This is not investment advice and is general in nature. Do your own research before taking any positions in the securities listed below
Let’s face it, analysing businesses can be super confusing and I do not profess to have any unique insight on issues. The only thing one can hope to do is to give examples of why we should not draw conclusions too quickly when analysing companies or industries.
Example #1: All Aussie coal stocks are overvalued now:
Whilst this has some merit, there are exceptions to this rule which Gaurav Sodhi well explained on Ausbiz whilst there are components that are not fully priced in at these highs
NHC is the only coal miner which has a mining license approved to increase production by 5mtpa
The market conditions mean that the bifurcation between low-quality thermal coal and high-quality thermal coal in NHC’s favour
$NHC in Bengalla is one of the lowest-cost thermal producers in the market and it benefits from this change in market condition
So on this basis, I do not think $NHC has necessarily topped out
Example #2: CSL is a no-brainer
There is no refuting it, CSL is a great business. However, anyone spruiking CSL should have a decent understanding of the $11.7bn Vifor deal
The acquisition occurred at near-record high valuations (using cash)
The acquisition, whether successful or not, occurred when management was experiencing low plasma volumes
It is a material bet on the exciting prospects from 'FcRn' and influenza vaccine manufactured via mRNA technology
If someone tells you CSL is “worth buying”, they need to have a robust knowledge of Vifor and how CSL value will extract from this deal. Given its size; it is no longer enough to say “CSL is a great business in plasma processing”
Example #3: The best way to access REA is via NWS
Yes, $NWS does own a 61% stake in REA which is worth A$9bn, however, the remainder of the business is worth $2bn, which includes the following:
Old world media - Dow Jones/ Book Publishing/ Foxtel
Pre-profit stake in Move
Corporate Expenses of c.$(250)m p.a.
Net debt of $(459)m
Whilst you can imagine that the “old world media” + net debt - corporate overhead MUST be worth >$2bn, the facts are that if you had bought NWS instead of REA over the last 5yrs you would have underperformed REA
Example #4: The big banks do not perform well in a weak property environment
In an Aussie downturn, the following things GENERALLY happen:
Deposit-taking institutions (e.g. Big 4 banks) increase deposit rates slower than loan rates; often expanding NIM before BDD costs
Big banks, who can deal with the treasury/funding impacts, more their loan book to IO, from P+I to reduce impairments (only a short-term solution mind you)
Smaller privately-held banks often go into 'run-off mode'. This is not to say that they do not lend at all, but they essentially only lend when they can cover their high cost of funds. This means they pursue NIM/loan preservation over loan growth. Conversely, public Big 4 banks generally can grow lending or at least offset run-off
To further prove my point
The share price performance of the Big 4 banks vs. the wider index has performed generally ok - despite all the CoreLogic evidence of house prices falling
The trading multiples for other types of lenders have contracted materially vs. Big 4 banks
Consumer finance outfits (e.g. LFS, PGL, MNY) are at 20% discount to BV
Non-Bank Housing Lenders (e.g. PPM, LFG, RMC) are 5-6x P/E
Big 4 banks (ex. CBA) are trading at 10-11x P/E (which is not far off long term averages)
So in conclusion of all of this; yes the rising costs of serviceability for home loans are a concern for all lenders. Nonetheless - non-bank lenders will bear a disproportionate % of this pain.
Example #5: Auto Insurers in Australia is effectively a duopoly so it is a good investment
Before I launch into this; there have been banking and management-specific factors which have plagued the IAG & SUN share price. Nonetheless, if you bought Progressive (one of US biggest Auto & Property insurers) shares you would have far outperformed the Aussie insurance duopoly
The reasons for this would be:
Aus insurers do payout higher amounts of their income (not fully baked into a share price graph)
Aus & NZ regulatory environment is different/weaker than in US
Volume Growth in Aus has generally been weaker
Weaker reinsurance outcome for these insurers
So whilst this is a VERY high-level view of SUN/IAG, I would remind anyone that says "its a duopoly, its a great investment" just how hard these companies are to run
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