Collected Wisdom

Buy Woodside, sell JB Hi-Fi, and hold Tabcorp, GPT Group and AGL, the newsletters say.

Summary: Analysts rate Woodside a buy, but recommend selling JB Hi-Fi, while Tabcorp, GPT Group and AGL are holds, the newsletters say.
Key take-out: There has been much debate over the big four’s rising share prices, but analysts say ANZ still has more to give.
Key beneficiaries: General investors. Category: Portfolio management.

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.

Woodside Petroleum (WPL)

Investors on the hunt for yield are viewing Woodside Petroleum in a new light following its decision to increase its target dividend payout ratio from 50% to 80% and its plans to maintain the higher payout ratio for several years.

The oil and gas player certainly delivered the goods in its latest trading update, tempting investors further with a one-off fully franked dividend of $US63 cents per share. The share price surged above $38 as investors rushed to buy in before the ex-date on April 30. But for those who missed out on the special dividend, fear not. The newsletters are convinced Woodside has more to give and say those seeking a balanced portfolio should consider buying in. Forecasts indicate shareholders could see a yield of about 5% to 6% this year.

Leaving dividends aside, Woodside saw a solid increase in production in the March quarter. Production rose 55.3% on the previous corresponding period, to 21.9 million barrels of oil equivalent (MMboe). The production results were largely due to its new $US14.9 billion Pluto liquefied natural gas (LNG) project in Western Australia, which is at 90% capacity, and continued strong performance of the North West Shelf business, the oil and gas player said.

The investment press has also taken the news on the deferral of projects in a rather positive light, noting that shareholders can reap the benefits of the higher dividends now, and be somewhat assured that Woodside will pursue development opportunities at a time when costs aren’t so high.

  • Investors are advised to buy Woodside Petroleum at current levels

Tabcorp (TAH)

Tabcorp’s third quarter trading update broadly met market expectations last week. For now, the newsletters place the gaming business in the hold category due to modest growth and stable revenue.

Revenue increased to $480.3 million in the quarter, a 2.6% rise on the previous corresponding period, while year-to-date revenue came in 2.2% higher, at $1.5 billion. The company looks to have largely shrugged off last year’s loss of the Victorian pokies franchise, with its new gaming services division tracking along at a healthy pace. Tabcorp holds a number of long-term licenses that ensure continued reliable earnings and cash flow. In April, the Queensland government extended Tabcorp’s license to operate Keno in the state until 2047, while it holds similar licenses in New South Wales and Victoria that expire in 2022.

However, the newsletters note the increased competition penetrating the market through the internet as consumers increasingly make use of mobile devices and are concerned over the effect it will have on Tabcorp’s numbers in the future.

  • Investors are advised to hold Tabcorp at current levels

GPT Group (GPT)

In its first quarter trading update, GPT Group reiterated its target of full-year earnings-per-share (EPS) growth of at least 5%. The group confirmed the distribution payout ratio will remain at 80% of realised operating income (ROI) – ie profit less non-recurring items. The group has suspended its dividend reinvestment plan for now, and distribution for the quarter was 5.1 cents per share, a rise of 10.9% on the corresponding period in 2012. GPT also announced a move to half-yearly distributions from July 1, which it said would deliver cost savings. The newsletters broadly view GPT as a hold for the time being.

The group’s total portfolio performed well in the quarter, with the retail property portfolio recording continued high occupancy of 99.7%. The logistics portfolio occupancy came in at 98.5%, while occupancy for the office portfolio was slightly lower at 95.7%.

Investors and newsletters keen for any further comment on the status of its takeover bid for Australand got some insight from chief executive Michael Cameron. He said GPT is committed to advancing a proposal, “but it is important to remind you that we don't have to actually do the deal to achieve our strategic goals,” he said.

  • Investors are advised to hold GPT at current levels

AGL Energy (AGK)

AGL Energy’s share price took a hit last week after the company lowered its profit guidance for full-year 2013 on the back of increased retail competition and soft wholesale market conditions. The newsletters still see potential, and rate AGL a hold.

Underlying profit for the full year is now expected to be in the lower half of the guidance range of $590 million to $640 million. AGL said in the update that it had seen unprecedented customer churn volumes in Victoria and New South Wales due to intense competition and has started to place more emphasis on retention to counter heavy competitor discounting. There are reports that Origin is offering discounts of up to 25%. Separately, the energy retailer noted increased solar penetration and declining manufacturing as reasons behind the softer wholesale prices.

Still, the newsletters say there are a number of reasons to remain positive on AGL. These include the recently purchased Loy Yang generator, which has provided benefits of scale and improved coverage of retail load with owned and controlled, South Australia’s recent deregulation of electricity pricing, and its position as one of the country’s biggest renewable energy generators.

  • Investors are advised to hold AGL at current levels

JB Hi-Fi (JBH)

JB Hi-Fi’s update to its full-year guidance came on the back of stronger-than-expected sales in the half year to date. Its share price rose sharply on the news, but the newsletters are less than convinced and rate it a sell.

The retailer said that sales in fiscal 2013 are now expected to be around $3.3 billion and net profit after tax (NPAT) is forecast to be between $112 million and $116 million. This represents a 7% to 11% increase in NPAT on the previous year. Although the retailer recorded a lift in sales in the first four months of the second half, year-to-date sales are down 1.3% due to a 3.4% decline in like-for-like sales in the first six months.

Despite its low-cost business model delivering a competitive advantage over its peers, the newsletters believe increased competition and price deflation remain long-term risks. Online competition is seen as a big threat, as consumers increasingly take advantage of the cheaper products on offer, while plans by retail giants Costco and Woolworths to compete aggressively in the sector are viewed as a further negative.

The newsletters are also unsure of what growth opportunities lie ahead for the retailer apart from the rollout of new stores, and rate the investment risk as high.

  • Investors are advised to sell JB Hi-Fi at current levels

Watching the directors

Caltex Australia managing director and chief executive Julian Segal was a big seller last week, offloading 325,412 shares at $20.90 apiece, bagging himself a healthy $6,833,066.

Elsewhere, M2 Telecommunications founder Vaughan Bowen sold 1,000,000 shares, collecting $5,445,377 in the process, while chairman Craig Farrow offloaded 95,000 shares for $527,250. Bowen still holds over $28 million worth of stock, while Farrow holds about $3 million’s worth.

Finally, Atlas Iron managing director, Kenneth Brinsden, bought 212,000 shares for $183,486 in on-market trades during the week.

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