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  • Is BHP really a blue-chip? | Business Spectator
    ore metallurgical coal and copper due to increased supply after massive investment in new capacity by the industry Eventually the slower rate of investment growth should balance supply and demand and prices will level out Over the long term the outlook is positive as the fundamentals of wealth creation demographics and urbanisation continue to raise demand for commodities across Asia and other markets As China urbanises and transitions to a more consumption based economy commodities supporting the production of food energy and consumer goods should experience demand growth This explains the US2 6 billion investment at the Jansen potash project in Canada The thesis is a potential global supply gap beyond 2020 BHP s bet is potash will one day provide valuable earnings and returns to shareholders just as the iron ore deposits acquired in the 1960s do today The appointment in May of new chief executive Andrew Mackenzie heralds a new era after the commodity price boom of mostly operationally focused organic growth The outlook for flat to weak commodity prices makes large expensive M A deals less profitable and harder to justify to shareholders BHP pays out 50 per cent of its earnings as dividends more akin to a small cap growth stock than one of the market s largest companies Most of BHP s large cap peers pay out 60 90 per cent of earnings The relatively high 50 per cent rate of reinvestment reflects the capital intensity of the business large fleets of transport vehicles and mining ore processing and distribution machinery and the constant depletion of BHP s reserves through mining BHP must reinvest in exploration and or the acquisition of new mines to replace its own mines as they become exhausted or uneconomic The progressive dividend policy aims to steadily increase or at least maintain the dividend in US dollars at each half yearly payment In recent years the company stuck with this policy despite shareholder pressure for a step increase in the payout ratio The gradual dividend increases partly compensate for the volatility in the share price We forecast average NROE of 23 per cent Our required return is 12 9 per cent reflecting sound fundamentals large market capitalisation and excellent access to both debt and equity markets We have conducted a bull and bear case scenario analysis that accounts for the swings in NROE by adopting an NROE 3 per cent above and below our base case of 23 per cent In a bearish case using an adopted NROE of 20 per cent we derive a valuation of 30 61 which is 20 per cent below our valuation for the 2014 financial year In a bullish case using an NROE of 26 per cent we derive a valuation of 47 05 which is 22 per cent above our 2014 valuation wysiwyg field wf deltas 1 wf field field wysiwyg media wf formatter aibm ui media output wf settings style full width wf cache 1381713250 wf entity id 627726 wf entity type node

    Original URL path: http://www.businessspectator.com.au/article/2013/10/14/markets/bhp-really-blue-chip (2014-01-13)
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  • Value Investor: Wowing the punters, year after year | Business Spectator
    is a high base effect in WOW Note trading area expansion was a key driver of EBIT growth while EBIT per sqm growth was still subdued Over the last five years WOW s normalised return on equity NROE has fallen three percentage points from 38 per cent to a still strong 35 per cent due to increased competitive pressures price deflation and the lossmaking rollout of Masters What makes WOW attractive to value investors is its high and historically stable NROE However its large premium of NROE to our 11 7 per cent required return makes the valuation quite sensitive to NROE If supermarket price competition intensified squeezing margins and or Masters losses worsened NROE could fall to 32 per cent and the FY14 valuation would be 13 per cent lower at 31 09 wysiwyg field wf deltas 0 wf field field wysiwyg media wf formatter aibm ui media output wf settings style full width wf cache 1380321043 wf entity id 620141 wf entity type node Figure Woolworths Ltd Price vs Value Chart Source www StocksInValue com au The company ranks as one of the best stocks to own in Australia trading marginally above valuation see above Much of its value is priced in A quality company we will watch closely as it navigates competitive pressures WOW is on our watchlist to buy on a pullback Amelia Bott is an Equities Analyst at StocksInValue a joint venture between Clime Investment Management a boutique value fund manager and the Eureka Report StocksInValue provides valuations of 400 ASX listed companies by Clime and equities research insights and strategy that you won t find elsewhere by the StocksInValue analyst team For a free trial please visit www stocksinvalue com au or call 1300 136 225 Print this page Value Investor Wowing the punters year after year Stocks In Value 27 Sep 2013 1 46 PM 3 Industries Retail Markets More from Stocks In Value 10 Jan Value Investor QBE is still at a premium 20 Dec Wesfarmers value is off Target 13 Dec Value Investor Downside danger for Woodside 06 Dec Value Investor ASX won t float your boat 29 Nov Value Investor Fortescue a fit for investors with fortitude Related articles 13 Jan Aust stocks flat at noon 13 Jan Aust stocks open little changed 13 Jan Scoreboard Dollar bounce 13 Jan ASX warns on market outsourcing 13 Jan Aust dollar lifts in early trade More from Business Spectator Technology Adapt or die Commercial The Future of Energy Family Business Alan Kohler s Family Business China China Spectator Log in to post comments Comments I am always interested in Submitted by Graham Morgan on Sat 2013 09 28 11 13 I am always interested in these articles by investment analysts I often wonder if they shop at the retailers they analyse Woolworths used to be superior to Coles and anyone who shopped at both could discern that I only have Woolworths and IGA now The offering at Woolworths has deteriorated markedly The

    Original URL path: http://www.businessspectator.com.au/article/2013/9/27/markets/value-investor-wowing-punters-year-after-year (2014-01-13)
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  • Value Investor: Pepsi is taking the fizz out of Coke | Business Spectator
    member Sign in here Email Address Enter your Email Address Password Enter the password that accompanies your Email Address Remember me Log in Request new password The power of the Coca Cola brand is CCL s core competitive advantage and supports its large price premium Its unparalleled brand equity allows CCL to take commoditised inputs including sugar aluminium and PET resin and produce branded outputs with healthy margins and pricing power The question in a new era of price competition is can the real thing sustain this price premium CCL s pricing power might be breaking down Historically contractions in CCL s market share in response to significant price premium increases have been short lived But in the context of increasingly frugal consumers combined with a rotation away from sugary drinks and sustained discounting by main competitor Pepsi Schweppes the ability to recoup market share losses will be a challenge and are likely to affect long term volume and capacity for price growth Management noted increased competitor price discounting recently and guided a 3 5 per cent decline in EBIT earnings before interest and tax for 2014 We have cut our forecast for normalised return on equity NROE to 32 per cent This lowers our valuation by 18 per cent to 9 14 Coca Cola Amatil s CCL large scale manufacturing and distribution network unrivaled brand equity and diversified portfolio have contributed to a strong history of earnings growth and share price premium More recently though challenging conditions in the grocery channel driven by extreme price discounting threatens its capacity to sustain historical rates of return CCL s interim result disappointed the market and highlighted the challenges in the core Australian business Despite efforts to appease the market with a special dividend the stock fell over five per cent on the day CCL reported a decline in net profit of 12 3 per cent to 215 9 million Its Australian business which generates 70 per cent of EBIT reported a six per cent decline in sales and 10 per cent decline in EBIT Volumes were down 6 4 per cent driven by a 14 per cent drop in grocery channel volumes Most of the decline reflected aggressive discounting The launch of Pepsi Next saw CCL and Schweppes compete aggressively with in store promotions The Pepsi price war saw Coca Cola s price premium over competitors expand 10 points and triggered a one percentage point loss in market share to 52 per cent Destocking by the major supermarkets is putting further pressure on grocery volumes Coles and Woolworths with a collective market share of an estimated 72 are reducing excess inventory As earnings decline domestically CCL is looking offshore in particular to Indonesia where it reported EBIT growth of 12 5 per cent for the half Management committed 51 per cent of FY14 capital expenditure to boost manufacturing and distribution in the region After a brief hiatus following the sale of Pacific Beverages to SAB Miller in 2011 CCL will re

    Original URL path: http://www.businessspectator.com.au/article/2013/9/20/markets/value-investor-pepsi-taking-fizz-out-coke (2014-01-13)
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