Collected Wisdom

This week we look at Carsales, Santos, Woodside, Ten Network and Atlas Iron.

Summary: The newsletters point to recent concerns around Carsales’ advertising stream, but consider the website still has strong upside. Santos and Woodside are still cooking with oil and gas, Atlas Iron is hoping iron ore prices remain high, while the picture at Ten Network remains fuzzy.
Key take-out: The investment press notes that while carmakers have ordered new car dealers to axe their online vehicle advertising spends, not all are complying, and Carsales still derives the bulk of its revenue from used vehicle advertising.
Key beneficiaries: General investors. Category: Shares.

This is an edited summary of the Australian investment press: It includes investment newsletters, major daily newspapers and broker reports. The recommendations offered represent the views published in the other publications and may not represent those of Eureka Report. This article is general advice only which has been prepared without taking into account your objectives, financial situation or needs. Before acting on it you should consider its appropriateness, having regard to your objectives, financial situation and needs.

Carsales (CRZ)

The share price of online operator took a hit recently following the release of a report by financial services firm Taylor Collison. The report contained data that showed the number of new car sales on the website had declined 28% since September 2012. Shareholders ran for the exit, but the newsletters are decidedly more positive and say weakness in the share price could present a buying opportunity.

The fear among investors is that car makers are ordering dealers not to advertise new car sales online. It seems that carmakers including Holden, Nissan, Honda and Volkswagen have instructed dealerships to pull new car listings from the website to improve their margins. Apparently, savvy shoppers were comparing prices on the website when on the hunt for a new car to try to get the best deal. As new online car ads drop in number, carmakers expect shoppers will be more limited in how much they can negotiate on price.

At first glance, this looks to be a decidedly negative development for Carsales. Delving deeper into the issue, the newsletters point out that just a fraction of carmakers have actually gone ahead with such action. Moreover, while dealer advertising on the Carsales website accounted for 45% of the group’s revenue in 2012, new car advertising accounted for just 5% of revenue, one source says. The investment press is convinced this is a temporary issue and presents a buying opportunity for the long-term investor.

  • Investors are generally advised to buy Carsales at current levels.

* According to our value investor partners, StocksInValue, the intrinsic value for Carsales is $7.70. To find out more visit

Santos (STO)

Oil and gas producer Santos released third-quarter results last week, posting a record $1 billion in revenue, up 20% on the previous corresponding period. The strong number was a result of record average gas prices and higher third party sales, but masked a 1% fall in production and a 7% drop in sales during the quarter.

The update on full-year guidance was the focus for the newsletters, with a number pointing out that while the group is still on track to meet its production targets, the result will likely be at the lower end of the forecast 52-55 million barrels of oil equivalent (mmboe). The shutdown of the gas export pipeline at the Chim Sao operation off Vietnam in August as well as issues with the water suppression system at the Fletcher Finucane project off Western Australia hindered production in the quarter, analysts say.

Santos will be under pressure to deliver on production in the coming months: one source notes that fourth quarter production will have to reach 14 mmboe to meet guidance expectations. If Santos pulls it off, it would be the highest quarterly production rate since the fourth quarter in 2009.

On a more positive note, the investment press notes that significant progress has been made on the liquefied natural gas development on Curtis Island, Queensland. Santos confirmed the development is now 65% complete. Meanwhile, PNG LNG is more than 90% complete and looks to be on track to start up in the second half of 2014. Development on these projects overshadows other concerns and justifies a hold call on Santos, analysts say.

* According to our value investor partners, StocksInValue, the intrinsic value for Santos is $4.38. To find out more visit

  • Investors are generally advised to hold Santos at current levels.

Woodside Petroleum (WPL)

Woodside Petroleum’s entry into the Israeli oil and gas sector took a step closer this week when it was revealed that the nation’s high court had rejected appeals to overturn a decision allowing 40% of gas produced to be exported. It’s good news, but the investment press says there is still a way to go and there remains some uncertainty surrounding the terms of its agreement with joint venture partners, Noble Energy and Delek Group.

The latest news comes just days after Woodside released production numbers for the September quarter reporting a 10% lift in production to 22 mmboe. Meanwhile, revenue slid 26% from the previous corresponding period on the back of maintenance work as well as an unplanned shutdown of the Pluto LNG project in July. The newsletters weren’t too phased by this and are generally more concerned with the company’s growth projects.

While the Leviathan gas field in Israel has finally made slight progress, it’s still painfully slow. In addition, the Sunrise project in the Timor Sea has also made limited progress thus far. Woodside’s floating LNG project at Browse has also run into problems due to an ongoing stoush with the WA Government, and the newsletters are again concerned with the impact on progress.

Despite these headaches, analysts say with over 20 years’ experience managing the development of LNG projects, Australia’s premier oil and gas play still has a firm advantage over competitors.

* According to our value investor partners, StocksInValue, the intrinsic value for Woodside Petroleum is $26.38. To find out more visit

  • Investors are generally advised to hold Woodside at current levels.

Ten Network (TEN)

Another year, another set of less-than-impressive results from Ten Network Holdings. Free-to-air broadcasters have endured a tough couple of years, but none moreso than Ten. With little to be optimistic about in the near term, the newsletters retain their sell call.

Ten reported a net loss of $285 million for the 12 months to August 31, the vast majority of which was as a result of impairments and restructuring costs. Excluding these one-off items, the group reported a net loss of $5 million, compared with a $12.9 million loss the previous year.

The newsletters are worried that the struggling broadcaster has yet to match the quality programming on offer at rival networks. Viewers have flocked to rivals Seven and Nine, with Ten placing a distant third on the ratings board. The lure of online offerings has also proved too much for both consumers and advertisers, signalling further struggles ahead for free-to-air broadcasters.

In a bid to capture some of this shift online, Ten recently launched a new website and new apps that allow viewers to stream events live as well as catch up on programs they’ve missed. But competition is only going to get tougher, the newsletters say. Ten’s strategy of investing in new programming and online media is a step in the right direction, but it’s difficult to see it delivering the returns needed to move Ten up from the ‘wooden spoon’ position.

* According to our value investor partners, StocksInValue, the intrinsic value for Ten Network is $0.18. To find out more visit

  • Investors are generally advised to sell Ten at current levels.

Atlas Iron (AGO)

Resilient iron ore prices and strong production growth saw Atlas Iron report solid numbers for the September quarter. A record 2.4 million wet tonnes of iron ore were shipped during the quarter, compared with 2.22 million tonnes in the previous three months and 1.593 million tonnes in the 2012 September quarter. Ore volumes increased 25% on the previous quarter, while shipments grew 8%.

As expected, iron ore prices are a key concern for analysts. Australia’s fourth-largest listed iron ore miner needs the iron ore price to remain above $US120 a tonne to stay profitable, the newsletters say. As the global supply grows, prices will decline in the coming years, which will hit Atlas Iron harder than major players BHP Billiton and Rio Tinto.

For now, chairman David Flanagan has provided investors and the newsletters with some reassurance, reportedly saying the company is making between $35 and $40 per tonne on its shipments to China. The update on full-year guidance was a further measure of comfort. The company is on track to reach its 2014 full-year guidance of 9.8 million to 10.3 million tonnes. Looking further ahead, Atlas also expects strong customer demand for the 2014 financial year.

On another note, the newsletters are worried about the company’s levels of capital expenditure in the future as expansion plans take hold. As the miner forges ahead with growth projects, the absence of a rail network hasn’t escaped the attention of the investment press. The miner has previously said a rail solution is on its radar but there’s been little progress thus far.

* According to our value investor partners, StocksInValue, the intrinsic value for Atlas Iron is $0.42. To find out more visit

  • Investors are generally advised to hold Atlas Iron at current levels.

Watching the Directors

  • Kathmandu chief executive Peter Halkett and chief financial officer Mark Todd were in a selling mood last week. Halkett netted himself $2,047,036.23 after selling 565,000 of the company’s shares on-market, while Todd sold 43,437 shares for $NZ151,335 ($132,135) on-market.
  • On the buying side, Treasury Wine Estates chairman Paul Rayner continued his shopping spree last week, snapping up 15,000 of the winemaker’s shares for $71,549 on-market. At the start of the month he bought 10,000 shares at $4.56 apiece.
  • Elsewhere, Washington H Soul Pattinson director, David Wills, spent $139,500 for 10,000 of the company’s shares.

Takeover Action October 17-23, 2013

21/10/2013Argosy MineralsAGYBaru Resources81.78Closing Oct 31
11/10/2013Australian Power & Gas CompanyAPKAGL Energy97.86
21/10/2013Breakaway ResourcesBRWMinotaur Exploration91.00Compulsory acquisition
18/10/2013Central Australian PhosphateCENRum Jungle Resources86.35Ext to Oct 25
21/10/2013CoalbankCBQLoyal Strategic Investment56.9075% proportional offer
18/10/2013Elemental MineralsELMDingyi Group Investment28.43
01/10/2013Emerald Oil & GasEMRConfederate Capital Pty Ltd14.0730% proportional offer
26/07/2013Energia MineralsEMXCauldron Energy0.00Closing Nov 16
28/08/2013EnvestraENVAPA Group33.00
15/10/2013Inova ResourcesIVAShanxi Donghui17.63
04/10/2013GraincorpGNCArcher Daniels Midland27.98FIRB decision by Dec 17
21/10/2013HidrocoHRCAgri-Trade Investment Group70.29
22/10/2013Kuth EnergyKENGeodynamics28.22
26/09/2013Lemur ResourcesLMRBushveld Minerals53.67
17/09/2013Trust CompanyTRUEquity Trustees2.54Mutual due diligence. Ext to Nov 29
12/09/2013Warrnambool Cheese & ButterWCBBega Cheese18.00
08/10/2013Warrnambool Cheese & ButterWCBSaputo Inc0.00Closing early Dec 
18/10/2013Warrnambool Cheese & ButterWCBMurray Goulburn Co-operative Co17.00
Schemes of Arrangement
11/10/2013CloughCLOMurray & Roberts Holdings61.60Vote Nov 15
23/08/2013Platinum AustraliaPLAJubilee Platinum0.00Vote adjourned for amendments. Suspended from ASX.
18/10/2013RHGRHGResimac-Australian Mortgage Acquisition Co0.00Reinstated from suspension
03/09/2013Trust CompanyTRUIOOF Holdings0.00Vote Nov
27/09/2013Trust CompanyTRUPerpetual0.00Board supports proposal. ACCC and Monetary Auth S'pore, NZIO clearance. Vote Nov 28
Foreshadowed Offers
04/10/2013Billabong InternationalBBGCoastal Capital7.59Post re-financing/equity proposal
19/09/2013Billabong InternationalBBGAltamont Consortium4.00Post re-financing/equity proposal
19/09/2013Billabong InternationalBBGCenterbidge/Oaktree Consortium33.90Post re-financing/equity proposal
15/10/2013RHGRHGPepper Australia0.00Reinstated from suspension
Source: NewsBites

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