CFA Exam Tomorrow in Sydney

Good luck to those taking the CFA Exams tomorrow!! . I'll be one of the masses at Darling Harbour myself.

Having taken the test once already (and not quite making the grade), I have a few exam tips based on hard won experience.

1. READ THE QUESTION!!!!!
2. READ THE QUESTION!!!!!
3. Watch your time
4. READ THE QUESTION!!!!!

At least the exam will be in the city this time, as opposed to the wasteland of Homebush Bay (on a Sunday!!!) where it was impossible to get a coffee.

Punter Punted.

Forgive me a non-economic post. Going to be talking about the cricket.
Ricky Ponting, one of the greats of the game in Australia and around the world has declared that today's test match in Perth will be his last. Sad days.
The question I ask is if his form is bad enough to warrant the retirement (though at age 37, he probably just wants a rest). Lets go to the graph.

Using Michael Clarke as the control as he is the "in form" batsman in Australia at the moment (and also the player that replaced him as Australian captain.)

While there was a bit of an uptick in the final year, it was pretty clear that Punters best days were in the rear vision mirror. Time to go.

Sovereign Risky Business

Looks like Australia's Sovereign risk is back to it's long term average after a few years of surging. Hopefully this bodes well for future investment. The formula I am using is Sovereign risk = (Spread between 10 year Australia government bond and US 10 year Government bond)* STDEV(ASX200 returns)/STDEV(Australia 10 year bond yields). Get the following graph for the last 10 years

ROC'ing the MLB.AX....technically

Don't really have a lot of time for Technical trading, but one thing it is good for is picking up indicators of bad news. Someone always knows. My favourite indicator is the 12 day ROC. When it goes under 1 (consistantly), it is a sign that all is not well and some bad news is heading down the pipe. Just look at Melburne IT. Things were sounding great, but as early as late October, the ROC fell below 1 (indicating some sell pressure)

Would have been a good time to sell on the 26/10/2011 (at $1.80) instead of now (at $1.53)

Floaters - Part 2

An update to my previous post. I have found Australian dollar values and also added some more floats to the list. Here are the biggest IPO's by real value since 1993 (in 2012 dollars)

1. Telstra 1 - $25,350 million
2. Telstra 3 - $8,745 million
3. Telstra 2 - $5,909 million
4. AMP - $4,368 million
5. Optus - $2,182 million
6. Boart - $1,333 million
7. QR National - $1,324 million
8. Woolworths - $975 million
9. Promina - $821 million
10. Myer - $791 million

Floaters

I was reading in the AFR today about the top 10 IPO's in Australia. They published a table from DEALOGIC that listed them in order (in US dollars)

1. Telstra - 9997 million
2. QR National - 3997 million
3. Westfield Retail Holdings - 2038 million
4. Myer Holdings - 1862 million
5. Boart Longyear - 1857 million
6. Goodman Fielder - 1594 million
7. AMP - 1465 million
8. Optus - 1273 million
9. Promina - 1210 million
10. Spark Infrastructure - 1197 million

Problem is is that IPO's all occurred on different years making it difficult to compare unless you use real terms rather than nominal. So as an exercise, I put them all into 2012 dollars. Now we have the best sellers list of

1. Telstra - 17690 million
2. AMP - 2590 million
3. Optus - 1395 million
4. QR National - 1306 million
5. Boart Longyear - 1054 million
6. Myer - 718 million
7. Westfield Retail 666 million
8. Promina - 529 million
9. Goodman Fielder - 472 million
10. Spark Infrastructure - 354 million

Of course this is still US dollars. Be nice to put them in Australian dollars on day. But just goes to show how big those AMP and Optus IPO's were.

Yield curves are a weakness!

Should we be worried? Yield curve 2012 looks similar in shape to Yield curve 2001 and Yield Curve 2008. And we know what happened to the Australian economy in htose times. Not Great!

Corum Style

Been running the ruler over the Corum Group. This is a company that develops Ehealth Software and Point of Sale software. Has experienced a huge surge in it's share price this year and I'm curious as to why.

Firstly the positives. Huge cost savings (and reduction in debts) have increased the Net Profit ratio from 12% to 23% in the last year. The company reports Net Income to be around $6 million, however $1.1 of that income appears to be a reversal of a provision regarding a court case. So not sustainable earnings in my opinion. Call it $4.8 million sustainable profits.
Then we have ROE of 45% (which is also the Sustainable Growth Ratio as there is no DPO) and a ROA of 32% (up from 17% in 2011)

Now to the negatives

1. While average sales growth is around 3% pa over the last 5 years, revenue has decreased for the last three years (at -3% and - 0.8%). While cost cutting can help you in the short to medium term, it is sales growth that gets you long term value.
2. Sales growth reduced, but Accounts Receivables (with provisions for bad debts removed) increased by 20%
3. Property Plant and Equipment increased 18%, yet depreciation expense decreased 19%
2. There are around 14,000,000 in the money (at $0.08 strike price) American style call options that could be exercised at any time. This makes up around 6% of the shares on issue.
3. No dividend has been paid for years
4. Other Assets (and trade payables) include $5 million of "Rental Payments awaiting clearances" basically other peoples money that can not be used or monitorised
5. Litigious history. 3 court settlements over the last three years totaling $2 million not great.
6.Accumulated losses of $67 million
7. ROE while high, has reduced due to the removal of leverage.
8. At the mature end according to the Cash flow life cycle. So opportunities for growth in the future limited, especially with no increase in development costs in 2012.

Conclusion: I think there is a bit of froth and bubble regarding the Corum Group. Even with some optimistic earnings growth assumptions of 45% next year, then 30%, 10%, 10%, 10%, 3% and a Terminal rate of 3% and a Cost of Equity at the average bond rate of .0485 (as Beta of Corum Group is -0.65), I have a price target of $0.07 a share ($0.06 if I include the 14,000,000 options as converted to shares). So the current price of $0.16 is a bit of a premium for mine. (even though P/E of 8 and a P/FE of 5.5 on these figures doesn't appear too far out of the ballpark at first glance).

Someone clearly thinks there is more to Corum than meets the eye

Disclaimer: Not a recommendation to invest/not invest in Corum Group. Please see your financial advisor.

War Time

Forget the budgets, just how much is being spent on defence by Australia since the 60's? (Stats from the ABS National Accounts as always)

Lets not get too excited by claims the US is unhappy with our defence spend.
We are spending at tail end Vietnam War levels! (which is about right since we have troops deployed in the Middle East)

Gillard Goatmeter : 52/48 to Coalition

Time for another Goatweter update regarding the 2PP

The 4 poll running averages are as follows

Newspoll           48.75/51.25       Coalition
Essential            47.00/53.00       Coalition
Roy Morgan      48.25/51.75       Coalition

Leads to the inevitable Average of the three polls.

Goatmeter           48.00/52.00       Coalition

So definitely some more movement towards Labor (an increase of 0.2%)

We all live in a (nuclear) submarine

I read with amazement that the American Virginia-class nuclear submarine is being considered as an option for Australia's submarine force. We have such delusions of grandeur don't we?

While there is no doubt the Virginia class sub is a quality piece of kit (and cheap for a sub), for Australia, it's not just about range and refuelling options. It's also complement.

Australia has had a lot of trouble crewing it's existing Collins Class subs. The Collin's class sub has a complement of 58. The Virginia class needs 120 (plus 14 officers). When we can't even crew our smaller subs, why try and purchase (or lease) boats that we we will never be able to put to sea (we want 12 of the bloody things).

The best sub for Australia is one that is heavily armed and heavily automated. It doesn't need heavy water.