Collected Wisdom

This week we look at BHP Billiton, UGL, ResMed, AMP, and GPT Group.

Summary: The newsletters point to BHP’s optimistic outlook, but are concerned with developments at engineering and property services group UGL. Meanwhile, despite disappointing results, the newsletters consider ResMed a good investment, but are neutral on AMP and GPT.
Key take-out: The investment press were impressed with BHP Billiton’s latest quarterly production results and comments from the company that it may deliver capital returns to shareholders.
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.

BHP Billiton (BHP)

BHP Billiton delivered shareholders a welcome surprise last week in the form of better-than-expected first quarter 2014 production numbers and an upgrade to full-year iron ore production guidance. Despite concerns about the fading China-led resources boom the investment press rates BHP a buy on its diversified product base and conservative balance sheet.

The standout performers for the quarter were the iron ore and petroleum divisions, with both posting record results. Iron ore production hit 49 million tonnes in the quarter, compared with 40 million tonnes in the previous corresponding period, leading BHP to increase its iron ore production guidance for the full-year by 2.5% to 192 million tonnes.

Elsewhere, the group’s petroleum operations posted record production of 63 million barrels of oil equivalent, compared with last year’s 62 million. Guidance for the 2014 financial year remains unchanged at 250 million barrels of oil equivalent, the miner said.

Following up on the quarterly production update, the investment press says BHP’s optimistic outlook was evident in last week’s annual general meeting (AGM), with chief executive Andrew Mackenzie saying the recovery in the global economy should see it deliver on its plans to increase overall production by 8% per year on a copper equivalent basis over the next two years.

Meanwhile, investors and analysts were buoyed by hints from Mackenzie that the group may deliver capital returns to shareholders on the back of steady iron ore prices and the $US2.7 billion cost savings the miner delivered through productivity gains in 2013.

* According to our value investor partners, StocksInValue, the intrinsic value for BHP Billiton is $34.74. To find out more visit

  • Investors are generally advised to buy BHP Billiton.


Engineering and property services group UGL came under fire at its AGM this week as shareholders voiced their anger over recent performance and demerger plans for its property arm.

The company declined to give any earnings forecast for FY14 but again pointed to the impact the downturn in the resources sector is having. This will come as no surprise to shareholders, who saw the dividend cut sharply last year on the back of a 73% drop in net profit.

The absence of reaffirmed guidance has the investment press concerned, with a number pointing to further earnings risk on possible deferrals or cancellations of projects and broader industry challenges.

Plans for the property arm DTZ are a further point of contention. At the AGM, UGL re-stated its intention to proceed with the spin off, with chairman Trevor Rowe saying the move will create more value for shareholders. The investment press isn’t as optimistic, with a number of analysts saying upside will likely be limited. There’s also the prospect of a capital raising forming part of the de-merger process, some say.

The investment press is generally concerned about the group’s gearing and net debt levels and say these will remain a focus for the coming year. UGL currently has gearing of 34% and net debt of $581 million. The group has addressed concerns by saying it plans to reduce these levels through cost cutting measures.

* According to our value investor partners, StocksInValue, the intrinsic value for UGL is $6.59. To find out more visit

  • Investors are generally advised to sell UGL.

ResMed (RMD)

ResMed’s share price took a hit last week after the group reported weaker-than-expected first quarter results. Shareholders may be still running for the exit, but the investment press says the more than 10% share price drop since last Friday represents a buying opportunity.

On the face of it, ResMed’s numbers don’t look all that bad. The sleep disorder equipment maker posted a profit of $US80.9 million, or 56 cents a share for the September quarter, up from $US71.3 million, or 49 cents a share, in the previous corresponding period. Revenue meanwhile, rose 5.3% to $357.7 million.

One source says constant currency sales growth in the Americas of just 4% is a concern and not reflective of the shares currently trading on around 20x FY14 earnings. Outside the Americas, revenue was also weaker than expected, rising just 5% on a constant currency basis.

For the newsletters, much of the attention has focused on two major concerns: the impact of US Medicare competitive bidding pricing in the US and the recent weakness in sales.

While analysts generally expect competitive bidding pressures to continue in the near term, the general view seems to be that these pressures will soon ease somewhat. Indeed, management has noted that this temporary disruption already appears to be receding and should be resolved in the coming months.

Continued market share loss was a further disappointment for the newsletters. Sales increased just 3% to $113 million in the period, reflecting the increasingly competitive environment. While ResMed held its market share in full-face masks, both nasal and pillow categories saw share losses. Still, analysts remain confident that the group’s heavy R&D spend will see it fend off competition in the long term.

Overall, the newsletters are of the view that these short-term issues and subsequent sell-off by nervous investors presents a buying opportunity for the long-term investor.

(We reported in Collected Wisdom on July 24, 2013, ResMed as a neutral.)

  • Investors are generally advised to buy ResMed.


Financial services company AMP issued a fresh profit warning to the tune of $65 million last week on the back of a disappointing third quarter that saw continued problems with its income protection business. The second profit warning in four months has some worried that AMP may be forced to cut its dividend, although the insurer made no such suggestion at the quarterly update.

The newsletters voiced their concern at the disappointing quarterly results, with some warning the lack of an easy fix for the problems facing the life insurance market will see the headwinds continue for AMP. Despite these worries, a majority of the investment press still rate.

In a bid to reassure shareholders, AMP said in the update that fixing its wealth protection arm remains "one of its highest priorities". To that end, the group "continues to implement short and medium term actions to improve claims and lapse experience".

But in the near term, earnings are expected to remain weak, one source says. Another suspects further profit warnings could be on the way.

An Ian Verrender noted last week, “AMP has underperformed the ASX 200 since the start of 2012 as the banks have surged ahead”. (see AMP’s appetite for destruction). Without a substantive change the underperformance is set to continue in the near term, some warn.

* According to our value investor partners, StocksInValue, the intrinsic value for AMP is $3.63. To find out more visit

  • Investors are generally advised to hold AMP.

GPT Group (GPT)

Diversified property group GPT Group this week lifted its full-year guidance of earnings per share growth to at least 6% in 2013, up from the previous guidance of at least 5%. A number of the newsletters expected the upgrade, with some saying the previous guidance seemed a bit weak.

GPT also provided a new strategy update, which will see the group focus on total return, targeting an extra $10 billion in funds under management (FUM), up from the current $7.2 billion. GPT also said it will maintain a “frugal approach and disciplined use of a ‘fortress’ balance sheet”.

The group said it will still specialise in retail, office and logistics, but its investment decisions will be led by the quality of assets and will be driven by stock selection rather than portfolio weightings.

The investment press says the portfolio is performing well, with 99.6% occupancy in retail and 95.4% occupancy in both the office and industrial assets. Meanwhile, weighted average lease expiry across the portfolio averages 4.9 years.

The group is in good financial health, the newsletters say, with gearing of just 19.9% as at June 2013.

Taking a closer look at the strategy update, one source says the target for a 140% increase in FUM is ambitious and there is growing pressure on acquisitions to maintain the current earnings growth profile. That said, another source is more optimistic, pointing to the group's strong track record in funds management.

* According to our value investor partners, StocksInValue, the intrinsic value for GPT is $3.01. To find out more visit

  • Investors are generally advised to hold GPT Group.

Watching the Directors

  • Beadell Resources managing director, Peter Bowler, was one of last week’s big sellers, offloading 3,000,000 shares for $2,826,243 “to pay income tax liabilities and to finance the acquisition of a property”.
  • Elsewhere, Mint Wireless director, Terry Cuthbertson, sold 500,000 shares for $166,163.
  • Meanwhile, on the buying side, Washington H Soul Pattinson director, Michael Hawker, snapped up 7,320 of the company’s shares for $112,340 on-market.

Takeover Action October 24-30, 2013

23/10/2013Argosy MineralsAGYBaru Resources83.01Closing Oct 31
29/10/2013Australian Power & Gas CompanyAPKAGL Energy98.18Delisted
25/10/2013Central Australian PhosphateCENRum Jungle Resources88.16Ext to Oct 25
29/10/2013CoalbankCBQLoyal Strategic Investment60.1075% proportional offer
18/10/2013Elemental MineralsELMDingyi Group Investment28.43
08/10/2013Emerald Oil & GasEMRConfederate Capital Pty Ltd19.9930% proportional offer
26/07/2013Energia MineralsEMXCauldron Energy0.00Closing Nov 16
28/08/2013EnvestraENVAPA Group33.00
29/10/2013Inova ResourcesIVAShanxi Donghui17.63Chinese Mofcom approves
04/10/2013GraincorpGNCArcher Daniels Midland27.98FIRB decision by Dec 17
21/10/2013HidrocoHRCAgri-Trade Investment Group70.29
28/10/2013Kuth EnergyKENGeodynamics42.56
26/09/2013Lemur ResourcesLMRBushveld Minerals53.67
21/10/2013Marathon ResourcesMTNBentley Capital19.98
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 Co0.00
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
28/10/2013RHGRHGPepper Australia & Cadence Capital0.00Withdrawn
Source: NewsBites

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