• Riding uptrend in demand for food commodities
Initiate coverage on QL Resources (QL with a Buy recommendation and
target price of RM7.30) based on 20x CY11 P/E. QL’s products will benefit
directly from the rising global demand and price trend for food
commodities. The group is one of Asia’s largest surimi manufacturers and
a Malaysian market leader in livestock feed trading, fishmeal and egg
production.
• Sustainable earnings growth
We have forecast a 3-year forward forecast EPS CAGR of 17.3% (FY11-
13), that will be driven by strong demand for QL’s marine, livestock feed,
poultry products and palm oil, with rising population and disposable
income, as well as the group’s steady capacity expansion. Diversification
reduces earnings volatility by smoothening out cyclicality of its resourcebased activities.
• Assertive regionalisation drive
QL’s expansion plan is both local and regional, with total group capex set
to increase by 60% in the next 2 years to RM200m annually. The group is
replicating its business model in the ASEAN region with new poultry farms
in Tay Ninh, Vietnam and Cianjur, Indonesia; a new marine plant being
constructed in Surabaya, Indonesia and further planting and palm oil mill
slated for its plantation in Tarakan, Kalimantan, Indonesia.
• Benefits from government incentives for agriculture
QL benefits from the government’s pro-agriculture stance via tax
incentives that translate to a lower tax rate (15% in FY10) and subsidised
diesel for its deep sea fishing operations. The group’s latest venture into
renewable energy is directly in accordance with the government’s
promotion of green technology as contained in the Budget 2011
announcement.
• Further upside to share price
Despite what seems like expensive valuations, we are bullish on QL as we
firmly believe it deserves premium valuation to peers as well as market.
QL’s next 2 years earnings CAGR of 16.1% is impressive as compared to
Malaysian peers of 5.6%. Furthermore, over the last 10 years, QL’s
average 12-month forward earnings growth is impressive at 23%. At our
target price, PEG ratio is undemanding at only 0.9x based on 10-year
average growth rate.
http://www.ecmmoney.com/wp-content/uploads/downloads/2010/12/QLG_101214_Initiating-coverage.pdf
Wednesday 22 December 2010
Pimco says 'untenable' policies will lead to eurozone break-up
Pimco says 'untenable' policies will lead to eurozone break-up
Pimco, the world's largest bond fund, has called on Greece, Ireland and Portugal to step outside the eurozone temporarily and restructure their debts unless the currency bloc agrees to a radical change of course.
Pimco, the world's largest bond fund, has called on Greece, Ireland and Portugal to step outside the eurozone temporarily and restructure their debts unless the currency bloc agrees to a radical change of course.
Andrew Bosomworth, head of Pimco's portfolio management in Europe, said current policies are untenable in the absence of fiscal union and will lead to a break-up of the euro.
"Greece, Ireland and Portugal cannot get back on their feet without either their own currency or large transfer payments," he told German newspaper Die Welt.
He said these countries could rejoin EMU "after an appropriate debt restructuring", adding that devaluation would let them export their way back to health.
Mr Bosomworth said EU leaders were too quick to congratulate themselves on saving the euro last week with a deal for a permanent bail-out fund from 2013.
"The euro crisis is not over by a long shot. Market tensions will continue into 2011. The mechanism comes far too late," he said.
The bond fund argues that the EU strategy of forcing heavily indebted countries to undergo draconian fiscal austerity without offsetting stimulus is unworkable.
The austerity policies are stifling the growth needed to stabilise debt levels.
"Can countries inside a fixed exchange-rate system like the euro grow and tighten budget policy at the same time? I don't think so. It didn't work in Argentina," Mr Bosomworth said.
Pimco also gave warning that the bond vigilantes have lost faith in the policy and are trying to liquidate their holdings of peripheral EMU faster than the European Central Bank (ECB) can buy the debt, causing a relentless rise in yields, and a vicious circle.
Despite this, the ECB said on Monday that it had cut purchases of government debt last week, settling €603m (£509m), down from €2.68bn a week earlier. The withering comments from the world's top investor in EMU sovereign debt is a blow for Portugal and Spain. Both nations are hoping bond spreads will start to narrow before they face a funding crunch in the first quarter of next year.
Jacques Cailloux, chief Europe economist at RBS, agreed that last week's European summit had failed to grasp the nettle.
"None of the policy responses put in place in Europe since the start of the crisis provides a credible backstop to prevent further contagion," Mr Cailloux said.
"We remain most concerned about an escalation of the sovereign debt crisis hitting larger economies in the euro area. Markets continue to underestimate the potential disruption via financial transmission channels that such an event could trigger."
Meanwhile, Spain must cut harder and deeper to rein in its finances, the OECD has warned, calling for an overhaul of its labour laws and employment practices. Madrid is already in the midst of harsh austerity measures, but the influential Paris-based think-tank said more must be done. The Spanish economy should be able to shrink its budget deficit from 11pc of GDP last year to the 6pc target next year, the OECD believes.
Price of hot chocolate to soar
Price of hot chocolate to soar
Just when it seemed the only respite from the bad weather was curling up in front of the fire with a mug of hot chocolate, there is more bad news.
http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/8215194/Price-of-hot-chocolate-to-soar.html
Just when it seemed the only respite from the bad weather was curling up in front of the fire with a mug of hot chocolate, there is more bad news.
The price of hot chocolate is to soar after the wholesale cost of cocoa powder jumped by 32 per cent over the last year.
The rise has been blamed on failing crops earlier in the year and disruption from suppliers in Ivory Coast, whose traders suffered following a chaotic general election earlier. Specualtors have been adding to the problem by stocking up.
Cocoa powder as risen to £3,000 a ton a much bigger rise than cocoa butter which is used to make chocolate bars.
The figures were disclosed by commodities analyst Mintec for The Grocer magazine.
'The price of chocolate drinks is coming under pressure and cocoa powder and sugar become more expensive on the world markets," a spokesman for Mintec.
'Over the past few months the price of cocoa powder has been steadily increasing and sugar prices have followed suit propelling the price of chocolate raw materials to record levels.'
It added: 'As chocolate consumption is increasing faster than production, prices for raw materials might not ease quickly.'
http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/8215194/Price-of-hot-chocolate-to-soar.html
What investment bankers earn in UK
What investment bankers earn
From back office clerk to accountant to head of investment, we list the average salaries – and bonuses – of investment bank employees in the City of London.
From back office clerk to accountant to head of investment, we list the average salaries – and bonuses – of investment bank employees in the City of London.
Settlements:
Clerk: £30,000-£43,000 (plus 10pc bonus)
Supervisor: £40,000-£55,000 (plus 15pc bonus)
Manager: £48,000-£70,000 (plus 20pc bonus)
Trade Support:
0-1 years: £25,000-£30,000 (plus bonus dependent on trader or broker performance)
More than 3 years: £40,000-£60,000 (plus bonus dependent on trader or broker performance)
Financial Control:
Newly qualified: £35,000-£45,000 (plus 5 to 7pc bonus)
Director: £85,000-£130,000 (plus 40 to 60pc bonus)
Regulatory Accountant:
Newly qualified: £35,000-£48,000 (plus 5 to 7pc bonus)
Director: £90,000-£110,000 (plus 40 to 60pc bonus)
Private banker/Client portfolio manager:
1-3 years: £30,000-£45,000 (plus 10 to 30pc bonus)
More than 10 years: £80,000-£100,000 (plus 40 to 100pc bonus)
Investment analyst:
1-3 years: £40,000-£65,000 (plus 0 to 100pc bonus)
More than 10 years: £110,000-£130,000 (plus 0 to 100+pc bonus)
Fund manager:
5-8 years: £70,000-£100,000 (plus 0 to 100pc bonus)
More than 10 years: £110,000-£150,000 (plus 0 to 100+pc bonus)
Chief investment officer/Head of investment:
£130,000 (plus 100+pc bonus)
• Michael Page Financial Services: Salary Survey 2010
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8210778/What-investment-bankers-earn.html
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8210778/What-investment-bankers-earn.html
Padini Holdings Berhad
• Direct beneficiary of uptick in consumer spending
We recently hosted a corporate presentation by Padini Holdings (Padini),
a well-established retailer of fashion apparel and footwear, and came
away with a positive medium-term outlook on the company. Strong brand
recognition and large nationwide store network place Padini in favourable
position to capitalise on any strengthening consumer sentiment and
spending.
• Padini Corp and Vincci Ladies continue to lead
Padini Corp and Vincci Ladies are the most significant subsidiaries in
Padini Group, together constituting 70% of FY10 group revenue and 84%
of pretax profit. Padini-branded clothing and footwear with the Vincci label
have consistently resonated with Malaysian consumers thanks to the
group’s effective merchandising strategy.
• Extending ‘Brands Outlet’ store network
The group is expanding its value proposition ‘Brands Outlet’ stores in
response to positive reception by shoppers and to expand its store
network to urban areas beyond the highly saturated Klang Valley. There
are currently 11 ‘Brands Outlet’ stores that account for 27% of the group’s
total retail floor space.
• Potential for dividend upside
Given Padini’s minimal capex requirements in the 2-year forward forecast
period, we believe that the company could pay out higher dividends than
the 15.0 sen DPS in FY10 (or 32% dividend payout ratio).
• Fair value of RM5.33
Utilising a target P/E of 10x applied to CY11 EPS of 53.3 sen, we arrive at
a fair value of RM5.33. Our target P/E is based on a 2x premium to Bonia
Corp, Padini’s closest comparable. We believe that Padini deserves to
trade at higher valuations because it has a larger store network and
higher margin product mix (with larger proportion of fashion apparel).
Target P/E is lower than Padini’s 12-year historical average P/E of 11.7x
(FY99-FY10) however, as we anticipate moderation in earnings growth
moving forward. We have projected a 3-year net profit CAGR (FY10-12) of
6.4%. Our fair value indicates a potential 9% upside to current share
price.
http://www.ecmmoney.com/wp-content/uploads/downloads/2010/12/PAD_101221_Non-rated.pdf
We recently hosted a corporate presentation by Padini Holdings (Padini),
a well-established retailer of fashion apparel and footwear, and came
away with a positive medium-term outlook on the company. Strong brand
recognition and large nationwide store network place Padini in favourable
position to capitalise on any strengthening consumer sentiment and
spending.
• Padini Corp and Vincci Ladies continue to lead
Padini Corp and Vincci Ladies are the most significant subsidiaries in
Padini Group, together constituting 70% of FY10 group revenue and 84%
of pretax profit. Padini-branded clothing and footwear with the Vincci label
have consistently resonated with Malaysian consumers thanks to the
group’s effective merchandising strategy.
• Extending ‘Brands Outlet’ store network
The group is expanding its value proposition ‘Brands Outlet’ stores in
response to positive reception by shoppers and to expand its store
network to urban areas beyond the highly saturated Klang Valley. There
are currently 11 ‘Brands Outlet’ stores that account for 27% of the group’s
total retail floor space.
• Potential for dividend upside
Given Padini’s minimal capex requirements in the 2-year forward forecast
period, we believe that the company could pay out higher dividends than
the 15.0 sen DPS in FY10 (or 32% dividend payout ratio).
• Fair value of RM5.33
Utilising a target P/E of 10x applied to CY11 EPS of 53.3 sen, we arrive at
a fair value of RM5.33. Our target P/E is based on a 2x premium to Bonia
Corp, Padini’s closest comparable. We believe that Padini deserves to
trade at higher valuations because it has a larger store network and
higher margin product mix (with larger proportion of fashion apparel).
Target P/E is lower than Padini’s 12-year historical average P/E of 11.7x
(FY99-FY10) however, as we anticipate moderation in earnings growth
moving forward. We have projected a 3-year net profit CAGR (FY10-12) of
6.4%. Our fair value indicates a potential 9% upside to current share
price.
http://www.ecmmoney.com/wp-content/uploads/downloads/2010/12/PAD_101221_Non-rated.pdf
Tuesday 21 December 2010
The path to achievable growth
Click for more photos
In a rocky market environment, with the economic outlook also far from clear, one way to boost a portfolio is to seek out growth stocks - those dynamic companies that continue to expand year after year.
These can offer the astute investor both a steadily appreciating share price and a rising dividend payout.
However, they also come with greater risk than other stocks, often including high price-earnings ratios and significant share-price volatility.
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Typically, a growth stock operates within a thriving industry and occupies a strong and expanding market share position within that industry, allowing it to boost profits on a sustainable basis.
Its particular strength might be its technology, or its ability to bring out a steady stream of innovative new products, or simply a business model that is superior to that of rivals.
Dynamic management is often another notable characteristic.
A classic example is the bionic-ear implant manufacturer Cochlear, which holds about two-thirds of the global market for its products with high profit margins. A continuing stream of new, high-tech models keeps it at the forefront of its industry.
Between 2004 and 2010 its earnings per share figure tripled and a glance at its long-term share-price chart shows that from about $22 in early 2004, the shares soared to nearly $80 in late 2007, before retreating when the global financial crisis hit.
Simon Robinson, a senior private wealth manager at Wilson HTM, which manages the Wilson HTM Priority Growth Fund, cites another example - electronics retailer JB Hi-Fi.
''Now that they have established their business model effectively, they are able to gain significant leverage as they continue to roll out new stores,'' he says. ''Then, as sales volumes increase, they get more buying power and more value for their advertising dollar.
''That allows them to become more efficient than competitors and they pass on these efficiencies to their customers, which makes them even more competitive. It is a virtuous circle.''
However, Robinson notes that a particular danger of growth stocks is that the market might project into the share price significant levels of growth, above what is actually achievable. This can lead to a high share price, followed by a sharp sell-off once investors realise that growth will not meet expectations.
''Growth stocks are sometimes significantly underpriced and sometimes they are significantly overpriced,'' he says. ''It is important for investors to understand the components of that growth, including the industry in which the company operates and the competitive dynamic there.''
In fact, he advises investors that their best strategy is to analyse companies carefully in order to spot potential growth stocks while they are still on relatively low price-earnings ratios and have not generally been recognised by the market.
For investors interested in this theme, another issue recently has come to the fore - claims that Australia now has far fewer growth stocks than previously.
''If you went back five years or so there were a lot of pretty sexy growth stories,'' says an equity strategist at Merrill Lynch, Tim Rocks. ''In healthcare there were companies like Cochlear and [vaccine and blood products corporation] CSL and in other industries you had a range of companies that still had good growth in front of them, such as JB Hi-Fi.
''[Surfwear specialist] Billabong International was another example.
''Even [merchant bank] Macquarie at that time, you would say, was a growth company. It was expanding offshore and as many as a dozen more large companies were out there, with very interesting long-term growth profiles.
''That appears to us to be no longer the case. Many of those companies are now well advanced in their strategies, so their periods of very high growth are behind them.
''And, more interestingly, the next generation has not really appeared to step up. So we struggle to find a big list of companies with that genuine sustainable growth in front of them.''
He notes that much growth in the Australian market comes from the resources sector but the relevant stocks tend to be volatile and too China-dependent to be classic growth stocks.
However, Robinson says, there are always growth stocks ''but the trick is finding them''.
The institutional business director at Hyperion Asset Management, Tim Samway, rates four internet companies - Seek, Wotif.com Holdings, REA Group and Carsales.com. ''They have very high returns on equity, low debt and steady organic earnings growth,'' he says.in
The art of picking gems
Examine a particular company in the context of the wider economy when selecting stocks.
A reasonably firm domestic economy and improving conditions overseas have led many analysts to forecast that next year will be a good one for the sharemarket.
Nevertheless, the ride for investors could be rocky.
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In particular, we appear to be developing what some are terming a two-speed economy. While the mining and energy industries boom, other sectors are mixed, with growing concerns about a slowdown in consumer spending and about the impact of the dollar's strength.
The result is that stock selection - always a significant consideration for serious investors - becomes more important than before.
What are the key ingredients of successful stock picking?
Talk to any group of experts and you will find they offer many varying methods. It is sometimes said that investing is not a science but an art.
Here are four considerations:
UNDERSTAND THE ECONOMY
For many professionals, the stock-selection process begins with a top-down examination of economic trends. "I like to see where I think the economy is going, both here and overseas," says a senior client adviser and strategist at Austock Securities, Michael Heffernan.
"That sets the canvas, or the foundation, on which I make my selections. Whether I expect the economy to do well or badly will influence which stocks I choose."
SEARCH FOR VALUE
Learn the fundamentals of the company in which you wish to invest. This is certainly the most important consideration for any investment decision and, while it may sound obvious, it is clear many investors have only a cursory understanding of the companies whose shares they buy.
"You need to do some legwork," says an equity analyst with the Fat Prophets market information company, Greg Fraser. "You need to know about the company, its industry and its competitors. You should understand its products or services."
This can all be seen as the qualitative side of the company. It is also important to look at the quantitative side - its financial statements. "Look at the earnings of the company, not just for this year but in a trend over time," he says. "You also need to understand the balance sheet and the cash flow statement. These can give you a feel for how highly geared the business is, its exposure to interest rates, whether it is sufficiently capitalised or not and so on.
"And once you put those things together, you then need to try and work out whether you think the company's shares are currently trading above or below what you think is a fair value."
The chief executive officer of the funds management and market data company Lincoln Indicators, Elio D'Amato, urges investors to pick stocks that are exhibiting dynamic growth.
"There are not many truisms in the sharemarket," he says. "But there is at least one - if earnings grow over the long term, the share price will follow."
This month his company released a shortlist of stocks it believes could outperform in 2011, including debt-collection agency Credit Corp Group, equipment rental finance specialist Silver Chef, engineering company Forge Group, retailer Thorn Group and internet service provider iiNet.
SPECIALISE
Select several areas of the market and develop an in-depth knowledge of these.
Controversial British businessman Jim Slater wrote a book on this theme, titled The Zulu Principle, after realising that his wife, with just a little reading, was becoming an expert in Zulus.
He advises investors to specialise in a narrow area of the market and to become an authority. He says doing this will allow recognition of small, dynamic growth stocks before most others.
RESPECT MARKET CYCLES
Author and educator Alan Hull manages the Alan Hull Books investor website (alanhullbooks.com.au). As an exercise, early in 2009 he drew up two portfolios, one comprising solid, highly rated blue chips and the other made up of "Dogs of the Dow" - large stocks that had been among the market's worst performers in the previous year.
In the rally of 2009, the blue-chip portfolio recorded a one-year return of 15 per cent. By contrast, the "Dogs of the Dow" soared more than 90 per cent.
"It was obvious that during 2009 we were in a bargain-hunter's environment," he says. "It was not a market that had reverted to fundamentals. That is not to say that fundamental analysis does not work. But it was not suited to that part of the market cycle.
http://www.brisbanetimes.com.au/money/investing/the-art-of-picking-gems-20101214-18w60.html
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