Rudi’s View: Suncorp, TechnologyOne, a2 Milk

Always an independent thinker, Rudi has not shied away from making big out-of-consensus predictions that proved accurate later on. When Rio Tinto shares surged above $120 he wrote investors should sell. In mid-2008 he warned investors not to hold on to equities in oil producers. In August 2008 he predicted the largest sell-off in commodities stocks was about to follow. In 2009 he suggested Australian banks were an excellent buy. Between 2011 and 2015 Rudi consistently maintained investors were better off avoiding exposure to commodities and to commodities stocks. Post GFC, he dedicated his research to finding All-Weather Performers. See also "All-Weather Performers" on this website, as well as the Special Reports section.

Rudi's View | Aug 10 2017

Second part of this week's Weekly Insights, containing:

-Conviction Calls: Goldman Sachs, Wilsons, Citi, CS, UBS
-Worry About The '7' In 2017
-Resources Stocks: It's Different In August
-Rudi On BoardRoomRadio
-2016 - L'Année Extraordinaire
-All-Weather Model Portfolio
-Rudi On TV
-Rudi On Tour

Conviction Calls: Goldman Sachs, Wilsons, Citi, CS, UBS

By Rudi Filapek-Vandyck, Editor

Bankinsurer Suncorp ((SUN)) was tipped by some to likely surprise to the upside this August reporting season, but the opposite materialised. Even those with a positive bias had to admit: this was an unexpectedly weak performance from Queensland's largest financial institution.

Analysts at Goldman Sachs had included Suncorp in their Australia/NZ Buy List, but the weak result has triggered a downgrade to Hold and the stock has swiftly been removed from what is best described as Goldman Sachs's select list of Conviction Buys in the Australian share market.

It is the analysts' conclusion now that "earnings trajectory is less compelling in the near term", plus "less prospect of capital management". This is not to say the share price will continue to fall as investors grapple with the shock financial performance. FNArena's market consensus has the shares trading on 5.5% dividend yield, ex 100% franking, and that should keep a firm hand under the share price during times of still exceptionally low bond yields.

Let's just say that Suncorp has instantaneously become less boring, but also not as safe as most investors thought it was pre last week. But with low risk for dividend reductions in the years ahead, no doubt yield hunters have the stock now firmly on their radar.


Another stock that lost a little bit of its glamour recently is TechnologyOne ((TNE)), still firmly on my list of All-Weather Performers in Australia (see also dedicated section on FNArena website). Wilsons has decided it is best to remove the stock from its Conviction Calls list following a nasty fall-out with the Brisbane City Council.

From the outside it appears TechnologyOne had to endure local governmental incompetence, which ultimately led to a break-down in communication and in the commercial relationship. But appearances are not necessarily the full story and Wilsons is acting in the best effort to contain any fall-out risks.

Begrudgingly, one must add, as revealed by the following statement: "We remain buyers of TNE supported by a view that the group remains well placed to prosecute a multi-year earnings growth trajectory."

To remain on Wilsons Conviction List one must be as impeccable as possible, and certainly a public stoush with a very vocal Brisbane Council is not included. The conflict has moved into legal arbitration.

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