to the Reserves of the company.  The company therefore had a lot of reserves for the issue of bonus shares. 

Thus, it can be seen that the reserves of a company can be created out of almost thin air.   Such reserves can then be used for the creation of bonus shares which in turn must be regarded as being virtually wothless as well.  Thus we can see that it is very difficult for a layman to known how the reserves of a company come into being.  Very often such reserves are created at the stroke of a pen.  Unless you can separate the "good" reserves from the "bad", you should not be excited by the prospect of a bonus issue as a result of an increase in Reserves.

Ref:  Stock Market Investment by Neoh Soon Kean

Bonus and Rights issues do not increase the value of a share

Many things in the stock market are not what they seem to be.  Every investor should be on guard. 

Bonus and rights issues can be manipulated for insiders' benefit.  Every investor needs to be aware of this possibility. 

The value of an individual share depends on two factors: 

• The value of the company as a whole and
• the number of shares of that company which is outstanding. 

This important principle is the basis for stating that bonus issues in themselves are of no value at all. 

Investors in the rest of the world have understood this principle.  Elsewhere, a bonus issue or a share split is treated as a non-event and nobody ever gets excited about it.  At the ex-bonus date, the price automatically adjusts downward such that the value of the whole company remains the same. 

Why do some local newspaper commentators and speculators go on insiting that a bonus issue is an event of great advantage?

OSK Research ups KPJ target price

OSK Research ups KPJ target price

Tags: corporate exercise | KPJ | OSK Research

Written by Joseph Chin
Friday, 02 October 2009 11:09

KUALA LUMPUR: OSK Investment Research is maintaining a Buy on KPJ Healthcare with an upgraded target price of RM4.98 from RM4.39 previously, after rolling its earnings per share (EPS) from FY09 to FY10 at 10 times price-to-earnings ratio (PER).

It said on Oct 2, despite the recent share price appreciation, KPJ is still trading significantly below its regional peers, which are trading at around 15 times to 25 times PER.

"We maintain our view that KPJ is an excellent choice for portfolio balancing as well as a long term investment given its relatively defensive business and steady dividend payout," it said.

On Oct 1, KPJ announced on Bursa Malaysia that it is proposing to undertake several corporate exercises involving a proposed 1-to-2 share split, bonus issue on the basis of 1 for 4 and a proposed issuance of up to 131.906m free warrants.

"While the proposals will not have direct impact on KPJ’s business operation, we welcome the news as we believe that the move could potentially improve the stock’s liquidity and marketability.

"Although we are unable to quantify the impact on liquidity, the proposals - which will result in a bigger share base – may potentially ease concerns over its current share liquidity," it said.

Following the completion of the proposals, KPJ’s share base will triple to around 659.53 million shares from 211.05 million shares currently.

OSK Research said nevertheless, the effectiveness of the proposals in improving liquidity in the shares will be dependent on the shares’ free float, which is in turn determined by the stake held its major shareholders.


http://www.theedgemalaysia.com/business-news/150474-osk-research-ups-kpj-target-price-.html

Hai-O is better than expected, says RHB

Hai-O is better than expected, says RHB

Tags: Brokers Call | Hai-O | RHB Research

Written by Financial Daily
Thursday, 01 October 2009 10:51

RHB Research has reaffirmed its outperform recommendation on HAI-O ENTERPRISE BHD [] while raising its fair value to RM6.80 from RM5.80 following the announcement of its 1QFY10 results, which came in above expectations.

“Hai-O’s net profit for its first quarter accounted for 33% of our and consensus full-year net profit forecasts. The key variance was mainly due to higher-than-expected contribution from its multi-level marketing (MLM), which grew by 42% year-on-year on the back of a higher-than-expected increase in core distributor force (CDF) as well as distributor productivity from buoyant sales of its health and wellness products and higher advertising and promotion activities and lower effective tax rate,” said RHB.

RHB also revised its FY10 to FY12 forecasts by 15% to 20% after raising its assumptions for Hai-O’s distributor retention rate and productivity and reducing its tax rate assumptions.

The research house is expecting Hai-O’s net profit for FY10, FY11 and FY12 to come in at RM65.1 million, RM75.2 million and RM84.4 million respectively.

“Following the stronger-than-expected distributor productivity for 1QFY10, we have revised upwards our assumptions for productivity to 5% in FY2010 from 1% previously but maintain our assumption of 3% increase for FY11 and 1% increase for FY12. While we retain our distributor growth numbers, we increased our member retention rate to 22% per annum compared to 20% previously, following the stronger CDF numbers,” added RHB.

According to RHB, the group’s MLM division remains its main driver, and expects distributor growth numbers to remain at 12,000 to 15,000 per annum for FY10 to FY12.

“Recall that Hai-O’s MLM division is in the midst of venturing into the Indonesian market, having started its recruitment drive from July this year. Hai-O would be investing a total of US$480,000 (RM1.66 million), of which US$120,000 is for capital expenditure while the remaining US$360,000 is for working capital.”

RHB also said Hai-O’s management was targeting a conservative 5000 to 10,000 in new members in FY10, and forecast a minimum of two years to break even. “Note we have yet to input any contributions from Indonesia, pending feedback from management on its recruitment activities.”

The research house said among the risks faced by Hai-O include termination of supply agreements from its suppliers in China, a stronger-than-expected strengthening of the US dollar and a weaker-than-expected increase in consumer spending.

Hai-O jumped 34 sen to close at RM6.03 yesterday.


This article appeared in The Edge Financial Daily, October 1, 2009.

Frederick Forsyth lost his fortune through a share fraud and divorce.

Frederick Forsyth: 'I lost £2.2m in a share fraud'
Frederick Forsyth lost his fortune through a share fraud and divorce.

By Mark Anstead
Published: 3:37PM BST 01 Oct 2009


Frederick Forsyth: 'Returns are minimal at the moment but I don't run around tearing my hair out' Photo: IAN JONES Have you learnt any difficult lessons about money through mistakes?
I've lost money twice, first in the mid-Seventies under Edward Heath when we were looking at inflation of 22pc or 23pc per annum. After Margaret Thatcher we all forgot what hyperinflation was, but at 23pc everybody's assets were disappearing down the plug hole.

My financial advisers told me to hedge against inflation by buying either gold or diamonds and I bought gem diamonds because their carat rating can be certified. It was a gross mistake – I invested about £200,000 and got back just £133,000 three years later.

My second mistake was trusting Roger Levitt. I saw him as a personal friend, but he turned out to be a con man. He wasn't like Bernard Madoff – Levitt never promised ridiculous levels of return.

His talent was to recommend a portfolio of about 20 shares and then suggest that, since there was a lot of paperwork and you would have to sign 20 cheques, why not let him do it for you? You just gave him one cheque payable to the Levitt Group and he promised to do all the hard work, but in fact I never saw the money again.

How much did you lose with Levitt?
At last count in 1988 my portfolio was worth around £2.2m. I know that because I parted with my wife that year and, because we didn't want to quarrel, I gave her my properties while I took the shares. Then a few years later Levitt was arrested and my portfolio turned out to be worthless – so I went from having been worth £4.6m before my divorce to zero. I had to start all over again and I worked my butt off writing five books in five years to make my second fortune.

Do you still invest much?
Yes. I still have a portfolio of shares, but now I do everything directly and I tell my broker I don't mind if he asks me for 50 cheques – I want to see them going into the different companies. The chances of being ripped off by all of them are then very slight.

Has the fall in market values dramatically affected you?
I'm philosophical about it. I recognise that return on investment is minimal at the moment, but the values of shares are now coming back, so I don't run around tearing my hair out. You hear about people who were worth £100m and their net worth fell to £3m, but £100m is a hell of a lot and probably a large part of that was either borrowed or highly speculative. I am only invested in very solid blue-chip companies or funds operated by known investors who always appear in the top quartile in terms of performance.

How did your childhood experience influence your attitude to money?
There is an old Jesuit saying, "Give me the boy until the age of seven and I will give you the man." The attitude my parents took to money is stamped into my psyche and has never left me.

As middle-class English shopkeepers in the small town of Ashford in Kent, they felt you had to earn money by hard work alone. The idea that anyone could win money, marry it or inherit it was out of the question for them, and cheating, lying, stealing or embezzling was beyond taboo. So I grew up knowing I needed to be very industrious.

I was raised in a fairly substantial semi-detached five-bedroom Edwardian house, and as an only child I had the top floor to myself – a bedroom and a nursery. My father told me that whatever I wanted to do he would support me, and when I left school early to go into the Royal Air Force, he was thoroughly approving.

Are you cautious with money or liberal? Where does that tendency come from?
I'm illogical. I will save and reuse envelopes, telling myself that I'm saving trees, but all I'm really trying to do is save money. On the other hand I'll give money to good causes and then laugh to myself that I save envelopes. I'll turn the lights off in empty rooms because it offends me to see money wasted and I resent people who fritter money away in casinos when it could have been used by someone who needs it.

Now that you are better off, are you happier?
Yes, I think so, but I had it drilled into me as a boy never to worship money. I was in my late thirties before financial success came to me and by then I had travelled the world and had a lot of experience.

Financial freedom is what I value most – I don't have to get up in the morning and go into an office and bow to the boss. And there is comfort in knowing that if I want something, I can usually have it, within reason. I wouldn't think it reasonable to own a private yacht or jet.

How do you separate responsibility for finance with Sandy?
I don't give her an allowance – she just shares a credit card with me and whatever the house needs in terms of food and other consumables is charged to that card. Sandy also has her own bank account and some of her own assets. She has shrewdly invested in a portfolio of shares that generates enough income for her own clothes, but I pay for everything else.

How do you prefer to pay for things, cash, card or cheque?
I'm still very old-fashioned – I like to pay most of my bills by cheque. I am constantly being asked to pay by direct debit, but I keep seeing a high level of inaccuracy in my bills and I often query them because a figure is wrong. So I much prefer to stare at a bill first and then hand over a cheque.

But I also pay by credit card and, thankfully, I've never experienced credit card fraud. But I'm very dubious about it because when you pay over the phone they always ask you for all the details from the card, including the security card number on the back. What's the point of having a security number if you have to tell everybody what it is?

How do you tip? Are you an easy tipper or do they have to work hard with you?
I like to tip in the upper to mid range. I first check to see if it is already included on the bill and if it is I will usually leave a little extra, but if it's down to customer discretion I leave between 12.5pc and 15pc.

What's been your greatest extravagance?
I have indulged in classic sports cars over the years – I've got a Jaguar XKSS and an Austin Healey 3000 – and I love diving or snorkelling twice a year in the tropics.

What kind of a home do you live in?
It's a farm. When I grew up in Ashford it was all agricultural and I was often visiting friends on their farms. I thought one day I would like to have one of my own with all the animals and constant activity. Then in 1988 I bought my Queen Anne Grade II listed farmhouse near Hertford with 175 acres for £350,000 and I love it here – they'll have to carry me out in a box.

Do you invest in individual savings accounts (ISAs)?
Yes, because my accountant thinks they are worthwhile. I never really need the money I put into them so it just sits there and grows tax-free.

Do you use high-interest savings accounts?
I have a deposit account with one small private bank and I simply transfer money from that account into my Barclays current account as I have need. I haven't spread my money around because my bank is run by very frugal people and I don't think it was ever at risk. I ask virtually nothing of Barclays for my current account – I've been with them for 40 years and I just keep it running at just above zero.

Do you bank online?
No, because I'm not computer-literate. And anyway, I'm suspicious of it – I read about people having their accounts penetrated and identities stolen through computer hacking. Every day I sit at my little Japanese typewriter and I tell people it's impossible to hack into a typewriter.

Is there a reduced demand for your services because of the current squeeze?
Thankfully, I negotiated the contract on my new book before the recession started. I only get paid royalties when the advance has been topped out, but my excellent agent usually manages to secure such a ludicrously large advance that it takes several years before that ever happens.

Do you think pensions are a good idea? If not, why not?
When I was a young man I could never envisage being old. I started saving into a pension fund when I was about 40, but I haven't touched the money yet so it's just accruing. I'll either be a rich old b------ in a wheelchair or a rich old corpse.

Frederick Forsyth's next novel, 'Cobra', to be published next year, has already raised £990 for Leonard Cheshire Disability last month after a charity auction to name a character in the thriller


http://www.telegraph.co.uk/finance/personalfinance/fameandfortune/6249853/Frederick-Forsyth-I-lost-2.2m-in-a-share-fraud.html

Ian Cowie: Try to time stock markets at your peril

Ian Cowie: Try to time stock markets at your peril
Anyone who acted on the old City adage – sell in May and stay away until St Leger's Day – should be feeling a bit foolish as the gee-gees run in the race of that name at Doncaster.

By Ian Cowie
Published: 1:21PM BST 11 Sep 2009

Never mind the first anniversary of the collapse of Lehman Brothers bank, which falls next Tuesday, marking the point at which the credit crunch turned into a global crisis. That sad event will be a good day for stock market bears to hold a picnic but the facts are already so well-rehearsed that they are the subject of a BBC TV drama.

No, from the viewpoint of an estimated 21m people in Britain who are aged over 50, next month's sharp increase in the maximum value of individual savings account (Isa) inputs is of potentially far greater significance. Unlike younger investors, these silver savers will be allowed to shelter 40pc more of their money in the Isa tax shelter from October 6.

While there is nothing we can do about the past, investment is one area where anyone who can afford to set something aside can have a go at influencing the future – at least for themselves and their families. Raising the maximum Isa investment from £7,200 to £10,200 per person will substantially boost savings placed beyond the grasp of HM Revenue and Customs (HMRC).

Unfortunately, many people are in no position to consider saving more in these difficult times. But, despite all the bad economic news, most people remain in work and many do not need to spend everything they earn.

The over-fifties are also the age group with most reason to save hard, now the end of their working careers is no longer unimaginably distant. It is estimated that nearly three quarters of investors who place the current maximum in Isas are aged over 50. If only half those in this age group invest half next month's increase in the Isa limit, that would mean an extra £16.5bn a year will be out of reach of HMRC.

Better still, the magic of compounding means the £3,000 extra that can be put in an Isa next month could be worth much more than that in years to come. For example, if the money grows at 5.5pc per annum net of charges – which is not unreasonable with long-term gross returns from shares at around 7pc a year, less annual charges of 1.5pc – then the extra £3,000 could be worth £5,124 after 10 years and £11,440 after 25.

Compounding works even better if you invest the extra £3,000 each year from now on. Again assuming 5.5pc per annum net returns, that would add £39,767 to the value of your Isas after 10 years and an eye-stretching £157,992 after a quarter of a century.

Against all that, many people may fear that this is hardly a good time to invest in shares, when the FTSE 100 has risen by more than 40pc from its low-point of 3,512 in March. They will include those who mocked long-term bulls like me, who pointed out how cheap shares were back then.

But the best summer rally since 1933, according to analysis by Deutsche Bank, is likely to have caused even the most thick-skinned bears to wind their necks in a bit. Anyone who acted on the old City adage – sell in May and stay away until St Leger's Day – should be feeling a bit foolish as the gee-gees run in the race of that name at Doncaster today.

Unfortunately, the summer's share price hikes do not diminish the awkward possibility that bears who were wrong in March may prove right today. Reasons to be fearful include the fact that the average price of FTSE shares are currently at nearly 16 times earnings, or more than double the price/earnings ratio of 7 in March.

So the sensible course of action for anyone who is going to lose sleep at night if the stock market falls – as it will, from time to time – is to stick to cash Isas, which are simply tax-free bank or building society accounts.

Those who are willing to accept higher risks in pursuit of higher rewards may take some comfort from the statistics which demonstrates that time in the market is more likely to generate profits than worrying too much about when you buy and sell. According to research by Fidelity International, £1,000 invested in the FTSE All-Share index continuously over the last 20 years would have rolled up into £4,325 by last month.

However, if you missed just the 10 best days during those two decades by not being invested when shares rose most, you would miss nearly half those gains to finish with a total return of £2,325. If you missed the two best days a year, you would have ended the two-decades a loser with only £775 to show for your original £1,000 stake.

With commendable understatement, Sanjeev Shah, manager of the Fidelity Special Situations Fund, observes: "It can be tempting during times of stock market uncertainty to delay making investment decisions or to sell existing holdings. Attempting to move in and out of the market can be a costly affair, though.

"In many cases, investors can often be better served by remaining fully invested during the entire period; enduring near-term pain but not missing out on the subsequent rebound.

"Today's low growth and low interest rate environment is good for equities. We have seen a strong rally since the low in March and while a correction of sorts is likely at some stage, I think the bull market will continue for some time and it is not too late to invest."

Yes, I know that cynics may say Mr Shah's analysis begs the Mandy Rice-Davies riposte: "He would say that, wouldn't he?"

But the figures – and this summer's extraordinary rally – demonstrate the difficulty of timing turning points in stock markets; not least because share prices tend to rise most sharply immediately after confidence hits a low-point. So, for investors with no faith in prophets, hanging on for the long term would appear to be the best way to buy a share of future profits.


http://www.telegraph.co.uk/finance/personalfinance/comment/iancowie/6168973/Ian-Cowie-Try-to-time-stock-markets-at-your-peril.html

Lehman Brothers, the bank that bust the boom

Lehman Brothers, the bank that bust the boom
A year after the collapse of Lehman Brothers, the key players reveal for the first time their nail-biting attempts to avoid disaster - and how the UK and US governments refused to help

By Dominic Crossley-Holland
Published: 7:00AM BST 06 Sep 2009

Comments 4 | Comment on this article


Richard Fuld, chief executive officer of Lehman Brothers Holdings Inc., outside a hearing into the bank's collapse in October 2008 Photo: Mannie Garcia/Bloomberg News The collapse of Lehman Brothers, a year ago this week, was the biggest bankruptcy in corporate history. It was 10 times the size of Enron and, more crucially, the tipping point into the global crash, provoking panic in an already battered financial system, freezing short-term lending, and marking the start of the liquidity crisis.

Yet searching questions remain unanswered. Authorities had intervened on both sides of the Atlantic to rescue a litany of stricken institutions, from Northern Rock to Bear Stearns, and mortgage companies Fannie Mae and Freddie Mac, so why let Lehman go down? And was a rescue by Barclays effectively blocked by the UK authorities?


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A TV debate could be sudden political death - bring it on! Now, for the first time, many of the key players involved reveal what really happened on that extraordinary weekend last September. Their accounts provide a unique window into the closed world of how politicians, central bankers and CEOs battled to stave off what one of those involved called "Armageddon"…


Friday, September 12, 2008

"So it was Friday afternoon. I was in Merrill's midtown offices," recalls John Thain, then chief executive of Merrill Lynch. "It was raining hard and I got a phone call at 5pm – 'Be at the Fed at 6pm this evening'. Those type of calls are always bad."

The American Treasury Secretary Hank Paulson, known as "The Hammer", had just swept into town, and with little more than an hour's notice was summoning the chief executives of America's leading banks, the so-called Masters of the Universe, to the Federal Reserve.

The Fed, a granite fortress just around the corner from Wall Street, has seen many dramas, but nothing to match what was to come over the next 48 hours. As the billionaire investor Christopher Flowers, who was at the Fed, says: "I think, in the history of business in the last 50 years, it was the most extraordinary weekend there has been."

For months Lehman had been the subject of Wall Street rumour, with the markets worried about its risky assets and exposure to the sub-prime property crash. By early September the bank was having trouble borrowing and its share price was in freefall, closing at $16.13 on September 2, down from a high of $82 in 2007. Ten days later, as Paulson summoned the CEOs, it closed at just $3.65.

At the Fed it was clear from the start that huge forces were at play. Rodgin Cohen, corporate lawyer for Lehman Brothers, says: "I don't think there was a person there who didn't understand the stakes we were playing for."

Treasury Secretary Hank Paulson and the New York Fed chief Tim Geithner were running the show, and John Thain says they were startlingly clear from the start: "They said to us, 'This is the problem: Lehman needs to be rescued. You have to come up with a solution; we the government are not gonna help.' "

The assembled CEOs were incredulous that there would be no government bail‑out.

Paulson and Geithner took up residence on the 13th floor of the Fed, with other banks – potential buyers – setting up teams on different floors to go through Lehman's books. Principal among the suitors was the South Carolina-based Bank of America and the British bank, Barclays.

In London, Chancellor Alistair Darling was being kept in touch with events. "We knew Lehman was in trouble. Remember, there was constant traffic between our Treasury and the US Treasury, between the regulators, and during that time I spoke to Hank Paulson pretty regularly. On the Friday evening we knew they would have to do something about Lehman."

Barclays had been eyeing Lehman for months, and moved quickly, its team led by the president of Barclays, Bob Diamond. "We certainly didn't know what we were going to find," Diamond recalls, "but we wouldn't have boarded the plane if we weren't that serious."

So how had Lehman, America's fourth largest investment bank, fallen so far – and so fast? Its success was largely down to one man, Richard Severin Fuld, who would go on to become the longest-serving chief executive on Wall Street. Starting his career as a paper trader, he determinedly worked his way up a slew of senior jobs before becoming CEO in 1993.

Under Dick Fuld, Lehman expanded quickly, grabbing the opportunities presented by the waves of deregulation with soaring profits and a share price that rose from $4 in 1994, to $82 in 2007.

How had Fuld done it? In a word: risk. "Dick Fuld essentially said to our head risk-taker in commercial mortgage-backed securities, 'You've got to take more risk,' " says Larry MacDonald, vice‑president of securities at Lehman. " 'Risk, risk, risk, risk, risk, and that risk leads to the bottom line.' "

Lehman then did something that more cautious banks shied away from: it borrowed more and more money. By August 2007, the bank's leverage ratio is believed to have gone as high as 44 to 1 – far beyond competitors like Goldman Sachs and Morgan Stanley, which had ratios in the 20s or 30s.

Huge rewards followed for those who took the risk. By 2007 turnover was more than $19 billion and staff took home $9 billion in pay and bonuses. Between 2000 and 2008 Dick Fuld took home between $310 and $500 million, although the precise figure is disputed.

Back at the Fed, Dick Fuld's wealth and lofty status counted for nothing. Extraordinarily, he hadn't even been invited, with even some on his own side fearing that his combative nature may be a hindrance.

As the night wore on, most of the CEOs headed back to their corporate apartments, leaving their teams of accountants and lawyers to work through the small hours on Lehman's books.

The Barclays' team, led by Bob Diamond, was getting frustrated: "To be frank, we had trouble getting traction. It was clear to us that the management of Lehman Brothers were spending an awful lot of time with at least one firm going through due diligence."

That other firm was Bank of America, and as the night wore on what its team found in the books appalled them. Just a month before, the bank believed its portfolio was worth $40 billion; now it had fallen to around $25 billion.

"When you started adding all those losses up from this property and that property, it ended up a very big number," says Christopher Flowers, who was also advising Bank of America. "A number that was so large, the losses were so large, that it really meant the company was bankrupt unless it got support from the US government."


Saturday, September 13, 2008

What happened next took everyone by surprise.

Returning to the Fed on Saturday morning, Merrill Lynch's John Thain began to fear attention might switch to his bank, as it too was hugely exposed. Standing on the pavement outside the Fed, he made an audacious move, calling Ken Lewis, boss of Bank of America, at his home in South Carolina. "The conversation was relatively short," says Thain. "I said to him I thought it made sense for us to explore some strategic options."

It was this move that led to the announcement on Monday, just as Lehman finally collapsed, that Bank of America had bought Merrill Lynch for $50 billion. The whirlwind romance was proof – if any were needed – of the Wall Street maxim: kill or be killed.

As rumours of the Merrill deal swirled around the Fed that Saturday, all the attention shifted to Barclays. "We got a very positive sign," says Bob Diamond. "We got moved into a much bigger conference room in the Fed and there was a sign on the door that said 'Buyer'."


Sunday, September 14, 2008

Sunday morning started with a sense of optimism that a deal with Barclays was close. Lehman had called in America's most famous bankruptcy lawyer, Harvey Miller, just in case, but the mood remained upbeat.

"I was actually thinking that it might be a fire drill," says Miller. "That there was going to be a deal and they'd announce it some time that afternoon and then I'd be free to go and do the things I had planned."

At the Fed, negotiations had again gone through the night, and Bob Diamond was keeping the Barclays board up to date. "Frankly, we were feeling cautiously optimistic."

Outside, the media had caught on and the rolling news and business channels were giving the story of the embattled bank more and more attention.

By the early afternoon, as the fine print of the deal was being worked on by the teams, the British bank, like Bank of America before it, wanted guarantees for Lehman's debts so it could open for business the next day. A deal was within spitting distance, but who would underwrite it? The British? The Americans? This underwriting was necessary because a bridging loan was needed until the bank was formally bought, and since that would take time, and the markets opened on Monday morning, it meant that in the meantime the British or American governments had to underwrite any business or trading Lehman did.

"The tone of the conversations was beginning to change," says Harvey Miller. "You could hear in the voices of the Lehman representatives a higher level of doubt that things were going to work out."

Telephone calls across the Atlantic were strained as efforts were made to break the deadlock. "Midway through the Sunday afternoon we, the Financial Services Authority, informed the New York Fed categorically that from our perspective we couldn't see how this deal could go forward, given that they were not willing to offer any liquidity guarantees," says FSA chief executive Hector Sants.

The tension was palpable – Lehman would go down unless the US Treasury Secretary authorised the guarantee, and time was running out, as the European markets opened in 12 hours' time.

"We were asked to come to the main floor," says Lehman's lawyer Rodgin Cohen, "where the group of the major banks was closeted behind these very heavy doors, and we were asked to wait. We spent hours waiting there."

Hank Paulson was on the phone to London. "I spoke to him on the Sunday afternoon," recalls Chancellor Alistair Darling, "and he said, 'Look, your regulators are asking hundreds of questions.' I made the point that they were asking them with very good reason. I think the Americans recognised that the game was up. We couldn't possibly get ourselves into a situation where effectively we were guaranteeing an American bank."

Eventually Paulson called Lehman and declared that the British government was not prepared to let Barclays continue with the transaction, explains Cohen. The Lehman team asked Paulson whether anything could be done. He replied: "I'm not going to cajole or plead with the British government, nor am I going to threaten the British government in terms of a relationship."

The bank's bankruptcy team was summoned and told to be ready to file for bankruptcy by midnight.

"What we wanted wasn't available," says John Varley, the CEO of Barclays. "We walked, end of story." Diamond, who'd been working round the clock, admits he felt "gutted".

Rodgin Cohen now had the unenviable task of reporting back to Dick Fuld. "It was as difficult a call as I have ever made in my life," says Cohen. "He said, 'This is just unbelievable; how can this be happening?', and we spent a few minutes going back over the same ground. Then he shifted to, 'Right, is there anything else we can do?' "

Back on Seventh Avenue at Lehman's HQ there was one last act of desperation. It so happened that a second cousin of President Bush worked at Lehman Brothers. What happened next remains a matter of dispute, but Lehman's securities vice-president, Larry MacDonald, was told by colleagues who were there that they tried to get the President to intervene, although this is denied by George Herbert Walker.

"The President is [George's] cousin, but to reach out to the White House under duress is a very stressful situation for everybody. Finally he agreed to make that call to the White House," says MacDonald, "and the operator put him on hold, which to the people in the room seemed like an eternity. As the seconds ticked, everybody's pulses were racing. Finally the operator came back on the line and she said, 'I'm sorry, the President cannot take your call at this time.' There was just a horrific, blood‑curdling feeling in the room of potential destruction and potential despair."

Dick Fuld and the board of directors had one last task to perform: to pass a resolution winding up the bank. At their peak, Lehman shares had been worth $85; now they were 3 cents. "It was very dark outside," remembers Miller, "and Dick Fuld looked up, clearly a man in turmoil, and said, 'I guess this is goodbye.' "

In the middle of the night the bankruptcy lawyers had completed the preparations and were ready to file the petition.

"It is like sending an email," explains Harvey Miller. "So, yes, we filed it and it was the end of an institution that had been one of the originators of Wall Street. Here it was, all coming to an end by pressing a button on a computer."

By the end of trading on Monday, September 15, about $700 billion had been wiped off global stock markets. The next day the experiment of leaving the market to decide the fate of major financial institutions was over, as the US authorities intervened with an $85 billion bail-out of insurer AIG. Within a week, scores of companies were fighting for survival, and Hank Paulson was asking Congress for a $700 billion bail-out package.

Historians will debate whether the crash could have been avoided if Lehman had been saved. One of Paulson's deputies at the Treasury, Neel Kashkari, concedes that everyone underestimated the consequences of letting Lehman go down. "It obviously turned out to be very bad; it was worse than we feared. And as you know, while the credit markets basically shut down two days later, the real depth of the damage was not seen for weeks – or even months."

In London, too, the Governor of the Bank of England, Mervyn King, now admits the scale of the consequences took everyone by surprise. "I don't think any of us easily anticipated that we would see the sort of financial panic that we saw after the failure of Lehman Brothers," he says.

Having witnessed the rise and fall of so many institutions over the past four decades, America's leading bankruptcy lawyer Harvey Miller may be among the better placed to judge what brought Lehman Brothers' proud 158-year history crashing down. "When I went to college, I learnt in economics that you do not finance long-term investments with short-term money, and that is what happened," he says. "And I believe it happened because greed took over and the returns were so big.

"So many people were making so much money that they lost all fear, and risk did not become a factor in doing anything."


* The Bank That Bust the World, the first part of BBC2's series The Love of Money is on Thursday at 9pm. Dominic Crossley-Holland is head of business programming at the BBC

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/6143297/Lehman-Brothers-the-bank-that-bust-the-boom.html

Long bear market for stocks not yet over

Long bear market for stocks not yet over


Equity investors can be forgiven for wishing that the third quarter would last forever.



By Edward Hadas, Breakingviews.com

Published: 3:47PM BST 01 Oct 2009



Stock markets ignored the deep recession during the last three months, rising by double-digit percentages almost everywhere except Japan. The MSCI World equity index was up 15pc.



That was enough to bring a definitive end to the bear market which started in 2007. But the long bear market for stocks – the one that began in 2000 – may not be over yet.



For the last decade, stock markets in fact have underperformed the economy. While retail prices and real GDP have risen at a 2-3pc annual rate in most countries, most indices are still at levels seen in 1998 or 1999.



Stocks were a bargain when markets bottomed in March – driven down by a combination of fear and squuzed liquidity. Now, though, the case for buying is much less clear.



The global stock market is selling at 14 times expected 2010 earnings, according to Société Génerale estimates. That is not particularly cheap by long-term standards. And those earnings expectations rely on assumed improvements in profit margins. Unless the recovery takes a sharp V-shape, earnings could disappoint and drag down stocks.



Equity investors taking the long view don’t have too much to worry about. Bear markets don’t last forever, although they can go on for a long time if Japan is any guide. The recession will not continue indefinitely. As long as deflation is averted, stock prices should be up substantially a decade from now. But that does not mean stocks will rise in a straight line from here.



Holders of government bonds, the apparently safer alternative to stocks, have much more to fear. Yields of around 3.5pc on 10-year paper leave almost no room for unexpected inflation. But with central banks and governments all pushing hard to get money flowing – including some interventions that keep bond yields down – the risk of an inflationary outburst is high.



Investors may not like the notion that stocks aren’t great but bonds look worse. There are grim periods, though, when almost all investors do poorly. Despite a few good months, this may be one of them.

http://www.telegraph.co.uk/finance/breakingviewscom/6251374/Long-bear-market-for-stocks-not-yet-over.html

Maybank poised to expand in Indonesia

Maybank poised to expand in Indonesia



Written by Ellina Badri

Thursday, 01 October 2009 11:14



KUALA LUMPUR: MALAYAN BANKING BHD [] (Maybank) is poised to expand its Indonesian operations after its bottom line took a hit in an impairment charge in its last financial year ended June 30, 2009 pursuant to its acquisition of Bank Internasional Indonesia (BII).



Maybank president and chief executive officer Datuk Seri Abdul Wahid Omar said the banking group would expand its Indonesian operations as part of its aspiration to become the leading financial services group by 2015.



He said BII would be developed aggressively over the next three years, with its branch network to be expanded to 450 from 250 branches currently, and by doubling the presence of its automated teller machines (ATMs) to 1,500.



“We are targeting to have a sizeable presence in all areas in Indonesia,” Wahid told reporters after Maybank’s AGM yesterday. He said capital expenditure for its expansion was, however, still being finalised, with the amount of money spent to depend on the size of each branch.



Wahid said the bank would focus on improving BII’s fundamentals via loans and revenue growth, rather than achieving growth through mergers and acquisitions.



Maybank took a RM1.62 billion impairment charge on its 97.5%-owned BII in FY09 and an impairment loss of RM353 million in its 20%-owned MCB Bank in Pakistan that resulted in its net profit falling 76% year-on-year to RM691.88 million.



Wahid (left) and chief financial officer Khairusalleh Ramli at the AGM yesterday. Photo by Chu Juck Seng



Wahid added Maybank did not expect further impairment charges in FY10, with BII set to record profitable results in the current fiscal year.



He also said loan-loss provisions at its Indonesian unit would be “normal” moving forward, with nothing “out of the ordinary” expected.



Maybank’s total loan-loss provisions had risen 109.7% to RM1.7 billion in FY09, with the consolidation of BII’s loan-loss provisions for the first time by RM366.2 million.



Wahid is confident of an improved performance in FY10, though the current financial year would still be challenging, with the bank seeing a gradual recovery in tandem with the residual recession.



“Our improved performance will stem from the lack of impairment charges on our overseas acquisitions, the economic recovery which is expected to bring broad-based growth, results delivered from our overseas operations, and higher revenue and cost optimisation from our Leap30 transformation programme,” Wahid said.



He also said the bank was maintaining its FY10 headline key performance indicator of achieving 8% revenue growth and an 11% return on equity. On its Singapore operations, which contributed to S$248 million (RM613 million) in profit in FY09, he said Maybank’s presence there was far ahead of other Malaysian banks located there.



He said while Malaysian banks provided additional competition in the Singapore market, Maybank was viewed as a local player there and possessed a significant brand presence.



SMOOTH TRANSITION... Maybank’s outgoing chairman Tan Sri Mohamed Basir Ahmad (left) with his successor Tan Sri Megat Zaharuddin Megat Mohd Nor at a ceremony marking the handover of the chairmanship during the bank’s AGM in Kuala Lumpur yesterday. Photo by Chu Juck Seng



Elaborating on the bank’s Middle Eastern presence, with one branch located in Bahrain and a small stake in an investment company in Riyadh, Wahid said these were used as “listening posts” to help the bank capture greater capital flows between the Middle East and Malaysia.



On the bank’s dividend policy, he said it would maintain its payout at between 40% and 60% of net profit.



Asked on the impact of the flooding in the Philippines on its 45 branches there, he said of its branches, five were located in Manila, but they had not seen any major impact from the catastrophe. He added the bank had put in place contingency measures, and that it was “all under control”.



On Maybank’s outlook for the Malaysian economy, Wahid said the worst was over, with Maybank having revised its gross domestic product (GDP) forecast to a contraction of 2.9% from a previous projection of a 3.8% decline, while its 2010 GDP forecast had been revised upwards to 4.5% from 4.2%.



He also said inflation was expected to come in at 1% this year, and 1.5% in 2010, with upside risks, while the overnight policy rate was expected to be maintained at 2% in 2010.



Maybank also projected the ringgit to strengthen against the US dollar going forward, at RM3.50 to the greenback in end-2009 and RM3.40 to the dollar in end-2010.



During the AGM, Tan Sri Mohamed Basir Ahmad handed over the chairmanship of Maybank’s board to Tan Sri Megat Zaharuddin Megat Mohd Nor, who takes over today.



Mohamed Basir retired as chairman after 16 years of service, the longest-serving chairman on the bank’s board.



Megat Zaharuddin had served as an independent, non-executive director on Maybank’s board from July 2004 before resigning in February 2009.



He has returned as chairman upon being appointed by the bank’s largest shareholders. He also served as chairman of its remuneration and establishment committee, and was a member of its nomination committee.



He possesses over 30 years of experience in the oil and gas industry, and had been regional business CEO/MD of Shell Exploration and Production International BV (Netherlands), before retiring in January 2004.



Megat Zaharuddin is also currently chairman of the Malaysian Rubber Board, director of the Capital Market Development Fund, the International Centre for Leadership in Finance, and Australia’s Woodside Petroleum. He was also chairman of Maxis Communications Bhd from January 2004 until November 2007.





This article appeared in The Edge Financial Daily, October 1, 2009.