Buying shares in household company names can sound like an attractive proposition, but sometimes the pre-sales hype fails to live up to expectations. A recent example is Myer Holdings, which floated amid a blaze of Jennifer Hawkins publicity and optimism in 2009. But Myer isn’t alone. Today, two analysts reflect on some of the more popular floats pitched at retailer investors before assessing each company’s prospects.
Starting with Myer, Mark Goulopoulos, of Patersons Securities, says the retail giant now offers a cheap entry point in response to their shares losing about 30 per cent in value since their IPO (initial public offering) price of $4.10 a share. He says it’s futile to compare Myer’s 2010 revenue performance with 2009 given last year’s Federal Government stimulus handout artificially and temporarily increased retail sales. But rising interest rates are having an impact on retail sales across the board. “Looking ahead, the Australian economy remains in solid shape and retail sales are likely to return to reasonable growth late this year, or in early 2011,” he says. “Myer is highly likely to participate in this growth. Trading on a forecast price/earnings ratio of 11 times and a prospective fully-franked dividend yield of 7.3 per cent, the stock appears cheap and offers reasonable medium term upside.”
There’s a lesson inexperienced retail investors can learn from the Myer float. A private equity consortium owned Myer prior to listing, and in Goulopoulos’ view the company was floated on a relatively high valuation compared to its peers. He says private equity consortiums follow a familiar investment pattern – they buy distressed or undervalued assets, strip out the costs, then re-sell them for the highest possible price. “The Myer IPO was well supported mostly due to a slick marketing campaign aimed at loyal customers,” he says. Goulopoulos says Myer has never traded at or beyond its $4.10 IPO price, but has been below $3.
Goulopoulos says times have been immensely challenging for AMP since it demutualised and listed on the ASX in 1998. He says AMP’s share price fell below $3 in the bear market following the tech wreck due to severe concerns about the company’s strategy and future. Goulopoulos says the worst is behind AMP and the company is poised for a bright future with or without AXA Asia Pacific, a company it bid for, as did the National Australia Bank. “AMP offers strong potential built around an ever-growing superannuation savings pool,” he says. “Super growth is set to accelerate should the Rudd Government’s proposed increases to the superannuation guarantee scheme proceed. It will make AMP a potential target for the big four Australian banks. I have been buying AMP.”
Telstra is undervalued and its share price should rise irrespective of whether it has a role in the National Broadband Network, according to Goulopoulos. He says simply removing uncertainty would be positive for Telstra’s share price. He expects Telstra’s margins to improve from a low base by introducing new technology, such as the T-Hub that offers users a cordless handset and access to a wide range of internet sites. “Telstra is a content provider and everyone wants content,” he says. “Its upgraded broadband, offering movies on demand and access to internet sites, such as YouTube, will set new standards in home entertainment. And Telstra easily has the best 3G mobile network in Australia which should attract more customers.” Goulopoulos says it’s way too late for long-suffering shareholders to sell Telstra when it may be involved in the NBN, and still offers earnings growth potential and an attractive dividend.
Michael Heffernan, of Austock, likes to recall that Commonwealth Bank first listed on the ASX at $5.45 a share in 1991. Like the Telstra privatisation, the former government bank wasn’t sold all at once, so several tranches followed. But unlike Telstra, the Commonwealth Bank has been a rewarding investment, with the share price reaching $59.44 in April 2010. Heffernan says dividends have risen from 40 cents a year in 1991 to $2.35 in the past 12 months. He maintains the bank is a relatively good long-term buy at $50 levels, but warns the price could still fall in these volatile times. However, he doesn’t see the share price retreating to anywhere near its low of $24 during the global financial crisis. “The bank’s fundamentals are attractive and its huge home lending portfolio provides stability in uncertain times,” he says. “This is a stock for conservative investors looking for modest capital growth and solid income.”
Qantas is probably one of the world’s most profitable airlines, but operates in a global industry that constantly presents challenges. High and volatile crude oil prices, volcanic eruptions and economic downturns can have a sudden and negative impact on earnings. Heffernan says Qantas also continues to face increasing competition from discount airlines. “Despite all this, Qantas has been a reasonable performer, but I don’t expect its share price to reach its all time high of $6.06 anytime soon,” he says. “This is a stock for investors prepared to tolerate a high degree or risk, otherwise sell into a rally.”
Heffernan says a pending court case in the US has probably kept the lid on CSL’s share price. CSL is vigourously defending a multi-million dollar civil class action, alleging price fixing of plasma. A successful defence would probably result in a fast-rising CSL share price. Heffernan says CSL is among the global leaders in the blood plasma and vaccine industries and has been a stellar sharemarket performer. “CSL is a stock that weathered the global financial crisis in great shape and its earnings have been fairly consistent over the years,” he says. “This is a stock that value investors should consider including in their portfolios.”
|Company||ASX Code||Share Price Close June 11, 2010|
Please note that TheBull.com.au simply publishes broker recommendations on this page. The publication of these recommendations does not in any way constitute a recommendation on the part of TheBull.com.au. You should seek professional advice before making any investment decisions.
Other articles in this week’s newsletter