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Infrastructure

Tony Abbott has said he wants to be known as the “infrastructure prime minister” and there are already reports of fast-tracking certain roadway projects.  This has generated some speculation on stocks that could be “winners” here, such as Leighton Holdings (LEI), Downers EDI Ltd (DOW) and UGL Ltd (UGL).  

On the first trading day post election, UGL shares dropped while LEI and DOW went up. The following five day chart from Yahoo Finance shows the movement for the two initial “winners”:

All three of these companies offer a wide variety of services to multiple industries.  So while spending on road building could benefit one operating segment, the potential of cutbacks in rail infrastructure could hurt another segment.  Here are some performance and valuation measures for Leighton and Downer EDI:

 

Company (CODE)

Mkt Cap

Share Price

52 Wk % Change

Div Yld

1 Yr Total Share-holder Retrurn

2 Yr Earnings Growth Forecast

2 Yr Dividend Growth Forecast

P/E (Forward -2014)

P/B (MRQ)

Leighton Holdings (LEI)

$6.7b

$19.75

+30%

4.5%

25.1%

15.2%

16.3%

11.9

2.13

Downer EDI (DOW)

$2.03b

$4.48

+34%

4.6%

36.5%

4.7%

6.3%

9.55

1.21

 

Healthcare

Coalition health policy lacks a clear cut objective like repealing the mining and carbon taxes.  However, it is likely the new government will be more favorable to private health care providers.  Early speculation that the Coalition was looking to scrap the GP Super Clinics championed by the Labor Party led to a Coalition statement that no existing contracts would be canceled and existing Super Clinic funding would be reviewed.  In addition, the coalition has promised to review and not necessarily eliminate Medicare Locals.

The two ASX listed companies some analysts believe stand to benefit the most from a government favorable to private interests and less likely to intervene are Ramsey Health Care (RHC) and Primary Health Care (PRY).  Here are some performance and valuation measures for the two companies:

Company (CODE)

Mkt Cap

Share Price

52 Wk % Change

Div Yld

1 Yr Total Share-holder Retrurn

2 Yr Earnings Growth Forecast

2 Yr Dividend Growth Forecast

P/E (Forward -2014)

P/B (MRQ)

Ramsey Healthcare (RHC)

$7.32b

$36.35

+52%

1.9%

55.7%

-12.9%

13.5%

20.94

5.57

Primary Healthcare (PRY)

 $2.56b

$5.08

+35%

3.6%

45.3%

10.7%

15.1%

14.11

0.96

 

Ramsay Health Care operates private hospitals and same day surgery centers here in Australia, with locations in the UK, France, and Indonesia as well.  Primary Health Care operates medical centres that provide services to independent physicians who run their practices at the centre.  Primary also operates a range of diagnostic testing centres.

Both of these companies have rewarded their shareholders dating back ten years.  The average annual rate of total shareholder return for Ramsey over 10 years is 27.5% and 8.5% for Primary.  Both companies offer fully franked dividends and despite the impressive past performance, the earnings and dividend growth forecasts suggest both have upside potential.  Here is a ten year performance chart for these two healthcare stars, showing Ramsey’s phenomenal 780% increase and Primary’s respectable 50% increase:

Telecommunications

The new government’s plan for the NBN is to replace the previous planned FTTP (fibre to the premises) network with a less costly FTTN (fibre to the node) network.  This means company’s like Telstra and others will manage the connection from the node to individual homes and businesses along copper connections.  Critics complain this will result in slower connections, which it will, and additional costs in the future to upgrade the copper leg, which it might.  The Coalition response is that its plan will cost less and be completed more quickly.

The agreement between the NBN and Telstra to facilitate the FTTP will have to be renegotiated but Telstra management has already stated it will accept nothing less than the originally agreed upon $11 billion.  In theory then Telstra has nothing to lose from the shift and could emerge an even bigger winner since parts of its existing copper network will still be in play.  In addition, some analysts claim the copper to the premises arrangement could open the door for some of Telstra’s competitors.  Two stocks mentioned as benefiting from this potential competition are M2 Telecommunications (MTU) and TPG Telecom (TPM).  Here are some valuation and performance indicators for these two companies:

Company (CODE)

Mkt Cap

Share Price

52 Wk % Change

Div Yld

1 Yr Total Share-holder Retrurn

2 Yr Earnings Growth Forecast

2 Yr Dividend Growth Forecast

P/E (Forward -2014)

P/B (MRQ)

TPG Telecom (TPM)

$2.8b

$3.51

+65%

1.8%

61.5%

-36%

26.4%

17.55

4.30

M2 Telecom (MTU)

 $1.03b

$5.77

+62%

4%

74.3%

43.9%

22%

11.10

3.48

 

Over the past five years these two stocks have shown astonishing capital appreciation for shareholders with TPG Telecom’s share price up over 2000% and M2 Telecommunication’s up almost 1000%.  The growth forecasts for both companies suggest more room to run, regardless of the outcome of the NBN.  Here is the chart:

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