Collected Wisdom

PORTFOLIO POINT: This is an edited summary of Australia's best-known investment newsletters and major daily newspapers. The recommendations offered represent the views published in other publications and may not represent those of Eureka Report.

Flight Centre. It’s not the usual standoff between travel agent and customer, but a rift between Flight Centre and a key Asian airline which has the pundits talking at the moment. In mid-June, Flight Centre asked its staff to stop selling tickets on Singapore Airlines or its Silkair subsidiary as it was sourcing cheaper airfares on its own. There are various views as to what the debate is really about, with one publication noting that Singapore said Flight Centre tried to impose an 8% commission on top of its existing 5% cut.

However, the specifics of Flight Centre’s actions are not as important as the real dilemma facing travel agencies in the current environment. The publication says that as consumers continue to tighten their wallets as unemployment rises and the outlook for the economy remains uncertain, the probable outcome is that people fly less.

Although noting a statistic that 85% of outbound flight and holiday bookings are still done through travel agents, the view is that investors should still be wary of potential margin deterioration if airlines are forced to gang up against Flight Centre. One stock picker agrees, noting the change in sentiment pointing to the considerable downside between 12 month forecasts and its current share price.

Flight Centre will find some solace in taking out top spot for a travel agency with more than 100 outlets at the National Travel Industry Awards last week. Unusually enough, Singapore Airlines was named the best international airline in the online category at the same event. There were no reports of a dust-up after the function.

• Investors are advised to sell Flight Centre shares at current levels.

Transfield. After its joint venture partner lost the tender to run Melbourne’s Yarra Trams franchise, the share price of this maintenance, services and project management operator has been under serious pressure. While investors were not pleased with the loss of a high-profile contract, we should note the earnings impact is not that dramatic, with an expected loss of $8 million to show in early 2010 or roughly 5% of 2007-08 EBITDA.

One newsletter says it will be pushed on by rebounding commodity prices, which have helped prospects in oil and gas, aided and abetted by new chief executive Peter Goode’s experience in the industry. However, it also has the view that companies will increasingly seek to outsource their requirements, which has seen a second wave of rival companies sprout up.

Separately, Transfield has re-signed its contract to provide telecommunications field services in New Zealand, a deal worth about $800 million over 10 years. One publication uses this to justify a long-term buy on the stock while others are understandably concerned about hotly contested contracts in bigger markets and the stronger Australian dollar.

• Investors are advised to hold Transfield shares at current levels.

Telstra. Australia’s largest telecommunications provider remains a hard sell for many investment newsletters, given its long-standing underperformance. Yet one has given great countenance to the argument that not participating in the government’s national broadband network is the be all and end all for the telco.

The government will hold a 51% stake in the NBN, and one publication believes it has offered Telstra up to 49% on condition it splits its wholesale and retail operations. However, the newsletter says that assuming the NBN is worth $43 billion (which is debatable), Telstra will not get enough value out of trading in its physical assets (the copper network), which still generate substantial operating cash flow and profits for around $21 billion.

The newsletter says the company’s Next G network has the potential to hurt the NBN because many users regard the need to be connected all the time is as important as a high-speed connection.

One stock picker also notes there is less commotion surrounding Telstra stemming from regulatory pressure. The appointment of David Thodey as chief executive following the departure of Sol Trujillo earlier this year was a blessing, as the tension between Telstra and the government has eased.

The possibility also remains that of Telstra may play a role in the current stoush between media moguls Kerry Stokes and James Packer, with the telco owning 51% of the prized pay-TV operator Foxtel. If it is forced to split in two, neither the wholesale or retail component of the company seems suitable to house such an asset.

• Investors are advised to buy Telstra shares at current levels

Asciano. Chief executive Mark Rowsthorn has insured the ports and rail operator remains a hotly debated stock after selling off $50 million worth of shares, or 10.9% of the company, this week. One publication says that this is a satisfactory outcome because his heavily leveraged stake in the company made it a target for short sellers. Rowsthorn’s holding now stands at about 4%, not enough to prevent the pursuit of a takeover suitor.

After previously announcing it had raised $2.35 billion in an over-subscribed retail-entitlement offer designed to pay off debt, Asciano said on Friday it would seek to raise an additional $100 million through a security purchase plan, raising further questions. This latest equity raising has come after the group rejected four bids to either buy the company or its assets and the company’s dogged approach to stick it out has fractured support for chairman Tim Poole (who is believed to have a rocky relationship with his chief executive).

The same publication states that those in the know believe Asciano’s shares are worth more than their present price, particularly given the potential of new coal contracts. One stock picker takes particular note of Asciano’s monopoly pricing power and suggests forgetting about the past because the company may be approached for takeover again soon.

• Investors are advised to hold Asciano shares at current levels.

Macquarie Airports. With predictable cash flows and assets that are relatively immune to the economic cycle, Australian listed infrastructure stocks are becoming attractive again, not long after being criticised for being laden up with debt and having oppressive fee structures. One publication is particularly taken with the enormous amounts of cash flow thrown off by its main asset, Sydney Airport. Traffic volumes are holding up and in-store sales are travelling along nicely, leading many investors to believe that the replacement value of the assets is too good to pass up.

• Investors are advised to buy Macquarie Airport shares at current levels.

Watching the directors

Week to July 17

• Rio Tinto director and iron ore chief Sam Walsh bought 23,047 rights issue shares worth $652,000 and 26,483 conditional share awards on July 9 – shortly after the global miner said four of its employees in Shanghai had been detained by Chinese authorities for alleged bribery. At the same time, Rio Tinto non-executive director Mike Fitzpatrick (also known for his roles as AFL chairman and Carlton Football Club Premiership captain) took up 2152 shares from the rights issue worth $60,880.
• Australia and New Zealand Banking Group chairman Charles Goode directly bought 1042 plan shares and indirectly bought 3126 shares worth $60,019 on July 13, after the bank raised $2.2 billion in one of the largest capital raisings in recent memory. He directly holds 341,487 shares and indirectly holds 424,843 shares. Director and former Reserve Bank governor Ian Macfarlane indirectly bought 1042 plan shares in the same issue. He indirectly holds 12,616 shares.
• Asciano chief executive Mark Rowsthorn will take up his full entitlement of 76.2 million stapled securities under the proposed equity raising after selling 40 million securities at $1.25 ($50 million worth) and raising a loan for the balance.
• Energy Resources of Australia director David Klingner bought 17,828 Rio Tinto shares for $848,613 on July 9 via the Rio Tinto rights issue. He holds 51,787 Rio Tinto shares and 4117 options. Director Richard John Carter bought 1850 Rio Tinto shares for $88,060. He holds 25,000 Energy Resources shares and 5375 Rio Tinto shares. Director Peter Taylor bought 2187 Rio Tinto shares for $104,101 and received 2649 conditional share awards. He holds 6353 Rio Tinto shares, 20,461 options and 15,248 conditional share awards. Director Chris Salisbury bought 2606 Rio Tinto shares for $124,046 and received 2943 conditional share awards. He holds 7571 Rio Tinto shares, 9416 options and 16,939 conditional share awards. Director Robert Atkinson received 1944 conditional share awards. He holds 2041 Rio Tinto shares, 5278 options and 11,196 conditional share awards.
• Decmil Group director Denis Criddle was indirectly issued 1,850,000 shares worth $1,387,500 as part of deferred consideration for the acquisition of Decmil Australia on July 13. He indirectly holds 26,248,232 shares.
• Mirvac Group director Nicholas Collishaw indirectly bought 531,023 shares for $531,023 on July 9 via an entitlement offer. He directly holds 139,507 shares, 985,960 performance rights, 2,336,340 options and indirectly holds 1,817,929 shares. Director Peter Hawkins indirectly bought 130,000 shares and directly bought 100,000 shares for a net $230,000. He directly holds 165,536 shares and indirectly holds 277,011 shares. Director Richard Turner directly bought 35,062 shares for $35,062. He directly holds 80,000 shares and indirectly holds 72,036 shares. Director Penelope Morris indirectly bought 36,145 shares and directly bought 38,495 shares for a net $74,460. She directly holds 107,786 shares and indirectly holds 101,208 shares. Director James MacKenzie bought 42,571 shares for $42,571. He holds 119,200 shares. Director Paul Biancardi indirectly bought 36,885 shares for $36,885. He indirectly holds 103,279 shares.
• Telezon Ltd director Frank Carr directly bought 53,921 shares for $781,855 on-market on July 13, increasing from 7,694,200 shares (26.53%) to 7,748,121 shares (26.72%).
• Coal & Allied Industries director Douglas Campbell Walter Ritchie directly bought 2349 shares for $66,453 and was issued 9492 conditional share awards on July 9 following Rio Tinto's rights issue. He holds 6825 shares, 26,193 options and 54,602 conditional share awards in Rio Tinto. Director Christopher John Stewart Renwick bought 7350 rights issue shares for $207,932. He holds 21,350 shares. Alternative director Geoffrey Charles Oldroyd indirectly bought 1216 rights issue shares for $34,401. He holds 3534 shares. Director Robert Bryan Davis indirectly bought 607 rights issue shares for $17,172. He holds 1764 shares.
• Eromanga Hydrocarbons director Christian Turner directly and indirectly sold 184,615 shares and 800,000 options worth $392,709 on-market between May 19 and 26. He indirectly holds 9,000,000 shares, 9,192,307 options and 6,000,000 performance rights.
• Water Wheel Holdings Ltd director Jeffrey Beaumont indirectly transferred his 3,900,000 shares worth $370,000 off-market on July 17 via the company's convertible note issue. He holds 1,787,000 shares.
• CMI director Raymond David Catelan indirectly bought 989,607 shares for $346,362 on-market on July 6. He holds 14,332,698 shares.
• Enterprise Metals Ltd director Dermot Ryan directly and indirectly bought 2,000,000 shares for $300,000, and was issued 2,000,000 options on July 21 via an entitlement issue. He directly holds 10,500,000 shares and 2,000,000 options, and indirectly holds 3,500,000 shares and 500,000 options. Director Bruce Hawley directly bought 91,667 shares, indirectly bought 210,501 and was issued 302,168 options. He directly holds 641,667 shares, indirectly holds 1,574,501 shares and 3,302,168 options. Director Paul Larsen directly bought 376,173 shares, indirectly bought 108,975 shares and was issued 485,148 options. He also transferred 414,444 shares and indirectly bought 65,000 shares, both off-market between May and June. He directly holds 2,633,209 shares and 876,173 options, and indirectly holds 108,975 options.
• Singapore Telecommunications Ltd director Chua Sock Koong indirectly bought 96,000 shares for $S303,680 ($A266,293) on-market on July 9. He directly holds 2,806,513 shares and 1,584,000 options and indirectly holds 6,282,231 shares.

nRecent directors' trades worth more than $200,000
Date		ASX	Director	Volume	Price	Value	Action
06/07/09	CMI Limited	CMI	Raymond Catelan	989,607	0.35	$346,362	Buy
26/06/09	Primary Health Care	PRY	Edmund Bateman	153,549	5.27	$809,203	Buy
24/06/09	United Group	UGL	Richard Leupen	43,205	9.731	$420,415	Buy
24/06/09	PPK Group	PPK	Glenn Molloy	1,079,958	0.257	$277,545	Buy
12/06/09	Magellan Financial Group	MFG	Chris Mackay	947,239	0.5	$473,620	Buy
02/06/09	Primary Health Care	PRY	Edmund Bateman	155,000	5.27	$817,050	Buy
28/05/09	Diatreme Resources	DRX	Andrew Tsang	11,000,000	0.14	$1,540,000	Buy
27/05/09	Bass Metals	BSM	Patrick Treasure	1,000,000	0.2	$200,000	Buy
22/05/09	Clime Investment Management	CIW	Paul Jensen	1,306,350	0.28	$366,198	Buy
15/05/09	Westfield Group	WDC	John McFarlane	50,000	9.75	$487,500	Buy
14/05/09	Bow Energy	BOW	Nicholas Mather	430,000	1.079	$463,884	Buy
01/05/09	National Australia Bank	NAB	Michael Ullmer	13,049	20.72	$270,337	Buy
29/04/09	Washington H Soul Pattinson	SOL	Michael & Robert Millner	57,000	9.63	$549,035	Buy
29/04/09	Primary Health Care	PRY	Edmund Bateman	81,703	4.12	$337,197	Buy
28/04/09	Thakral Holdings	THG	Rikhipal Thakral	2,400,000	0.25	$601,980	Buy
24/04/09	Ascent Pharmahealth	APH	Dennis Bastas	1,546,875	0.16	$247,500	Buy

Source: The Inside Trader