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How are the ASX Baby Formula Stocks Trending – A look through Bellamy’s (ASX: BAL)

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A few days back and following a2 milk’s trading updates, the infant formula producer Bellamy’s Australia Limited (ASX: BAL) witnessed a fall in its shares. Lately, Bellamy’s Australia was seen to be trading at a market price of around $17.930, but on June 22, 2018, the same fell around 6% on June 22, 2018 to $16.815 after a 5-day rise of about 5%. It seems short selling is on the rise with this ASX listed stock.

BAL otherwise witnessed sales momentum through 2H17, as the price realization increased while there has been a slow recovery in market pricing across retailers and platforms. The operating cost base was reset with a 23% reduction in overheads versus 1H17 and the group was seen to be in a position to reinvest. The supply chain restructure was yielding reductions in future input costs. The inventory declined since March 2017 while operating cashflow stayed positive since March 2017. BAL was also seen to be in a net cash and debt free position.

BAL’s 1H18 result depicted a new bar set for full year revenue and EBITDA with core business witnessing 30-35% revenue growth and 20-23% EBITDA margin (excluding Camperdown business). BAL reported for a gross profit of A$63.0 million for 1H18 and group revenue of $174.9 million with group EBITDA of $34.9 million for the half year. The group achieved a revenue of $240.2 million in FY17 with a loss after tax of $0.8 million, and the normalized profit after tax of 28.2 million. The profitability was affected by significant items of $41.4 million before tax.

During the first half of 2018, the baby-food maker’s revenue was said to be higher than the second half of the year, driven by the winter consumption in China and Chinese New Year-driven demand. However, the Camperdown business has been a drag and forecasted to record a loss of A$1-2 million now. The group has now inked new arrangements for Australian organic milk supply with Fonterra, Australian Consolidated Milk and Tatura Milk Industries but the initiatives are expected to be yielding returns in long term only.

Likewise, the so called growth stock, a2 Milk Company Limited (ASX: A2M) also has fallen about 15% in last three months despite its optimistic outlook.

Bubs Australia Limited (ASX: BUB) is another consumer staples baby formula stock, that plunged about 5% on June 22, 2018. Lately, the group’s Bubs Baby Cereals was accepted by Australia’s key supermarket chain, Woolworths. It continues to leverage its existing capabilities and commercial competencies and is continuously progressing to meet China’s infant formula regulatory requirements. Net Sales in Q3 of FY18 were up by 422 per cent and amounted to $5.178 million as compared to the same period in the last year and quarterly growth was driven by additional revenues from its core businesses. After the NuLac Foods’ acquisition, the Group tried to strengthen its balance sheet and cash reserves were being indicated at A$5.570 million.

Overall, the infant formula stocks seem to be falling in the red zone with many to the likes of ASX: BAL being trading on a sinusoidal path and adding to be a drag on ASX every now and then. The regulatory risks seem to be hovering around many of these players.


Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

How have stocks performed amid new tariff tension – ASX: BHP and ASX: RIO?

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Global stocks took a back seat as additional tariffs on a further $US200 billion worth of Chinese goods were stated to be levied on the trade terms by the US igniting more tension. There could be significant pain for several companies and this could negatively impact supply chains across Asia especially in South Korea, Japan and Taiwan. However, initial reports pointed to the fact that tariffs may be more broad-based. Moreover, as the Chinese economy continues to rebalance towards domestic consumption and post growth rates above 6.0%, exporters might be able to redirect some of the lost export orders towards the domestic market, reducing the negative impact.

The tariffs announced by the US may be insufficient to start a trade war between China and the US per se as the cost might be manageable for the former. That said, a trade war is still a risk as a result of potential miscalculations from either China or the US. In fact, while indicating for the additional tariffs, Trump flagged to take more actions to have China change its unfair practices and work towards a balanced trade relationship.

A run-through of this week showed that equities more or less tumbled across the world amid the trade tensions, out of which most impact was seen in Asia whereas emerging market currencies and commodity prices came under pressure, lifted the swiss franc, yen and government bonds. Import tariffs are also likely to fuel inflation, as the US economy is already at full capacity, while further rate hikes are expected by the Fed over FY18 and FY19. Post the announcement on additional tariff, the S&P 500 ended 0.2 percent lower at 2,767 in New York, whereas the Dow Jones Industrial Average was 0.2 percent lower and again slipping into the negative territory for the year. The tech-heavy Nasdaq Composite shed 0.7 percent around June 20, 2018. The S&P/ASX 200 index was down by 2 points and reached at 6102.1 while All Ordinaries were down by 3.9 points and reached at 6208.9. As at June 20, 2018, Cboe Vix volatility briefly rose above 14 to its highest level. Euro Stoxx 600 index on the other hand ended 0.7 percent lower to end at 383.21 around June 19, 2018; and in London, the FTSE 100 fell by 0.4 percent. Coming to Asia, the Shanghai composite fell 3.8 percent, and the CSI 300 was down 3.5 percent. In Hong Kong, the Hang Sheng Index fell by 2.8 percent. Commodities including Brent Crude and LME Copper were all seen to witness a setback with Gold also easing to $1,269 by mid-week. The Shenzhen index went down about 5.8% as at June 19, 2018 with the additional threat from tariffs. Meanwhile, the Dow Jones Industrial Average lost all the gains it made in 2018. With this, there might be a reduced demand for precious metals and industrial products.

Australian market closed at a lower note mid-week with mining stocks witnessing a challenging time. Particularly, Rio Tinto (ASX: RIO) and BHP Billiton (ASX: BHP) fell at the back of losses at US listings. Towards the end of the week, the ASX has been trying to defy the downbeat trend, but ASX: BHP was still witnessing a losing streak by stock edging down to $ 32.74 around opening of trade. The stock has been down 2.38% in last five days. Same was the case with ASX: RIO, which lost 3% over the last five days. It would be key to watch that how these miners perform given the latest circumstances and any future developments.


Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

Amazon, a top stock recommendation, punts on bigger market share in Australia with Prime

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Fast and free delivery is what that matters when we talk about online shopping, and with the launch of Amazon Prime in Australia, Amazon which is amongst the top stock recommendations globally now aims to give a tougher competition to other players in Australia. Amazon Prime has a wide array of benefits – it has a streaming-video service, one that’s home to a library of movies and TV shows. Prime also lets you stream music to your phone, tablet or PC. Then you have unlimited cloud storage for the photos and 5GB of space for documents and videos. Amazon Prime, on the US site, is associated with the annual membership of $US119 (which is $160 a year) with free same day and one day delivery to major cities when spending over $US35.

The entry of Amazon into Australia comes on the back of the e-commerce segment’s growth in the country. The forecast for e-commerce sales in Australia depicts an average growth of about 9.1% per annum over medium term forecast period (from 2017 to 2021) while sales might touch USD24.2bn in 2021 from USD17.2bn in 2017. Further, Australia is now expected to take the lead over Singapore, Malaysia and Hong Kong within Asian zone, in terms of ecommerce market. Meanwhile, the launch of Prime in Australia came amid the stopping of Australians from shopping on Amazon’s international websites disappointing the consumers, which happened because of new goods and services tax rules on overseas online purchases.

The Amazon Prime members need no minimum purchase on Amazon’s domestic selection of eligible products. Amazon Prime members will also get access to streaming service Amazon Prime video, Amazon Prime Reading, gaming services and Alexa-enabled devices and the ability to shop via voice. The Amazon prime is thus predicted to reach 90 percent of Australians in just 2 business days as per the ecommerce experts.

It has been also claimed that the two day delivery model will be available in regional cities including Albury-Wodonga, Bendigo, Gold Coast, Gosford, Newcastle, Toowoomba and Wagga Wagga and also in main cities in Sydney, Melbourne, Brisbane, Perth, Adelaide, Hobart. However, shipping within four to five business days will be received by the remote location areas considering the delivery constraints. $11.99 is the price for one-to-two day delivery, on the other hand remote parts of the country would pay $19.99 for the same one-to-two day delivery. For standard i.e. less urgent deliveries, $5.99 price will be charged in the eastern capital, with other Australians paying more for this service for two to seven days’ delivery.

There are around 60m items currently on Amazon’s Australia website which is much less than Amazon stores including its US site, which has 500m products for sale, and tends to charge higher prices. For Amazon, the so called ‘blue chip company under top stock recommendations,’ Australia is the 17th market in relation to Amazon Prime.

This move is challenging  the position of other giants like eBay or Kogan.com in the Australian market and particularly poses a threat to the crown holder eBay in the online retail space which is also losing space with its monthly traffic down by 0.3 percent year on year, representing 9.5 percentage points of growth despite the launch of a range of services by eBay.


Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

What’s the story unwinding for Atlas Iron Limited (ASX: AGO) – Is it still a stock tip?

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What we have seen is a tremendous tethering in relation to the bidding war for Atlas Iron limited (ASX: AGO). The group was first approached by Mineral Resources Limited (MRL) for a takeover and then emerged another group, Gina Rinehart’s Hancock mining services group, eying over AGO with a higher offer. With the recent development that entails a period of three days being given by Atlas Iron to Mineral Resources to match a buyout offer by Hancock, is something that has kept the shareholders on a hot seat.

Atlas operates in Pilbara region of Western Australia which has iron ore rich zones and underdeveloped tenements. The group has been at the cusp of taking a decision given the bidding battle that got ignited by the proposal from Gina Rinehart’s Hancock mining services group. The offer made by Hancock to Atlas entails a price of 4.2 cents per share leading to $390 million cash bid and this is quite higher than Mineral Resources’ offer of $280 million. Hancock has also built up 19.96 percent of interest in Atlas which is large enough to block the offer from Mineral Resources which was earlier supported by Fortescue. The latter itself lifted its stake in AGO to block MRL as in seen a couple of weeks ago. Shares of Atlas jumped to 4.4 cents, 22 percent early this week, slightly above the Hancock bid value. Primarily, Redstone Corporation Pty Ltd (Redstone), a wholly owned subsidiary of Hancock Prospecting Pty Ltd (Hancock) has announced an all cash offer of the ordinary shares in Atlas Iron Limited (Atlas) at the price of $0.042 per share. This offer price is at a premium of 41% compared to MRL offer price. The all-cash offer seems to provide Atlas shareholders certainty with regards to value of consideration.

On the other hand, Mineral Resources Limited (MRL) announced a proposed transaction whereby Atlas was to complete a scheme of arrangement which would see Atlas shareholders receive one MRL share for every 571 shares they held (MRL proposal). The MRL proposed value for an Atlas share was at $0.0302.

There have been few major reasons highlighted on why Atlas can accept the Hancock offer in case Mineral Resources does not come up with a superior offer:

  1. The high premium for Atlas shareholders
  2. 100% cash offer to be paid promptly
  3. No ‘prescribed occurrences’ – condition
  4. High level of certainty along with certain value to Atlas shares
  5. If not accepted the stock price may fall

To accept the offer, Atlas must follow the instructions set out in the Bidder’s statement. Hancock bid is not subject to a minimum acceptance condition like Mineral Resources Limited offer and leaves Fortescue with few decisions to make. With the deal in pipeline and the current market price at $0.044 which is near a record 52 week high of $0.046, we believe that it is worth watching the developments before recommending investors about Atlas to be a good stock tip amidst the environment driven by acquisition pent-up.


Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

How is the story building up for small cap dividend stocks over the next one year?

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It is surprising yet true that a large number of small cap stocks offer exciting dividends which act as a shield against the market volatility and also add to an income stream hence enhancing the investors’ return. A small cap company or a small cap dividend stock is defined as a company with market capitalization of under $2 billion with a decent yield, which may be over 3%. The investors seek consistent, growing payouts and therefore the companies should have sufficient financial capital to continue returning cash to shareholders. While a lot of small or mid cap companies are in a growth phase and therefore retain a large portion of their profits and then reinvest it in the business; there are some small caps that hold the potential to offer superior dividends and more capital appreciation. There can be few factors that can be taken into consideration for relatively high and reliable dividend yield:

  1. The company’s business model / the nature of the assets owned
  2. The size and maturity of the industry/ sector in which the company operates
  3. The degree of specialization of service provided or the point in the lifecycle of the product

The firm’s size provides a signal of the relative risk of its business model, for instance, a large company is expected to have greater share market liquidity, potentially lower price volatility and greater market reach from the financial markets compared to a small or mid-cap company.

The market has provided a number of examples over the years of companies that had “high” dividend yields for a time before it was clear that the yield was not sustainable. These include Goodman Fielder and Pacific Brands, which got delisted/ acquired. The competitive pressures of the industries in which the companies operated and the management’s ability to move their businesses through this competitive landscape, were the key valuations required when determining the sustainability of the dividend yield. Thus, in some cases, the prevailing share price becomes a leading indicator that there is an important risk to the future level of profits and thus the sustainability of the dividend yield. It is up to the investor, in consultation with their adviser, to determine the factors driving the high dividend yield, then determine its sustainability and make a decision on whether the share is appropriate for their portfolio.

At present, Australian economy provides an attractive view to corporate earnings growth and this is expected to be higher in FY19 versus FY18. The domestic economic growth strengthening is expected to be particularly supporting earnings cycle for smaller companies listed on ASX.

An example of small cap dividend stock is Eclipx Group Limited (ASX: ECX) that has a market capitalization of 1.03 billion and annual dividend yield of 4.8%. The group operates in the financial sector and has enhanced its dividends over the last three years. The group reported NPAT degrowth of 3.1% to $27.53 million for the half-year ended 31 March 2018 while revenue from ordinary activities was up 27.43% to $360.21 million against prior corresponding period. Despite the profit degrowth position, the interim dividend was enhanced to 8 cents, compared with 7.5 cents last year.

Even Aged care sector, which has been slammed by the regulatory framework, has stocks like Estia Health Limited (ASX: EHE), having an annual dividend yield of 4.7% which is fully franked. The total dividend/distribution payment amount per security for all dividends/distributions notified is AUD 0.0780. The company has been declaring dividends since 2015.

With over 10% of short selling positions, another small-cap player is Greencross Limited (ASX: GXL), which is a consumer discretionary stock. The stock is currently trading at $4.430 with a market cap of $535 million. This small cap company has an annual dividend yield of 4.4% and is fully franked. The company has been declaring dividend on a regular basis while the full year guidance downgrade has lately impacted the stock.

Then Dicker Data Limited (ASX: DDR) has been a good dividend player over the past few years.

Given the scenario and volatile environment, we expect key small-cap stocks to keep on performing well and delivering high dividends while many large caps like the major banks and insurance groups are trying to reinforce their fundamental positions.

Under sector-specific lens, the financial service sector in Australia has been deeply impacted by the royal commission which also affected a large number of smaller cap ASX listed companies operating in financial services such as platform providers, financial planners and fund managers. Also, the commission plans on to promote independent and advice based model which implies conditions might become apt for emerging financial operators to take the important market share from larger institutions.

The dividend payout ratios remains extremely high internationally, it is believed that the environment of solidifying economic growth and confidence in business is also likely to strengthen. It leads to more M&A activity, where smaller companies are more vulnerable to takeovers. Unlike larger caps where your investments might not lose out much if the entry point is not right like in that of Westpac, but for small caps it requires a lot of experience which matters for better performance of the company. Also, the small-cap sector in the local market has been able to get along with the global technology boom, with firms such as Xero, Altium, Appen and WiseTech being some of the recent successes on ASX, while these do not necessarily pay dividends but may look at the same sometime down the line. Conservative metrics or equity funding can be further add-ons for the small-caps.


Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

Impact of Fed Interest Rates on ASX Banks (including ASX: WBC)

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In the most simplistic terms, the banking sector’s profit increases when the fed hikes the interest rates. All retail banks, commercial banks, investment banks, insurance companies and brokerages tend to benefit as they have cash in hand because of customer balances and business activities. The increase of interest rates leads to an increase in the yield on the cash.

However, higher US interest rates affect big ASX banks like Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and National Australia Bank Ltd (ASX: NAB) because of the reason that these big banks, at the time of requirement, borrow huge amounts from the US which can increase the cost of funds. The current hike in interest rates also symbolizes that the US economy is improving and this impacts dollar values.

To understand better, a bank in Australia might borrow money from the US at a 2% interest rate, then lend that money to a buyer at 4% interest rate, earning a spread of 2% on this loan. After taking into account all the costs, most of the larger Australian Banks earn a net interest margin i.e. the spread of around 2%. Now, obviously if the borrowing rate is increased this reduces the spread for the Australian banks which directly impacts the Banks’ earnings unless they also make some changes at their end. If there is a hike in interest rates, Australian banks’ net interest margin can fall unless they revise the rates to borrowers and on mortgages.

The increases in the Fed’s 2019 and 2020 interest rate projections, in the range of 20bps and 30bps, suggest a more hawkish tilt to monetary policy than was previously expected. Bearing in mind the Fed’s latest rate decision and the amendments to its funds rate, growth and unemployment projections, there is an increased forecast for 2019 under a total of three hikes, with the funds rate ending the year at 2.75-3.00%. This new 2019 forecast is in line with the Fed’s overall target, but that will mark the end of the hiking cycle, and might remain lower for end of 2020 (to be just above 2.75% with funds rate median still over 3%).

Because of the hike in the Australian short-term interest rate benchmark the local banks are worried. When US gives a hike in interest rates, Australian banks take a backseat towards the local markets so as to meet their short-term needs. However, the Reserve Bank of Australia has retained its cash rate to 1.5 percent since mid of 2016. Australian rates are at record lows and Australian banks are swelled on the funding costs front, while Royal Commission has also downplayed the scenario for the banks.

Australian bankers have taken a note of bank bill swap rate (BBSW) which concurs with the new method of calculating the interest rate benchmark coming into picture after the royal commission in late May, following the scandal of the rate manipulation by banks. Dr. Shane Oliver, head of AMP’s investment strategy said that the puncture in the BBSW before the end of financial year could reflect Australian borrowers rushing to close in the funding in fear of worsening borrowing situation. Overall, it will be crucial to see how the ASX banks (ASX: WBC, ASX: NAB, etc.) modulate their strategy to keep up with financial sector pace.


Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

What is making Tech Stocks (including ASX-listed stocks) stay at the center-stage?

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The outflow of many technology deals has come at a time when technology stocks have been on an upward trend. The technology-heavy Nasdaq in the US, a few months ago, climbed to a 15-year high above 5,000 points, stirring talks of bubble market territory in the process. Technology is turning into a daily life product and computing is becoming embedded in the world, while we seem to be entering deep into the era of digital technology.

A short while ago, we discussed in a related article that how ASX is turning into a junior Nasdaq with overseas players eyeing the stock exchange for listing many tech companies. Of specific interest is the S&P/ASX 200 Information Technology Index (XIJ) are the following areas – firstly, Software & Services, including companies that mainly develop software in various fields such as the Internet, applications, systems, databases management and/or home entertainment, and companies that offer information technology consulting and services, as well as data dispensation and outsourced services; secondly, Technology Hardware & Equipment, as well as manufacturers and distributors of communications equipment, computers & peripherals, electronic equipment and linked instruments; and thirdly, Semiconductors & Semiconductor Equipment Manufacturers.

Exemplary ASX-listed Information Tech Stocks:

Up 3.3% on June 12, 2018, Technology One Limited (ASX: TNE), is an IT stock that is trading at a current market price of $4.39, however, the stock has a market capitalization of $1.34 billion and has an annual dividend yield of 1.99%. The performance change over the five year period has been healthy at 154%. The group has a decent guidance and is expected to move up the ladder with many drivers in place and net profit after tax growth of 10 to 15%.

Appen Limited (ASX: APX) is also an information technology stock and is currently trading at a market price of $12.04 up from $8.65 in January 2018. The stock has a market capitalization of $1.23 billion and an annual dividend yield of 0.57%. The one year run-up has been stupendous at 207%. The group has been a leading provider of data in terms of Artificial Intelligence.

On the other hand, we have seen Get Swift Limited (ASX: GSW) whose market price changed from over $4 to about $0.4 in about 6 months’ period, with ASX highlighting few disclosure issues. However, investors should remember how once this stock rocked the index with a whopping rise in stock price just before the fall.

Investors at domestic front are also evaluating tech players like Titomic Limited (ASX: TTT), which is a developer of 3D printing technology and looks to be an interesting watch.

Then companies like Nearmap Ltd (ASX: NEA), which is engaged in aerial imaging based on Software as a Service (SaaS) technology, are gaining a lot of momentum. Nearmap is moving high with rising Annualised Contract Value (ACV) and expansion in the US.

Now at global level, technology titan stocks are feeling the pain of a turnaround in a range of stocks in this sector that are charging high to grab some market share. Companies like Dropbox and Spotify Technology SA are taking a lot of spotlight recently and this is causing some restlessness among the tech giants, which still are looking for opportunities to unsettle small players.

For instance, Microsoft is set to buy shares of GitHub for $US7.5 billion, and for this, 28 million programmers are being involved for code generation. It is worth noting that GitHub Marketplace was launched in May 2017 and has been the best place to find, share, and promote developer tools. While Microsoft was not in a favor of getting coders who could be a threat to a company’s commercial software business, Bill Gates and CEO Steve Ballmer supported developers setting proprietary software for Microsoft. Microsoft since then has been relying on open-source software to add tools and GitHub purchase became a key part of the way Microsoft writes its own software. “Anybody active in the open source community should be upset that Microsoft is going to be the steward of this large body of code,” said coder Jacques Mattheij. This deal is now expected to add to Microsoft’s operating income in its fiscal year 2020.

Overall, the tech boom is expected to stay with companies adopting multi-pronged strategies in terms of technology upgrade, bolt-on acquisitions, and geographical expansions; and are coming up with many developments for a better tomorrow given the rising competitive scenario.


Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

Is Transurban (ASX: TCL) a stellar infrastructure stock pick?

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The infrastructure giant, Transurban Group (ASX: TCL) has witnessed a stock price fall of about 1% on June 08, 2018 while it recently reached a milestone under its strategy to set a second market in North America. The group has reached a financial close on the acquisition of the A25 toll road asset and concession in Montreal, Canada. TCL has appreciated the Quebec government’s move with regards to recognizing new, multi-modal transportation solutions being set for addressing Greater Montreal’s infrastructure needs.

However, the recent decision by the Australian Competition and Consumer Commission (ACCC) on continuing with the review of the proposed acquisition by a Transurban-led consortium of a 51 per cent interest in the WestConnex assets slated for sale by the NSW Government, has made many ponder over the potential outcomes, and thus TCL’s performance. While ACCC’s Statement of Issues does not identify any ‘issues of concern’ as such, however, the process is still open ended. Meanwhile, TCL is providing all the required support to ACCC to enable them to complete the review. At the moment, it looks that many of the concerns flagged can be addressed by government and/or TCL undertakings.

On macro level, the recent interest rate held at 1.5% by the Reserve Bank of Australia is also having some impact on latest price movements, as group’s positive revenue is stimulated by rising inflation environment with push from increased employment that drives traffic growth and higher commercial activity. The performance is also dependent on wage growth. Thus, the current scenario does not look to be promoting the performance at a decent scale, as of now.

Transurban Group is currently trading at the market capitalization of $ 26.16 billion and has a decent dividend yield of over 4.7%. It thus has a strong standing in terms of market capitalization among peers (including Sydney Airport, Brambles, and APA Group that are also ASX-listed companies) and has achieved significant growth in last ten years with decent returns made to the shareholders. The group has highlighted for $11.4 billion of new developments and asset enhancements along with $7.7 billion of acquisitions. It has the ability to continue to provide new value-accretive opportunities.

The group owns or operates 15 of Australia’s 19 toll roads. Its NorthConnex project (with total cost of $2.9 billion and TCL’s contribution of $1.05 billion) is structured for near-term distributions and long-term value creation at the back of Truck toll multipliers through M7 and LCT and concession extensions through M7, LCT and M2. On the other hand, capital releases of about $100 million are expected in FY19 for Transurban Queensland.

Based on the recent financials, the group has indicated that a distribution totaling 28.0 cents per stapled security will be paid for the six months ending 30 June 2018. This will include 25.5 cents distribution from Transurban holding trust and controlled entities with 2.5 cents from Transurban Holdings Limited and controlled entities.

With infrastructure projects underway, Transurban’s strategy and competence assists its government partners in navigating project-specific issues. The investment in capabilities sets it apart in the infrastructure arena. The group is also expected to benefit from the favorable 30-year population growth forecasts across its five markets. Despite the latest shortcomings, the opportunities for the group are vast; and with RBA anticipating better economic scenario going into 2019, TCL is expected to leverage from the economic framework along with its resilient capabilities in the long run.

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Opportunities across Key Markets (Source: Company Reports)


Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

What is new with these Dividend Paying Supermarket Giants?

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Both Wesfarmers Ltd and Woolworths Group Limited, are on a journey to a purposeful business in order to develop a better picture of Australia and this cant be done unless they create a better environment. In an attempt to cater to the environment, both the groups are working on their energy use strategies and reduction in carbon footprint. For instance, Wesfarmers’ Coles is trying to divert its 90% of supermarket waste from Landfill and donate meals to people in need. Similarly, supermarket giant Woolworths is setting to phase out its plastic straws along with reductions in plastic packaging of fruits and vegetables. Not just this, the group aims to launch a new reusable shopping bag with regards to sustainability initiatives in Australia. Clubbed with some perks like lifetime replacement offer for the bag, the group is expecting to attract more customers. Coles on the other hand, is investing to contain the impact of its assets and operations on the environment. This has been slated to be done through initiatives directed to greenhouse gas emission reduction, bringing more proficiencies in supply chain, and recycling waste. Last year, Coles announced it would phase-out its single use plastic bags from all stores.

While this new dimension will also set a platform on which the two rivals will be evaluated. However, looking at the performance so far, WOW has been able to gain more market share in the recent times. The giant in the consumer staple sector, currently trades at a market price of $28.72 at a market capitalization of $37.4 billion (as at June 06, 2018). The annual dividend yield for the stock is 3.27% and the company has been trying to capture a better market share with each passing month. The Group EBIT from continuing operations has been up 9.9% with Australian food EBIT up 11.1% despite continued investment during the first half of 2018. The group reported to have over 1000 supermarkets and Metro Stores as at third quarter through to 13 weeks- period to April 2018. The group upgraded 20 stores, opened one Metro store and closed two supermarkets during the quarter. There was a significant improvement in Australian Food’s voice of customer (VOC) scores with overall customer satisfaction of 81%. WOW now aims to focus on improving shopping experiences across all stores with strategic initiatives put in place and this has digital experience as a key aspect.

In comparison, Wesfarmers trades at quite a high level at a price of $ 45.670 with an annual yield of 4.93%. The stock trades at a higher P/E in comparison to WOW. Wesfarmers has announced its retail sales results for the third quarter of the 2018 financial year with Bunnings Australia and New Zealand (BANZ) delivering a strong quarter, with total sales growth of 8.9 percent, through continued focus on delivering increased value and better experience to customers. However, adverse weather in March 2018, resulted in a decline in total sales of 6.5 percent (13.5 percent in local currency terms) for the quarter. Sales momentum in Coles continued to improve during the quarter, with headline food and liquor sales growing by 1.9 percent. Coles continues to increase and optimize its store network, opening four supermarkets and closing three during the quarter which resulted into a total of 807 supermarkets at the end of the quarter. Adjusting for the earlier timing of the Easter in the 2018 financial year, comparable store sales decreased by 3.2 percent for the quarter.

While plastic bag ban was not enough for the duo, another zone that is gearing up is the digital domain in terms of popularity among the players. We know by now that Woolworths ventured into digital domain and prioritised online platform under its long-term growth strategy, Wesfarmers has also taken up a stake in e-retailer ONTHEGO (OTG), for coming up with digital offerings. The latter is expected to help Wesfarmers’ Workwear Group to expand on online capabilities and outspread its product categories.

This comes at a time when the market sees Wesfarmers’ recent move of divesting its Bunnings UK and Ireland (BUKI) business, which was never settled in terms of overly optimistic growth outlook and capital investment. Wesfarmers is expecting a loss of about $350 million to $406 million from the divestment, and this has become a point of concern among investors.

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Earnings per Share (Source: Thomson Reuters)

While the battle seems to be a never-ending one with fierce competition stemming from different directions, the player who can manage costs with growth in fundamental performance would always be the choice for investors.


Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

Royal Commission and the new threat looming around ANZ

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The new wave of the Royal Commission now seems to be engulfing Australia and New Zealand Banking Group Limited (ASX: ANZ) with the recently revealed criminal cartel. To add to this, a recorded video conference call between Bank’s group treasurer Rick Moscati and investment banks JPMorgan, Deutsche and Citigroup, following the bank’s $2.5 billion capital raising in 2015 is expected to set the benchmark revelations for the Australian Competition and Consumer Commission against the bank. While JP Morgan seems to be staying out of the trap, ANZ, Deutsche Bank AG and Citigroup are in line of fire.

ANZ Bank shares were seen to be slipping to a one-month low lately and the index of Australian financial stocks hit its lowest in last two years while ANZ particularly now disclosed about a criminal prosecution that it might face for alleged cartel conduct. ANZ shares fell as much as 2.4 per cent to A$26.55, their lowest since April 30, before edging higher to A$26.855 and still down 1.3 per cent on June 01, 2018. The stock traded at $ 26.750 as at June 04, 2018 and has slipped by 3.35% in last five days.

The share price fall came in spite of the Australian bank saying it believed it acted in agreement with the law and would defend itself in the case, which follows an inquiry by Australia’s corporate regulator. The Australian Securities and Investments Commission (ASIC) is investigating whether ANZ’s announcement of a surprise A$3bn share placement in 2015 should have stated that the joint lead managers snapped up about 25.5 million of the 80.8 million shares issued via the institutional placement.

The last few days thus have been a bit grave for the banking industry, with Australia and New Zealand Banking Group facing criminal cartel charges over $2.3 billion share issue, along with underwriters Deutsche Bank and Citigroup. This has compounded the already sad state of Australia’s biggest financial firms as they deal with daily allegations of misconduct at the public inquiry. ANZ is co-operating with the Australian Securities and Investments Commission with regards to the investigation in relation to the institutional equity placement. It involved the placement of approximately 80.8 million shares. The final issue price was determined through an “accelerated book-build” on August 6, 2015 at an underwritten floor price of $30.95. ANZ said ASIC is investigating whether the announcement made on August 7, 2015, about the completion of the placement should have also included that the joint lead managers were taking up approximately 25.5 million shares of the placement, representing only 0.91 per cent of total shares on issue at that time. However, this magnitude can’t be used to defend the cartel conduct as perceived up till now.

As per ANZ, the deal was conducted to allow ANZ to “more quickly and efficiently put up additional capital requirements announced by the Australian Prudential Regulation Authority, in particular the increase in average credit risk weights for major bank Australian mortgage portfolios to 25 per cent. The charges thus, are slated to involve cartel arrangements based on ANZ institutional share placement made in August 2015, as revealed by ACCC chairman. It is being alleged that ANZ and the individuals concerned were knowing about the conduct. The ACCC said it will not make any further comment until charges are laid.

While the video is to be investigated to look for the strategies ANZ sought to adopt with support from its investment banks on the sale of 25.5 million ANZ shares over a period of time, as the bank seemingly failed to find buyers otherwise; the financial sector has come under more scrutiny with this so called fourth criminal cartel case brought by ACCC, which pertains to areas not yet touched by any Australian court or not associated with any previous regulatory guidance notes.


Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.