Hush, and Hear Amalgamated's Charms Who Wants Golden Dividends?; Blog Links ASX Half-Year Result BHP Half-Year Result IRESS Fu
Total Page：16
File Type：pdf, Size：1020Kb
WEEkly REviEW | ISSUE 362a | 16–22 February 2013 CONTENTS IN THIS ISSUE STOCK REVIEWS Hush, and hear Amalgamated’s charms STOCK ASX CODE REcoMMENdaTioN PAGE Greg Hoffman Amalgamated Holdings AHD Long Term Buy 2 Greg Hoffman explains why this owner of hotels, cinemas and a skiing stock UPdates resort may be just the ticket for those looking for a steady, growing ARB Corp ARP Hold 3 dividend. (p2) Amcor AMC Avoid 4 ANZ Bank ANZ Avoid 5 Who wants golden dividends?; Blog links ASX ASX Hold 5 Australand ASSETS AAZPB Sell 6 Gaurav Sodhi BHP Billiton BHP Hold 7 Below is a list of Doddsville and Bristlemouth blog articles published BlueScope Steel BSL Hold 8 by our analysts this week. (p25) Boart Longyear BLY Avoid 8 Brambles BXB Avoid 9 ASX half-year result BWP Trust BWP Long Term Buy 9 Coca-Cola Amatil CCL Hold 10 James Carlisle Infigen Energy IFN Hold 11 Competition and weak market sentiment took a bite out of ASX’s InvoCare IVC Hold 11 revenue in the first half, but today’s result left plenty of room for IRESS IRE Hold 12 optimism. (p5) Monadelphous MND Avoid 13 NAB CPS NABPA Avoid 14 Platinum Asset Management PTM Hold 15 BHP half-year result ResMed RMD Long Term Buy 16 Gaurav Sodhi Rio Tinto RIO Hold 17 Good results were only part of the story, with management preparing Sunland Group SDG Hold 17 the business for a different world. (p7) Sonic Healthcare SHL Hold 18 Servcorp SRV Hold 19 Sirtex Medical SRX Hold 20 IRESS full-year result Suncorp Group SUN Hold 21 Jason Prowd Tassal Group TGR Hold 21 A growing market for its wealth management software failed to offset Treasury Group TRG Hold 22 lower demand for its market data products both here and abroad. Village Roadshow VRL Hold 22 Jason Prowd revisits the case for IRESS. (p12) Woodside Petroleum WPL Hold 23 features Platinum half-year result Doddsville blog | Who wants golden dividends? 24 James Carlisle extras Platinum ticks all the boxes as an excellent business in an attractive Blog article links 25 sector, but we’ll have to be patient for another entry point. (p15) Multimedia links 25 Twitter links 25 PORTFOLIO CHANGES Ask the Experts Q&As 25 BUY/ NO. OF PRICE VALUE Important information 26 PORTFOLIO STOCK DATE SELL SHARES ($) ($) RecomMendation changes Income Australand ASSETS Sell 20/2/13 100 $96.60 $9,660.00 Amalgamated Holdings upgraded from Hold to Long Term Buy Income ResMed Buy 20/2/13 2,300 $4.22 $9,706.00 Australand ASSETS downgraded from Hold to Sell NAB CPS coverage initiated with Avoid Suncorp upgraded from Avoid to Hold Intelligent Investor Share Advisor Blue chip industrial | Greg Hoffman Hush, and hear Amalgamated’s charms Greg Hoffman explains why this owner of hotels, cinemas and a skiing resort may KEY PoiNTS be just the ticket for those looking for a steady, growing dividend. Attractive collection of entertainment assets with growth potential Too many companies love to ‘sell the sizzle’, making upbeat presentations and Conservatively financed and managed with 5% full announcements, delivering glossy annual reports explaining why the company is worth franked yield more than the sum of its parts. Upgrading to Long Term Buy Usually, it’s bulldust designed to obscure the ugliness of the numbers. Amalgamated Holdings, owner of hotels, cinemas and a ski resort, doesn’t shout or gild the lily. But the performance is of a high quality for those prepared to listen. TablE 1: AHD’S BUSINESSES Amalgamated has long owned the historic State Theatre site in Sydney. In 2005 it HoTELS TYPE/locaTION acquired the ‘Mick Simmons’ building behind the theatre for $12.5m. A year later, Gowings 4 star leisure and business Retail went into administration and Amalgamated swooped, purchasing the Gowings hotels, Australia wide buildings, adjacent to its two other holdings, for $68.6m. A quick examination of the accounts shows three random property assets. But as 4.5 star design hotels, Monopoly players know all too well, the purchase of three adjacent properties delivers the Sydney/Gold Coast/Port Douglas option of building a lucrative hotel. Under the stewardship of chairman Alan Rydge and his CINEMAS team, that’s what Amalgamated has done. The achingly hip and popular QT Hotel was launched in September last year, featuring Australia 200 rooms from $325 a night. That’s an example of the company’s modus operandi: patient, conservative, and creative. The same patient, strategic approach is also evident in Rydge’s personal property Australia portfolio. In 1960, Alan Rydge’s father bought a property in Sydney’s Point Piper. Through patient acquisitions, the family now owns six adjoining properties in the exclusive suburb. Australia Like father, like son ‘Alan Rydge is no rebel’ said the Sydney Morning Herald in 1986 after he took over as Germany chairman of Amalgamated following his father’s death in 1980. ‘Sir Norman could never be accused of over borrowing, which was, in his vocabulary, a bit of a dirty word. Asked OTHER BUSINESSES then if he would change anything, young Alan replied firmly: “I don’t think so.”’ Alan stuck to his word. The company currently boasts a net cash balance of $16.5m; Ski resort, NSW debt of $46.8m is more than offset by $63.3m in cash. That’s an extraordinary position for such an asset-rich company, especially one that’s spent more than $60m developing a designer hotel in Sydney in addition to funding the requisite land acquisition (the company Theatre, NSW made an equitable 1-for-5 rights issue in 2009 rather than borrow the money). So Amalgamated Holdings is a rarity; a company that’s overseen with a genuinely Cinema equipment supplier conservative eye to the long term. Comfort can also be drawn from the diversity of the company’s assets. Cinemas are the group’s main revenue and profit engine. In Australia and New Zealand, Film processing equipment Amalgamated owns and operates 72 cinema sites, mostly through its Event Cinemas joint venture with Village Roadshow. These produced more than $75m in profits in 2012, boosted by an $18.6m contribution from the group’s German cinemas. Wildlife park, NSW Film quality and general economic conditions affect this business but even in a downturn it should remain comfortably profitable. And the German operation offers a little currency hedge; an opportunity to benefit from a lower Australian dollar should it ever fall. Amalgamated also operates 47 hotels, largely through the Rydges brand. Hotels don’t generate as much profit as the cinemas business—just $26.5m in 2012—but this division contains hundreds of millions of dollars in asset value (the hotels themselves) and a large part of earnings are, in effect, rental payments, which should be valued more highly than operational earnings. 2 Weekly Review | Issue 362a Owning and operating hotels also delivers a powerful ‘informational advantage’ that substantially lowers acquisition risk. Through the GFC, Amalgamated opportunistically AMalgaMATED HoldiNGS | AHD acquired several hotels that it previously managed on behalf of other owners (including PricE AT REviEW $7.76 Babcock & Brown). REviEW daTE 21 Feb 2013 Amalgamated also owns (via a long-term lease) and operates the Thredbo Alpine MarkET cap. $1.2bn Resort in the NSW Snowy Mountains. Profits here depend on bumper snow falls but a 12 MTH pricE raNGE $5.80 —$7.99 contribution of between $10m and $20m can be expected each year. There are also a number of investment properties and other smaller businesses that we’ll explore in a future BUSINESS RISK Low–Medium review. For now, let’s focus on the juicy, reliable yield. SHarE pricE riSK Medium Given the company’s track record, conservatism and diversity, annual returns of 9% Max. porTfolio WEigHTING 4% seem a reasonable expectation. OUR VIEW LONG TERM BUY Based on its fully franked dividend yield of 5%, the lion’s share of returns (7.1% of the 9%) will therefore come from dividends and franking credits (see Franking credits made CHarT 1: AHD dividENDS PER SHarE simple, issue 320). To boost returns to 9%, Amalgamated needs growth of just 2% per Cents year—less than the Reserve Bank is targeting for inflation. 40 For a business that carries no debt and reinvests almost a quarter of its profits each 35 year, that’s a very modest hurdle. The ride may not be totally smooth over the years but 30 2% is quite achievable, and 5% well within reach. 25 Amalgamated’s appeal and strength lies in its diversified operations, conservative 20 financial settings and the stewardship of Alan Rydge and his long-serving managing director 15 David Seargeant. We’ll shortly be interviewing David Seargeant, at which time we’ll publish 10 a more numerical analysis. But the case is already well made. 5 The share price has risen 15% since our comparative review on 10 Dec 12 (Hold— 0 $6.76) but in this environment that’s a fair price for a high quality blue chip. ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 If a 5.0% fully franked yield with the prospect of modest growth appeals, then Source: Capital IQ Amalgamated Holdings is the epitome of a LONG TERM BUY below $8 (or $8.15 before the stock goes ex dividend in the first week of March) for up to 4% of your portfolio. AHD REcoMMENdaTioN GUIDE This isn’t a stock for investors seeking 15%+ returns but risk averse income investors LONG TERM BUY Below $8.00 may find their appetite whetted. Amalgamated is not in the habit of shouting its charms, but is all the more attractive for it.