The “biggest losers” can be a bit of a misnomer, as some of these stocks are simply volatile stocks that see the share price soar one day only to plunge the next. This can be seen as an opportunity to get on board a solid company while there is a dip. Ausdrill is a case in point, with 100% of analysts surveyed (eight analysts) have a buy on the mining services company, which is already up 100% over the past year. See below for more details and commentary. However others are simply beaten down stocks that investors should steer clear of, with their appearance in the biggest losers list to be taken as a sign of more pain to come. Take Australand, for example, on which nine out of twelve brokers have a sell or a hold.
In a week that saw plenty of takeover activity and the ASX200 rise 2.9%, the biggest losers were only hit between 2.7%-4.5% each day. Until Friday that is, when the ACCC said Foxtel’s takeover bid for the regional pay television provider Austar (AUN) could substantially lessen competition. This sent the AUN’s share price tumbling 16.2% for the day, leaving it at the same level it was this time last year. It seems Murdoch – one of Foxtel’s three shareholders with a 25% stake (Packer owns 25% and Telstra the other 25%) – is set to continue his run of bad luck. Newscorp shares are already down 11.5% since the News of the World scandal broke two weeks ago, and were down as much as 17.5% at one stage.
Biggest Loser – Australand, -4.3%
Biggest Loser – Pacific Brands, -4.5%
Biggest Loser – Ausdrill, -2.7%
Biggest Loser – CSR, -4.0%
Biggest Loser – Austar, -16.2%
Weekly change -$0.245
% change -18.4%
Stock code: AUN
Charts: Austar Limited
More news: Austar Limited
Investor Centre: Austar Limited
Rupert Murdoch can’t seem to win a trick at the moment. Embroiled in the UK News of the World phone hacking scandal and one of his editors arrested (and a share price down 11.5%), it now seems that Foxtel – the pay TV company that he holds a major stake in – will have its ambitions thwarted of buying out the competition.
With its share price propped up by the potential takeover by Foxtel, it was little wonder that Austar (AUN)’s share price plummeted on news that the competition watchdog said Foxtel’s takeover bid for the regional pay television provider could substantially lessen competition. AUN shares plunged 16.2% to be the day’s biggest loser, wiping almost one sixth of the value off AUN shares after the competition regulator said Foxtel’s takeover bid could create a “near monopoly”. Shares ended a bad week 18.4% lower.
The ACCC has denied its review of the proposed acquisition of the regional pay television provider by Foxtel is related to inquiries involving News International. Rupert Murdoch’s News Corp is a major shareholder in Foxtel, along with Telstra and James Packer’s Consolidated Media Holdings.
“This has got nothing to do with anything that is occurring elsewhere or media inquiries or anything like that at all,” ACCC chairman Graeme Samuel said. “This is purely an analysis undertaken under Section 50 of the Competition and Consumer Act.”
The ACCC says its preliminary view is the takeover may lessen competition in the subscription TV market, the market for audio visual content and supply of telecommunications products. “The proposed merger would effectively create a near monopoly subscription television provider across Australia,” the ACCC said in its Statement of Issues, released on Friday.
The commission also said content would be affected because fewer subscription TV providers would directly lead to fewer content buyers. “The ACCC’s preliminary view is that the proposed acquisition is likely to substantially lessen competition in a number of telecommunications markets.”
Additionally, through its 50 per cent holding in Foxtel, Telstra would be able to take advantage of Foxtel’s position in the national pay-TV market to the detriment of competition in the telecommunications market. The takeover would allow Telstra to provide bundled services, including pay-TV, telephone and internet, which would be more difficult for rivals to provide. Market inquiries showed it was becoming increasingly important to be able to provide a bundle of services, particularly once the NBN is rolled-out.
“The ACCC’s preliminary view is that there is a real chance that the proposed acquisition will remove an important source of future competition in telecommunications markets”. The regulator said Austar was seen as a potential competitor in telecommunications markets.
The ACCC was seeking comment by August 11 and said its final decision would be deferred until September 8.
Weekly change -$0.02
% change -0.7%
Stock code: CSR
Charts: CSR Limited
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Investor Centre: CSR Limited
Thursday’s 4% fall took CSR’s share price losses to 11% over the past two weeks and 25% over the past five months since it undertook a share consolidation. All this despite full year profit rebounding and the announcement that it is assessing a number of opportunities for bolt-on acquisitions between $25-100 million each. It also said that the sale of its Brendale property will be completed in the second half of 2011/12.
Incoming chief executive Rob Sindel told shareholders the company will focus on making acquisitions that complement its existing portfolio of businesses, especially in the multi-residential construction area and he expects more acquisition opportunities to arise in the next 12 to 24 months. The sale of CSR’s property at Brendale in Queensland had been delayed by the January floods, and will now be completed in the second half of 2011/12.
Apart from the recent floods, CSR is facing a number of headwinds, from a softer property market to the impact of the carbon tax. It expects Australian housing starts to be around 150,000 to March 31, 2012, however this may be an optimistic projection and it admits that non-residential markets for building product sales remain challenging.
Natural disasters can have a silver lining for investors. Chris Elliott, principal private client adviser for Shadforth Financial Group, says the estimated damage bill from the “summer of natural disasters” is expected to be more than $5.8 billion. “Any initial slow down will be more than offset by a recovery spend needed to get Queensland back on its feet,” he says. And CSR is one of those set to benefit.
As fate would have it, offloading its sugar division turned out to be a blessing as the state’s far north sugar cane regions were ravaged by a cyclone. CSR now focuses on making and suppling building products in Australia and New Zealand and operates Australia’ s second largest, but one of the world’s lowest costs, aluminium smelters. Elliott says the company offers a strong balance sheet after selling its sugar division. “With the potential to participate in rebuilding Queensland via building products and Viridian glass operations, we are forecasting earnings per share growth of 144 per cent in 2012,” Elliott says. “CSR represents good buying for growth and yield.”
Sean Conlan, Macquarie Private Wealth also has a buy on the company. “Together with the recovery from natural disasters and general market uncertainty, no firm numbers have been provided in terms of expectations for full-year 2012,” says Conlon. “The strong Australian dollar remains a headwind, but this building materials company will continue to benefit from lower net finance costs in the near term, given the balance sheet remains in a net cash position.”
And while it maintained a buy recommendation on CSR, UBS expects weakness in housing to continue over the next six months and its forecasts and price targets right across the sector have been lowered.
Based on Thomson Reuters data seven analysts have a buy on CSR, six have a hold with just one sell.
Weekly change -$0.15
% change -4.5%
Stock code: ASL
Charts: Ausdrill Limited
More news: Ausdrill Limited
Investor Centre: Ausdrill Limited
Despite grabbing the title of the day’s biggest loser on Wednesday with a fall of 2.7%, and a fall of 4.5% over the course of the week, Ausdrill (ASL) – as has been the case with many mining services stocks – has boomed over the past year, rising a whopping 100% for the past 12 months.
As reported earlier this month on TheBull PREMIUM, in an article “Mining Services Stocks Leveraged to the Mining Boom” in February on TheBull, and in 18 Share Tips on March 21st, brokers and funds have been jumping on board – which can’t have hurt the company’s share price.
On May 17, Invesco became a 5% shareholder of Ausdrill – the Invesco Smaller Companies Fund is overweight in a diverse pool of securities, led by mining services company Ausdrill Ltd (ASL). This appears to have been a good move, as JP Morgan and RBS Australia both initiated coverage of Ausdrill in May with buy ratings. The company is heavily focused on the gold and iron ore mining industries. JP Morgan, which expects a recent equity raising to enable additional capital investment, targeted the company’s share price at $4.17. This brings the consensus target up to $3.99. RBS noted that 65% of the company’s revenues come from customers at the production stage, protecting ASL against price volatility.
“Ausdrill’s business has experienced strong growth in recent years and, assuming continued strength in the resources sector, Ausdrill anticipates a high level of tender activity in the next 12 months,” the company said in April in anticipation of the equity raising. RBS forecasts 13-16% revenue growth across FY12-FY12; JP Morgan expects earnings per share to grow 20% in FY12.
Graeme Carson, Senior Industrial Analyst for Patersons, said that Ausdrill “expected to report a solid interim earnings result later this month following renegotiation of some key contracts previously operated by Brandrill as well as an earlier recommencement of exploration drilling operations in the New Year due to high demand.” Carson added, “The company is well and truly emerging as a dominant force in Australian and African contract mining services and the growth outlook is underpinned by the gold and iron ore-dominated order book.”.
Hamza Habib, Patersons Securities also has a BUY on ASL, pointing out that this diversified mining and services company reported a 71.7 per cent increase in interim 2011 earnings on the previous corresponding period. “Management has increased earnings guidance and expects to provide the market with positive news flow regarding new contract wins moving forward,” says Bigwood. “ASL’s African business exposure has been strengthened by its strategic alliance with Barminco, which is expected to grow the company’s revenue during the next two years.”
Based on Thomson Reuters data this is a favourite with brokers – 100% of analysts have a buy on ASL with a total of eight analysts covering the stock.
Pacific Brands (PBG)
Weekly change +$0.03
% change +4.5%
Stock code: PBG
Charts: Pacific Brands Limited
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Investor Centre: Pacific Brands Limited
Investors in Pacific Brands – which manages some of Australia’s most recognised brands, such as Bonds, Slazenger, Hard Yakka, KingGee and Dunlop – must be wondering how much further the stock can fall. After hitting an all-time high of $3.70 in July 2007, four years later PBG sits at a paltry 63.5 cents, having lost 83% of its value. It was the day’s biggest loser on Tuesday, falling a further 4.5%, taking its losses since the beginning of the year to 35%.
After David Jones’ shock announcement last week that it had a record fall in sales for the quarter – which sent it’s shares diving 25% – the retail sector has experienced heavy selling pressure, and PBG has not been immune.
Kien Trinh quant analyst with Patersons Securities recommends investors avoid Pacific Brands for the moment given it is currently losing earnings momentum. Matthew Kidman portfolio manager Wilson Asset Management agrees, reminding investors that while it may “look cheap”, PBG has already been hit with an earnings downgrade and there could be more to follow.
Kidman also says that it’s conceivable that the market could hit 3400 points before finishing the year somewhere between 4000-4500 points, and then bounce lower in 2012. “Unless interest rates are cut, Australia is going to head into recession if it’s not already there,” says Kidman. “Within the current secular bear market, we’re not going to get any decent returns for quite a while.”
Back in November 2010 when PBG announced that it was selling its Sleepmaker division, Steven Hing of Novus Capital identified that the stock looked like it was in trouble, predicting a fall to 80 cents (it was trading at $1.16 at the time). The company is struggling in the current market environment as margins are squeezed amid a stronger Australian dollar making imports cheaper,” said Hing. It seems that things became even worse than Hing had imagined, with the stock now at 64 cents.
More recently, Cameron Bell of Intersuisse, and Chris Elliott, Shadforth Financial Group told TheBull this month that they each have sells on Pacific Brands.
Bell says that the company has been trying to turn things around for a while now, but it’s stuck in a struggling retail sector and is exposed to a possible retreat in the Australian dollar and higher costs in China. “Uncertainty surrounding the restructure and a reliance on acquisitions to boost revenue also concerns us,” he says.
Elliott agrees that there will be revenue pressures for some time. “In the past 12 months, PBG has been restructuring – and culling non-performing brands – but it’s failed to meet expectations with the stock price continuing to fall,” says Elliott.
Other analysts are more bullish on PBG’s prospects. Based on Thomson Reuters data, 8 analysts have a buy on the stock, 6 have a hold, 2 have a sell.
Weekly change -$0.16
% change -5.7%
Stock code: ALZ
Charts: Australand Limited
More news: Australand Limited
Investor Centre: Australand Limited
After jumping 15 cents or 5.6% on Friday last week, Australand (ALZ) was the day’s biggest loser on Monday, losing most of Friday’s gains to end 4.3% lower for the day. By the end of the week it had erased all of last Friday’s gains to finish the week down 5.7%.
ALZ, which is 60% owned by the Singapore-based company Temasek Holdings, is an industrial, residential and investment property developer. It is different from most shares that you would invest in on the ASX in that it is a Real Estate Investment Trust (REIT), or more appropriately AREIT (Australian Real Estate Investment Trust). Many newer investors aren’t even aware of REITs because they pretty much fell off the investing radar when the sector collapsed at the onset of the GFC.
Prior to the GFC, real estate values had been appreciating handsomely since the end of the Second World War. However, for the retail investor, property investing suffered from a serious drawback – illiquidity. Simply put, if you had substantial investment capital tied up in real estate and you needed quick access to some cash, it could be quite some time before you could convert the investment. REITS was an answer to this liquidity problem and first appeared in the Australian share market in the 1970s when they were called LPTs (Listed Property Trusts).
Beyond the liquidity advantage, the tax designation of a REIT benefits both the owners and the investors. Owners get significant tax reductions but are required to distribute 90% of their taxable income to shareholders. Obviously, this makes REITs attractive investment vehicles for investors looking for dividend paying shares.
TheBull PREMIUM’s Bob Kohut did a fundemental analysis of ALZ a few weeks back, using Cedar Woods Properties (CWP) as a point of comparison. He found that while the numbers seemed to stack up for CWP, things didn’t look good for ALZ – which has high leverage, low return on equity (ROE), low return on assets (ROA, high price/earnings ratio and a high price to earnings growth ratio. The numbers below speak for themselves:
ROE (Return on Equity)
ROA (Return on Assets)
P/E (Price to Earnings)
PEG (Price to Earnings Growth)
Sean Conlan, from Macquarie believes that investors would be best clearing out of the stock and has a sell on the REIT. “Earnings for this major diversified property group should recover strongly in the next couple of years underpinned by improving profitability in its development businesses,” says Conlan. “However, we retain our underperform recommendation given the stock continues to trade around our target price.”
Many other analysts have mixed views on ALZ’s prospects. Based on Thomson Reuters data, 3 analysts have a buy on the stock, 5 have a hold, 4 have a sell. Given the reluctance of brokers to place sells on stocks – preferring instead to go for a “hold” – it should serve as a warning to investors that 9 out of 12 analysts have a hold or a sell on ALZ.
Each week we will look at the top gainers and biggest losers throughout the week. Note that these are not recommendations to buy or sell, although we do include broker views on these stocks in the article.
Please note that TheBull.com.au simply publishes broker views on this page. The publication of these views 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.