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For whom the Bell tolls: brokers warn of losses

GIVEN the tough times, stockbrokers will no doubt still welcome the tepid start to the new financial year, but they could have some way to wait before the sharemarket turns positive.

GIVEN the tough times, stockbrokers will no doubt still welcome the tepid start to the new financial year, but they could have some way to wait before the sharemarket turns positive.

Retail stockbroking powerhouse Bell Financial Group the owner of Bell Potter has become the latest brokerage to issue a profit warning on the back of the terrible June-quarter market.

Bell has warned it will post a first-half loss of between $1.8 million and $2 million, mainly after being buffeted by slowing trading volumes. The warning comes on the heels of a string of retail brokers cutting staff as part of efforts to cut costs.

Bell has been no exception, with the broker quietly cutting research and sales roles over the past six months. Indeed, Bell's profit warning includes $2 million for one-off payments and non-recurring charges, although the broker was not specific on the nature of the costs.

The Brisbane-based Wilson HTM last month warned its full-year loss could blow out to as much as $8 million after being hit by asset write-downs and a sharp fall in trading volumes.

For Bell's part, the downturn was felt most on its retail broking arm and through its equity capital market business another area that has ground to a halt.

While conditions remain volatile, investors have opted to park spare funds in the bank rather than risk the market. Shares in Bell Financial lost another 3? yesterday to 41?, levels last traded at the depths of the financial crisis.

Still, any meaningful recovery in stockmarket turnover could be a little way out. As most of Bell's stockbrokers know, investors are likely to sit on their money until at least mid-to-late August, waiting to get a clearer picture of the health of corporate Australia through the lens of reporting season. Only then will investors get a sense of whether equities are undervalued and should be snapped up or beaten down further.

Ugly ducklings appeal

WITH persistent uncertainty in global markets, it might be worth turning attention to high-yielding, if slightly unglamorous, stocks.

That is the view of Deutsche Bank's utilities analysts who are spruiking the merits of the regulated utilities.

While levels of capital growth seen last year are unlikely to be repeated, sector yields consistently above 7 per cent make pipeline operator APA Group and power line interest Spark Infrastructure among the bank's utilities analysts' favourite picks. Remember, yields are calculated on dividend payments as a percentage of share price.

The Macquarie-backed DUET Group offers the highest yield in the regulated utilities sector, with the company's latest distribution guidance implying a yield of 8.7 per cent on current share price levels.

With the company aiming for 3 per cent annual distribution growth, that yield could reach 9.5 per cent by 2015, the analysts say. APA, Spark and SP AusNet another power line operator are forecasting yields of between 7 and 8 per cent.

Compare this with the 5 per cent yield the S&P/ASX200 Index is currently trading on. The current favourite among yield chasers Telstra is trading on the equivalent payout of 7.5 per cent.

Of course, the key investment consideration is the sustainability of yields.

Put simply, companies must be able to have enough cash to fund promised dividend payouts into the future. And yet prudent cash management must be balanced with ensuring enough investment is being made to ensure the company continues to grow and remain competitive.

Spark recently confirmed it had lost out in the bidding for the privatised Sydney desalination plant, while APA is currently bidding for Hastings Diversified Utilities Fund. The current offer, about $2.50 a share, is forecast to be cash-flow accretive though this could change if it were forced to up its bid.

NAB's short story

IS NATIONAL Australia Bank going short?

A recent survey by ratings agency Fitch of US Money Fund exposures suggest that Australian banks have been cutting back their reliance on short-term US money market funds. Total exposures are down 10 per cent on a US dollar basis from May.

However, among the majors NAB remains a major borrower of funds from US money markets. Indeed NAB accounts for just under half of the US fund exposure to Australia.

The focus on cheaper short-term money is likely to provide a benefit to net interest margins, but it flies in the face of demands from regulators to lengthen the term of wholesale funds.

NAB's most recent accounts show the weighted average remaining maturity of its term funding the average payback time is indeed shortening. It pulled back slightly during the March half to 3.2 years from 3.5 years in the September half.


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