a) in general, companies cannot currently grow because demand is weak; and hence
b) relatively dependable income will be the stock market’s future driver.
In the Australian setting, ignoring pockets of want, the the general population enjoys a standard of living that cannot be significantly improved due to the rule of declining marginal utility that dictates that very little benefit springs from the well fed having more food; the well shod, more shoes; the well clothed, more clothes; et cetera. The notion that Government should foster consumption to improve the lot of the population is absurd in my opinion.
On point a) above, in a low-demand setting, TGA as a business should do well – not spectacularly well, but relatively well compared to ASX-listed stock generally. This is because TGA taps into a subprime customer demographic that is more likely than the public at large to need what TGA can supply. Consequently, TGA's EPS should rise steadily.
On point b), Mr Market will increasingly look at TGA's steady and predictable dividend, and in a limited-investment-alternatives setting, Mr Market will increase TGA's P/E ratio (PER) to a closer-to-average ratio than it now is. In my view, in the next five years, TGA's EPS and DPS will rise, and so will PER. That is why I hold so many TGA shares.
The Thomson Consensus Estimates for TGA are:
Column 1
Column 2
Column 3
Column 4
Column 5
1
2014
2015
2016
2017
2
EPS
18.9c
20.6c
22.7c
24.8c
3
DPS
11c
11.3c
12.3c
12.9c
The PER facts extracted from Westpac Online Investing are:
Column 1
Column 2
Column 3
Column 4
1
Company
Market
Sector
2
P/E Ratio
11.64
16.42
16.32
In paragraph three of this post I suggest that satiation is driving weak demand, a point rarely raised by economists who have in their minds Y = C + I (Gross National Product = Consumption + Investment), and so if C can be increased, GNP will rise, and happiness will prevail. They rarely mention Consumer Satiation. Below is a typical example of Economic-speak from Bill Evans of Westpac, the sort of thing that, given a few facts, a good buzz-word generator could generate:
“That pricing was mainly in response to the weak retail sales report for May (printed on July 3) which showed that retail sales had contracted by 0.5 per cent in May following a downwardly revised -0.1 per cent in April (from +0.2 per cent) and a flat read for March. In particular, two key factors were impacting that very weak result: the collapse in consumer confidence in response to the May federal budget, which followed consumer trepidation in the lead up to the budget as the government implied a particularly tough set of savings initiatives. We also assess that an unusually warm May affected department store and clothing sales in the month (around 0.3 percentage points of the 0.5 per cent decline).”
