Rudi's View | Aug 31 2017
This is part two of this week's Weekly Insights (part one was published on Monday and Wednesday respectively in email and on the website):
-CBA And The Premium Gone
-September S&P Index Rebalancing
-Rudi On BoardRoomRadio
-Investing: The USD Did It!
-Energy Sector – August Report Card
-Rudi On BoardRoomRadio (the updated version)
-2016 – L'Année Extraordinaire
-All-Weather Model Portfolio
-Rudi On TV
-Rudi On Tour
[Note the non-highlighted items appeared in part one only]
Investing: The USD Did It!
Market sentiment and capital flows are increasingly being reflected in FX markets, which then flows onto equities worldwide. Just think about how the persistently stronger-for-longer Aussie dollar has been holding back share prices for international players such as Aristocrat Leisure ((ALL)) and CSL ((CSL)) in the Australian stock market.
Equally, there is more than a fair argument to be made that at least part of the refound popularity for base metals has occurred on the back of relentless downward pressure on the greenback.
Here's where the chart below from Morgan Stanley analysts gets extra-interesting as the lower USD impact post June has predominantly flowed into base metals, or so it appears, not so much into oil, or even gold.
Energy Sector – August Report Card
I have been asked by a third party publication to write down my observations and assessment regarding the oil and gas sector during the August reporting season in Australia. With the usual caveat that investors should always assess their own appetite for risk, and in the knowledge that share prices for miners and energy companies can be a lot more volatile than your average yield stock or industrial, on the assumption they don't issue a profit warning, I am hereby sharing my insights with readers at FNArena.
In a reporting season that mostly underwhelmed and failed to excite throughout August, many of the pleasant surprises were delivered by mining companies and oil & gas stocks. Miners had been tipped by many in advance, given persistently high bulk commodities prices and strong rallies in base metals, but crude oil had largely disappointed in the first half and question marks had been raised about true costs, growth options at lower than projected oil prices, free cash flows and balance sheet vulnerabilities.
As it turned out, the oil & gas sector generally delivered a positive outcome. Below is a brief assessment of the key individual performances.
-AWE Ltd ((AWE)): FY17 performance disappointed all and sundry. Operational costs are a problem and so is a declining production profile. Progress on projects Waitsia and Ande Ande Lumut is necessary to get investors excited again, but the latter, on the company's own admission, needs crude oil priced above US$50/bbl.
-Beach Energy ((BPT)): delivered a big beat plus larger-than-expected reserve increase. Management is confident in the strong production profile, and total reserve replenishment by 2019. Strong cash flows remain on the horizon. One broker suggested this will become the go-to mid-cap stock for investors seeking sector exposure. Major negative: share price valuation post big jump on FY17 release.
-BHP ((BHP)): operationally couldn't quite meet market expectations, but the prospect of selling onshore shale operations in the USA and passing on (part of) the proceeds to shareholders has investors excited. The company could be net cash by the end of FY18 and this keeps expectations alive about potential for more capital management.
-Oil Search ((OSH)): delivered an okay interim result, but investor attention goes out to delayed expansion plans due to oversupplied markets. Oil Search remains connected to probably the most exciting expansion potential worldwide, but delays are a disappointment and imply previously assumed benefits will arrive later.
-Origin Energy ((ORG)): delivered a better-than-expected FY17 performance with faster than anticipated debt reduction feeding market hopes dividends for shareholder might make a swift comeback, soon. Lower cost to operate APLNG are another significant positive. Current guidance might prove conservative.
-Santos ((STO)): cost reduction and cash generation surprised friend and foe. The rapid de-gearing of the balance sheet translates into de-risking of the business. Assuming steady progress continues to be made, the share price could make a double-digit percentage catch-up, if the oil price and market sentiment further align.
-Senex Energy ((SXY)): FY17 disappointed and sanctioning the Western Surat CSG expansion might imply the stock remains off radar until prospects for FY19 start materialising in a more tangible manner. This probably explains why the share price looks genuinely cheap.
-Woodside Petroleum ((WPL)): stringent cost reduction helped the interim result beat market expectations, including a higher dividend. Delay at Wheatstone was disappointing and question marks remain about true growth potential in case oil prices remain low for longer.
See also Energy Sector’s Sword Of Damocles, Rudi's Views, July 24th.
Rudi On BoardRoomRadio (the updated version)
Not to be confused with the audio interview from last week, here's the latest:
2016 – L'Année Extraordinaire
It was quite the exceptional year, 2016, and I did grab the opportunity to write down my observations and offer investors today the opportunity to look back, relive the moments and draw some hard conclusions about investing in the world today.
If you are a paid subscriber to FNArena, and you still haven't downloaded your copy, all you have to do is visit the website, look up "Special Reports" and download your very own copy of "Who's Afraid Of The Big Bad Bear. Chronicles of 2016, A Veritable Year Extraordinaire" (in PDF).
For all others who still haven't been convinced, eBook copies are for sale on Amazon and many other online channels. You'll have to visit a foreign Amazon website to also find the print book version.
All-Weather Model Portfolio
In partnership with Queensland based Vested Equities, FNArena manages an All-Weather Model Portfolio based upon my post-GFC research. The idea is to offer diversification away from banks and resources stocks which are so dominant in Australia, while also providing ongoing real time evidence into the validity of my research into All-Weather Performers.
This All-Weather Model Portfolio is available through Self-Managed Accounts (SMAs) on the Praemium platform. For more info: email@example.com
Rudi On TV
This week my appearances on the Sky Business channel are scheduled as follows:
-Tuesday, 11.15am Skype-link to discuss broker calls
-Wednesday, unfortunately, I had to cancel hosting of Your Money, Your Call, 8-9pm
-Thursday, Skype-link around 1.30pm
-Friday, 11.15am Skype-link to discuss broker calls
Rudi On Tour
– I will be presenting in Adelaide on November 14th to members of Australian Investors Association and other investors, 7pm inside the Fullarton Community Centre, 411 Fullarton Rd, Fullarton. Title of presentation: Investing In A Slow Growing World – An Update
(This story was written on Monday 28th August, 2017. It was published on the day in the form of an email to paying subscribers at FNArena. This is part two. The first part has been published in the form of an email on Monday, which was re-published as a story on the website on Wednesday).
(Do note that, in line with all my analyses, appearances and presentations, all of the above names and calculations are provided for educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views are mine and not by association FNArena's – see disclaimer on the website.
In addition, since FNArena runs a Model Portfolio based upon my research on All-Weather Performers it is more than likely that stocks mentioned are included in this Model Portfolio. For all questions about this: firstname.lastname@example.org or via the direct messaging system on the website).
BONUS PUBLICATIONS FOR FNARENA SUBSCRIBERS
Paid subscribers to FNArena (6 and 12 mnths) receive several bonus publications, at no extra cost, including:
– The AUD and the Australian Share Market (which stocks benefit from a weaker AUD, and which ones don't?)
– Make Risk Your Friend. Finding All-Weather Performers, January 2013 (The rationale behind investing in stocks that perform irrespective of the overall investment climate)
– Make Risk Your Friend. Finding All-Weather Performers, December 2014 (The follow-up that accounts for an ever changing world and updated stock selection)
– Change. Investing in a Low Growth World. eBook that sells through Amazon and other channels. Tackles the main issues impacting on investment strategies today and the world of tomorrow.
– Who's Afraid Of The Big Bad Bear? eBook and Book (print) available through Amazon and other channels. Your chance to relive 2016, and become a wiser investor along the way.
Subscriptions cost $380 for twelve months or $210 for six and can be purchased here (depending on your status, a subscription to FNArena might be tax deductible): https://www.fnarena.com/index2.cfm?type=dsp_signup
(Do note that, in line with all my analyses, appearances and presentations, all of the above names and calculations are provided for educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions.)
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