Economic Rigor

Another year draws to a close so it's that time again...Market Risk Premium of the ASX200. Usually methodology. 2.5 years of daily returns. Annual capital yield = 11.32% Average Dividend yield over the same period = 4.43% Therefore Market return = 15.75% (Good stuff ASX!) Average 10 year bond yields have reduced to 3.56% Meaning we have a Market Risk Premium that has increased over the last 6 months to 12.19% (up around 18 basis points) Not bad going. No correction as yet which surprises me a little. Especially the consistent Market returns of 15%+.

Once again, the press is stuffing up the "Group of Death". In the Women's world cup draw, the group of death is being referred to as Group D, which contains, in country (rank) format;  USA (1), Sweden (5), Australia (10) and Nigeria (35). Sure, a nasty group. But not the group of death. Again, it is more about the variance in rankings of the top 3 teams and the variance between the 2nd and 3rd rank team in each group. Based on my calculations, it is actually Group A which is the group of death, which contains the Host Nation, Canada (8), then China (14), the Netherlands (15) and NZ (19). All pools, from deadliest to easiest) Group A - Canada (8), China (14), the Netherlands (15),  NZ (19) Group E - Brazil (6), Korea (11), Spain (16), Costa Rica (40) Group D-  USA (1), Sweden (5), Australia (10), Nigeria (35) Group F -  France (4), England (7),  Mexico (25), Columbia (31) Group C - Japan (3), Switzerland (18), Equador (49), Cameroon (51) ...

So its official. James Packer is buying Peter Holmes a Court's stake in the Souths Rugby League club for $12.5 million. Not a bad return for Peter. He and Russell Crowe paid $1.5 million cash each (as well as taking on 8 million in debt between them). So you can roughly say, they paid $5.5 million each for their stake in the Rabbits. 8 years later, Peter gets 12.5 million (cash), but has to write off excess debt of 4.5 million owed to him. But that still works out at a nice $8 million return. Now, I'm not sure how much else was injected by Peter over the years...but if we just look at the initial capital, compounded over the years, the investment was worth 10% a year. Not bad when you look at the fact that this was during the GFC. So you can make money out of Sports Club ownership! It's just that it isn't a particular liquid investment. But selling after the Rabbits had just won the Premiership is surely selling at the peak! It can't get any better than ...

Had a look at the unemployment figures that came out today...6.1%. Not great. Especially with a participation rate that continues to decline. So I was curious...are we turning out to be the US with a participation rate hitting below average. Well apparently not. In fact, our average since 1978 has actually been 63.1% so at our current rate of 64.5% we aren't going too bad. But a more detailed look at the participation stats gives us a little more insight into where the problems are, if you call them problems. It's actually in the young areas where the participation rates have been dropping. Averages (Feb 1978-Aug 2014) 15-19         20-24     25-34     35-44        45-54      55-60      61-65       65+      All Ages 58.8%      ...

Had a look at the Woolworths stock a couple of days ago and wondering if it was undervalued. Not quite yet. It is making it's cost of capital, unlike Westfarmers (one to avoid if my calculations are correct), but I have a price target of 29.50 on it. At the Woolworths current price of 35.00 its still a little over valued for mine. But one to keep an eye on if the correction comes.

Been running my eye over MYER after the full year financial report yesterday...doesn't look good. Even with the reduced dividend, it is pretty much paying out it's entire profit, so growth without debt and equity doesn't look good. And when you look at the debt, it's a shocker, especially when you include the non cancellable Operating leases. I don't see them being able to borrow much more than they can at the moment...so that means equity injections, all of which will be shocking for the share price. In fact, by my calculations, I have a price target over the next 12 months of only 95 cents, way below the current price of $2. Good candidate for shorting though (though before you do this, please see your financial advisor)

Just been looking into the financial report behind Spotless. Found two interesting items that happened in late November 2013, before it was floated. We have this (on page 14) paid $301.5 million in a return of capital to shareholders on the 22nd of November 2013 (0.477 per share) We have this (on page 15) paid $148.5 million in dividends to shareholders on the 22nd of November 2013 (0.2359 per share) All this before float mind you. That's a cash out of $450 million to PE shareholders. (Private Equity Partners) Then you have the sale $1.60 offer price, 596,000,000 shares offered - Revenue of $953.6 million to PE shareholders (Private Equity Partners) Grand total to PE of $1.4 billion PEP spent $723 million in taking it private in 2012, assume 10% restructuring costs a year ($71.3*2 = $142.6 million) So Net Investment = $865.6 million over two years Net Return to PEP = $534.4 million ROE per year (compounding) : 27.2% a year. Not bad when yo...