After todays annoucements I wonder what posters make of this.I think it is right on the money IMO but tomorrow will see it head south no matter what. Paul O'Malley's Bluescope leveraged for global recovery
* Tim Boreham * From: The Australian * November 12, 2009 12:09PM
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HERE'S a telling stat few investors would be aware of: the local market is now a mere 10 per cent off its record highs of November 1 2007.
But it's not exactly good news because it means at least some sectors of the market have exhausted their potential for more gains.
Consult the charts and you'll see that the S&P/ASX 200 is 30 per cent below its lofty peak. But this does not take into account the $90 billion of capital raisings that account for 8 per cent of market capitalisation.
In an incisive analysis, Kien Trinh of Patersons points out that in market-cap terms, the index is only about 10 per cent off its high. In effect, capital raisings have eroded two-thirds of the upside before the market reaches a new peak.
"This tells us that the Australian market is not as cheap as it appears and significant capital raisings have diluted the potential upside in share prices," Trinh says.
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He adds that the top 200 stocks have moved from being undervalued to fair value (as measured by the price-to-earnings ratio, they are close to long-term average).
The rush to raise capital presents opportunities as well as threats because some raisings were far more dilutive than others.
For instance, Wesfarmers stock is 35 per cent below its June 2007 peak, but it had a monster capital raising last January. “The question investors should be asking is whether earnings for the company have recovered strongly enough to substantiate this price level.”
In market-cap terms, Santos, Commonwealth Bank, Westpac, Lihir Gold, Primary Healthcare and Amcor are trading near (damn it!) their record highs.
At the other end of the spectrum, GPT Group stock is 83 per cent down in raw-price terms and still 42 per cent down in adjusted terms.
Bluescope Steel is another laggard, down 70 per cent and 39 per cent, respectively.
Speaking of the steelmaker, Bluescope is due to deliver a long awaited performance update at its 2pm AGM in Melbourne today. Click here to listen to an audio recording of Bluescope's AGM.
The vibe is that CEO Paul O’Malley will be more upbeat than in August, when he forecast a small first-half loss after having delivered a $66 million deficit in 2008-09.
Credit Suisse's steel-watchers have plugged in a $138m profit in 2009-10. Port Kembla, they note, is again running at full capacity after operating at 70 per cent strength during the slump.
Bluescope recently took analysts for a site visit of its Colorbond factory in western Sydney, and you don't do that if blokes in overalls are propping themselves up with their brooms.
Criterion had Bluescope as a speculative buy at $3.09 on August 18 and we'll now simply class it as a BUY. The well managed company is one of the best leveraged to global recovery, but it will be a while before investors again enjoy a dividend.
The Australian accepts no responsibility for stock recommendations. The author does not hold an interest in any of the stocks mentioned. Readers should contact a licensed financial adviser.
BSL Price at posting:
$2.45 Sentiment: LT Buy Disclosure: Held
(20min delay)