About Amazon

Monday 29 May 2017 All about Amazon

It’s all about Amazon at the moment, and the stock prices of companies like JB Hi-Fi have been impacted. But are the retailers as bad as the market thinks? I take a look at the sector in today’s note.

Also in the Switzer Super Report, Paul Rickard is feeling a bit cool (not cold!) on the market. Is it time to take some money off the table?

Sincerely,

Peter Switzer

Inside this Issue 02 Retailers are not as bad as the market thinks! Concerns overdone? by Peter Switzer 05 Is it time to take some money off the table? Sector by sector by Paul Rickard 08 3 ways to invest in infrastructure Infrastructure in focus by James Dunn Is it time to take some 13 Buy, Sell, Hold – what the brokers say by Rudi Filapek-Vandyck money off the table? 16 Hot stocks: Henderson Group and JB Hi-Fi by Paul Rickard Likes and dislikes 05 by Bernadette Morabito

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before Switzer Super Report is published by Switzer Financial Group Pty Ltd AFSL No. 286 531 acting, consider the appropriateness of the information, having regard to the 36-40 Queen Street, Woollahra, 2025 individual's objectives, financial situation and needs and, if necessary, seek T: 1300 SWITZER (1300 794 8937) F: (02) 9327 4366 appropriate professional advice. Retailers are not as bad as the market thinks! by Peter Switzer

I don’t believe “the Amazon monster that devoured I know my colleague Paul Rickard is flabbergasted at retail story”, at least in its goriest details, as the market’s set against JB but he’s also wary of prophecised by market predicting luminaries. “standing in front of a moving train” stocked by However, I have to admit I recently did a very short-sellers, as he put it recently. Prime Value’s ST Amazonian shopping thing, which shows its potential Wong likes JB Hi-Fi and he’s a guy who’s always on threat. the lookout for value in market screwiness. And good old Michael McCarthy again is on a unity ticket with However, as my story reveals, it shows the potential me on how good value seems to be lurking with JB. that might exist for those local retailers who are currently portrayed as lambs awaiting the Amazon Be clear on this: I know Amazon will hurt local slaughterhouse! retailers but by how much? And over what time frame? Despite my general feeling that when it comes to a lot of stuff you might buy at Harvey Norman’s or JB In February, JB was valued at $29.38. Now it sits at Hi-Fi, you might want to show up and see the product $23.12, which means it’s down some 21%, which is in real life, I have to confess I did buy a fridge online! a lot of damage from a company that hasn’t even started competing beyond what it has been doing That said, it was for an investment property and it when JB was close to $30! was well-priced. It was delivered, unboxed and set up, all for $58! And guess who sold it to me? Yep, My willingness to go into bat for local great retailers one of Gerry Harvey’s stores. become more fervent on Friday, our time, when the news for Best Buy made a lot of experts start thinking If it was a fridge for my home, my wife and I, twice about their expertise. (especially my wife) would have wanted to show up and see it in real life. And that’s our retailers’ Shares in Best Buy soared 21.5%. Shares in Sears opportunity. were up 13.5% on Thursday, as I reported, but how come, with Amazon out there ‘killing’ retailers? When I look at the huge sell off of JB Hi-Fi since February (after it reported better than expected) and As CNBC put it: “Best Buy showed signs in the latest Harvey Norman as well, it reminds me of the quarter that it has the right formula to go up against madness that prevailed when BHP slumped to $14 or Amazon, as more shoppers ring up their purchases so. online.”

Where were the market luminaries then? I was So the Black Knight of retail — Amazon — might be pleading for a handful of experts to recognise the formidable but the white knights of conventional retail, market’s over-the-top selling but I think only CMC’s where making profit remains the normal goal, might Michael McCarthy was a brother-in-arms, as he not be dead yet! thought the big Australian looked like fair value at $20! It makes me ask: “Could JB Hi-Fi do the same?”

Monday 29 May 2017 02 Best Buy shares hit an all-time intraday high of not talking me into BHP, when I was pleading for the $60.14 on Thursday, after analysts, who were smartest guys and gals in the room to give me a leg expecting a 1.5% decline, were wrong. Admittedly, up! even the company was worried too but it looks like Amazon was over-hyped, as I’ve been predicting. I think the analysts are making the mistake of over-estimating Amazon’s quick success and the fact Not surprisingly, the recent sell off silliness was that local businesses will just lay down their weapons. cautiously questioned by our market, with JB up 3.26% on Friday to $23.12. The following fact could be a timely piece of prophecy — Best Buy’s share price is up 57% over the past 12 Best Buy doubters wanted to blame the good news months, and up about 18% for the year-to-date for ‘old fashioned retail’ on ‘delayed federal tax period. refund checks’ and they were helpful. However there’s no reason why these wouldn’t have helped But it hasn’t been by good luck, as the company has Amazon too. created a very positive consumer experience. As one retail expert described it: “Step inside one of the “There is little doubt that the delayed arrival of tax company’s stores and it’s like walking into the Willy refunds provided buoyancy to the [electronics] market Wonka Chocolate Factory for gadget-geeks — this is later into this quarter,” GlobalData Retail managing all by design.” director Neil Saunders wrote in an email, CNBC reported. That costs money and they’ve got into aggressive pricing but it’s paying off, with Thomson-Reuters Nevertheless, “the impact was helpful but somewhat tipping its first quarter EPS would be 40 cents but it limited,” Saunders said. “Best Buy’s performance is ended up being 70 cents! down to more than just consumers temporarily having a bit more money to spend.” Back in April, Darren Fonda, the Associate Editor at Kiplinger.com, tipped Best Buy could surprise market And to rub it into the Amazon-loving retail doomsday experts. This is what he wrote: “The electronics chain merchants, Best Buy’s number crunchers tip is in a good position to stand up to the world’s largest second-quarter comparable sales to grow between online retailer.” 1.5% and 2.5%. And this was despite the fact that 54 retailers in the Explaining the good story, Best Buy has got serious US were at four-year lows with their stock prices in about its online pitch but has also lifted its in-store late April. customers experience/service, which Amazon can’t match. Over the first quarter, Best Buy’s digital sales Worse still, Amazon.com is predicted to account for grew by more than 22%. 50% of all internet-based US retail sales by 2021! Brokerage firm Needham & Co. came up with this Best Buy has gone on the offensive to beat Amazon, guess, based on the fact it had about one-third of where it has strength. And that’s customer service — sales in 2016. with things like Geek Squads and in-home advisory service. A few months ago, I interviewed Gerry Fonda says Best Buy has: Harvey about Amazon coming and he warned me that he saw four threats from the big US category A new CEO. killer. However in his typical style, Gerry reckoned he Price-matched Amazon. had strategies for all four and that he would win! Increased customer support services — the Geek Squad. The likes of JP Morgan/Ord Minnett (see Created in-store experiences. Buy/Sell/Hold) gave our retailers the thumbs down Competed more professionally online. last week but these guys aren’t infallible and were

Monday 29 May 2017 03 And this is what Gerry, JB and the other retailers, such as Peter Birtles’ Super Retail Group, have to do.

The mistake the retail stock trashers might be making is that they’re assuming our local businesses will lay back, close their eyes and think of pre-Amazon days.

I don’t think they will but they have to start loving their customers like never before. The Best Buy story is the best one they’ve seen in years but they have to learn from it and fast!

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

Monday 29 May 2017 04 Is it time to take some money off the table? by Paul Rickard

Maybe it is the onset of those cold wintery mornings, From an economic point of view, Australia looks ok. but for the first time in almost a decade, I am feeling a Not going gangbusters, but not falling in a real hole. If little cool on the Aussie stock market. Not cold, but you believe the Government and the boffins at cool. I am thinking that it may be time to take a little Treasury, the future looks better than okay. According bit of money off the table. to the Budget, we are set for real GDP growth of 2.75% to 3.0%, a steady unemployment rate, inflation Arguably, this view doesn’t make a lot of sense, under control, and an improving outlook for wages because US and major European markets keep growth. making new highs. The correlation between the Australian sharemarket and international markets is Budget assumptions so strong, as this graph from the Reserve Bank shows (US red, Australia black, World blue).

Businesses seem to agree with the Treasury. According to the latest NAB monthly survey, business conditions and business confidence remain robust. However, consumer confidence has been falling. The latest reading from ANZ-Roy Morgan has it at 110.8, below the long run average of 112.8.

ANZ-Roy Morgan Australian Consumer On the basis of this correlation, if Wall Street keeps Confidence making new highs, this has to be good for the Australian market. As the old adage goes: “let your profits run”.

But despite this “truism”, I still feel cool. Here’s why.

Big picture

Monday 29 May 2017 05 Let me take you through my analysis – sector by sector.

Sector by sector

Financials: I wrote about the major banks two weeks ago (see here) and said that “they have had a good run and there are enough negatives to warrant a more cautious approach: indexweight”. Leaving aside the impact of the bank levy, the recent set of half-year results from ANZ, NAB and Westpac was disappointing. Negligible revenue growth, modest efforts on the cost side, pressure on interest margins, and falling return on equity.

I don’t see the second tier banks as offering any Although a backward looking indicator, retail turnover compelling value over the major banks. The insurers, has fallen for two months in a row. The fall in March fund managers or diversified financials such as of 0.1% followed a fall of 0.2% in February. Challenger could be a little more interesting, but Unemployment remains stubbornly around 5.7% to again, they don’t scream out as “raging buys”. 6.0%, but with a growing trend towards part-time and casual jobs, and wages growth in the March quarter Materials: How do you play BHP, Rio or Fortescue? I was just 0.5%. have to say that I have absolutely no idea about the short-term direction of the iron ore price and I would On an industry level, the farming sector looks strong, probably challenge the credibility (and track record) of while building and construction is starting to slow. The anyone who says that they do. Certainly, these manufacturing and the resources sectors remain companies have done a lot of work to strengthen their weak, notwithstanding that a lower Australian dollar is balance sheets, improve productivity and cut starting to help. production costs, and are now well positioned to benefit from any sustainable increase in the iron ore Overseas, the US economy, led by the consumer, price. That’s one of the reasons they have rallied so remains solid. Europe and Japan are picking up, and hard. most importantly for Australia, China is set to deliver economic growth (according to the Chinese Call me conservative, but I am indexweight on these Government) of around 6.8%. stocks.

In summary, the macro environment for the Australian I don’t like the gold miners as I am not a gold bull, share market and company earnings looks and the building material firms are probably a little supportive. But it is also not likely to bring out the exposed to a slowing construction market. Packaging champagne either. companies such as Amcor and Orora are trading on extended multiples. In Amcor’s case, 20.0 times And I am not that worried about “geo-political risks” FY17 earnings, and 17.9 times forecast FY18 or the “black-swan” events that we don’t know about earnings. yet. So, why I am feeling a little cool? Energy: The oil price seems to have settled into a Two reasons. Firstly, the inability to break through the tight trading range around US$50 per barrel. I like 6000 level, despite the very positive leads from Woodside, but find it difficult to get too motivated offshore. Secondly and most importantly, I can’t see about the sector. any value in the market. I can’t see any sectors or stocks that say “buy me”. Consumer Staples: The supermarket wars aren’t

Monday 29 May 2017 06 over, and the competitive threats that will hurt while the largest stock by market cap in this sector, margins keep coming. And it is not as though either Brambles, disappointed the market with its half year Woolworths or Wesfarmers are particularly cheap. result. Remains a sector to review on a “stock by Woolworths is trading on a multiple of 24.0 times stock” basis. FY17 earnings and 20.9 times FY18 earnings. Fizzy drinks manufacturer Coca Cola Amatil is facing its Bottom line own headwinds. This real lack of “value” leads me to the inevitable Healthcare: I love the tailwinds that support this conclusion that the Aussie market needs to cheapen sector, which is one of the reasons it has done so first to create value again. Because it is so influenced well this year. CSL, the largest stock, is up by 31.5% by the direction of offshore markets, it will do this in in 2017, while Cochlear has added 20.4%. These one of two ways: it will underperform (lag) the US stocks are now trading on very heady multiples: CSL market as it rallies and become “relatively” cheaper, 32.6 times FY17 earnings and 27.5 times FY18 or it will just pull back by itself if the US market holds earnings, Cochlear 38.2 times FY17 and 33.8 times steady or eases back. FY18 earning. In the absence of any new information about the Telecommunications: Telstra may have dodged a capacity of companies to increase earnings or an bullet when the ACCC declined to act in relation to improving economic outlook, taking a little bit of mobile roaming, but the concern about plugging the money off the table and waiting is probably the low NBN earnings hole remains. While income investors risk way to play this market will purchase the stock for its dividend, until it can demonstrate a path to revenue growth, the stock will Important: This content has been prepared without lag in a market upswing. taking account of the objectives, financial situation or needs of any particular individual. It does not Real Estate: A sector that I am out of. I don’t like the constitute formal advice. Consider the prospects for the shopping centre or retail trusts, and appropriateness of the information in regards to your feel that it is inevitable that Australian interest rates circumstances. will rise as we are forced to follow the lead from the US Federal Reserve. Capitalization rates can’t fall any further.

Avoid.

Consumer Discretionary: The Amazon threat is killing the discretionary retailers (such as JB Hi-fi Harvey Norman, Myer and Super Retail) and the short sellers are active. The gambling and media industries have their own challenges. The Flight Centres, Dominos and RealEstate.coms might be ok, but it is hard to argue that they offer outstanding value.

Industrials: Probably the hardest sector to take a view on, as most of the companies aren’t really “industrials”. Defensives like Sydney Airport, Transurban and Macquarie Atlas have done really well this year as bond yields have stabilized and eased back, but now look close to fully priced. Qantas, Seek and CIMIC have performed strongly,

Monday 29 May 2017 07 3 ways to invest in infrastructure by James Dunn

Australian investors have come to understand Infrastructure Group (SKI, $4.2 billion), Macquarie infrastructure as a long-term investment: it is a Atlas Roads Group (MQA, $3 billion) and Infigen well-established asset class in its own right now. Energy (IFN, $864 million).

Large-scale infrastructure assets, that provide But just as these stocks offer various infrastructure essential services, can act as a stable, defensive, exposures, there is a large population of managed long-term cash flow generator, offering a high level of funds around the world that hold large portfolios of earnings certainty, and thus a consistent yield, with similar holdings – global listed infrastructure low correlation to other asset classes. Infrastructure securities. This form of infrastructure investment suits can also act as an inherent inflation hedge, which retail investors, because it provides the liquidity that a protects the long-term purchasing power of invested fund owning direct holdings in infrastructure assets funds. does not.

Many infrastructure assets either have natural Australian investors looking for global listed monopoly characteristics, where the economies of infrastructure securities investments have a wide scale make it too difficult for competitors to replicate range of choice: this investment type is accessible existing infrastructure (such as in airports or through ASX-listed exchange-traded funds (ETFs) transmission lines), or actual legislated monopolies and at least one listed investment company (LIC), as through contracts/concessions (such as an exclusive well as managed funds traded through the ASX’s right to operate a toll-road). mFunds service, and unlisted funds carried on investment platforms (also available for direct The bright outlook for global infrastructure investment). Some funds exist in all these forms. development is supported by a recent report by PwC predicting that by 2020, annual global infrastructure The beauty of the ETF/LIC versions is the fact that spending will reach $US5.3 trillion (currently, up from they offer investors cost-effective, simple, instant and an estimated $US4.3 trillion in 2015. liquid exposure to portfolios of global infrastructure securities through buying one product, which is itself, Australian superannuation funds are big investors in a listed stock. That means investors can use the infrastructure, usually as direct owners: the steady ETF/LICs to get market exposure very quickly and long-term cash flows from infrastructure make very easily, instantly improving their portfolio’s good liability-matching assets for super funds. diversification.

Retail investors are well-served by the mini-sector of One of the best attributes this gives is that the infrastructure funds listed on the Australian Securities investor can invest – and withdraw – any amount of Exchange (ASX). There are eight major infrastructure money at any time, which is not true of the funds stocks, with a total market capitalisation of $72.6 traded on the mFunds service, and unlisted funds. billion. In that group are Transurban Group (TCL, $25 The ETFs also have very low management expense billion), Sydney Airport (SYD, $15.5 billion), APA ratios (MERs), or annual management cost. Group (APA, $10.2 billion), DUET Group (DUE, $7.5 billion), AusNet Services (AST, $6.3 billion), Spark Here is a rundown of three infrastructure securities

Monday 29 May 2017 08 groupings: ETFs, the LIC and the mFunds. This ETF also invests in a diversified portfolio of global infrastructure securities, with a bias to Global listed infrastructure ETFs developed markets. The IFRA ETF tracks the returns of the FTSE Developed Core Infrastructure 50/50 AMP Capital Global Infrastructure Securities Fund (Hedged into Australian Dollars) Index, which (Unhedged) (ASX code GLIN, $2.79) comprises securities in developed countries, which provide exposure to core infrastructure businesses, MER: 0.8% a year, with performance fee namely transportation, energy and telecommunications. The ASX-listed Transurban GLIN is an active ETF that aims to generate income Group is the portfolio’s largest individual holding, at and capital growth over the long term, from a 5.1%. diversified portfolio of listed global infrastructure securities. The benchmark index is the Dow Jones The portfolio is 50.6% invested in the USA, 13.9% Brookfield Global Infrastructure Net Accumulation Europe, 10.4% Canada, 8.3% Australia, 4.9% Japan, Index, in A$ – but being an actively managed, GLIN 4.2% UK, 2.6% Hong Kong and 1.2% New Zealand. will hold positions in stocks that differ greatly to their By sector the largest exposures are electricity utilities weighting in the index. (27.2%), transportation infrastructure (23.9%) and multi-utilities (15.3%). The ETF is a listed version of AMP Capital’s major global infrastructure securities fund. More than 60% The inception date was 29 April 2016. Since inception of the portfolio investments are in North America, with the ETF has generated 13.8% a year, made up of Europe just over 20%, UK about 5%, Australasia 11.6% of price return and 2.2% income. The index about 4%, and the rest in Asia, Japan and Latin has returned 14.4% a year. America. The dominant sector is oil and gas storage and transportation, which accounts for about 47% of Magellan Infrastructure Fund (Hedged) the assets, followed by communications (22%), power Exchange-Traded Managed Fund (MICH, $2.76) transmission and distribution (9%) and water (7%). The rest is in tollroads, airports, ports and diversified MER: 1.05%, with performance fee assets. Magellan’s MICH fund is an exchange-traded The GLIN ETF has an inception date of 25 May 2016: managed fund (ETMF) that is a listed version of the at 30 April, had returned 8.72% after fees, compared Magellan Infrastructure Fund, one of the two global to the benchmark return of 7.44%. Of that 8.72% infrastructure securities funds rated ‘highly return, 7.64% was growth and 1.07% was income. recommended’ by Zenith Investment Partners (the other is the Maple-Brown Abbott Global Listed Since its inception in 2010, the unlisted fund on which Infrastructure Fund – Hedged Fund). GLIN is based has delivered an average return of 13.9% a year, compared to the benchmark index MICH benchmarks its performance against the S&P return of 14.5% a year. Global Infrastructure Index A$ Hedged Net Total Return index. Since inception in July 2016, the MICH Being a global portfolio, the GLIN ETF will also pick fund has earned 6.9% a year, trailing its benchmark up on the ASX-listed infrastructure stocks: local stock return of 8.2%. But for the six months to 30 April APA Group is its seventh-largest holding, at 3.3% of 2017, MICH was ahead of the benchmark, 9.7% to the portfolio. 9%.

VanEck Vectors FTSE Global Infrastructure The largest sector exposure is tollroads (16.5%), (Hedged) ETF (IFRA, $19.83 followed by airports (14.4%), communications (13.4%) and energy infrastructure (10%). The US MER: 0.52% hosts the largest exposure, at 27.3% of the portfolio, closely followed by Europe (26.5%). Aeroports de

Monday 29 May 2017 09 Paris is the largest stockholding. ETFs is that a LIC can trade below the NTA value of the portfolio: in fact, ALI is in this position at the There is a performance fee: Magellan claims 10% of moment, with the May NTA standing at $2.09 a the excess return above the higher of the Index share. Argo expects this gap to narrow as AGLI’s Relative Hurdle (S&P Global Infrastructure Index A$ track record extends. Hedged Net Total Return) and the “absolute return hurdle,” which is the yield of 10-year Australian Managed funds through mFunds government bonds). Additionally, the performance fee is subject to a high-water mark. mFunds are unlisted managed funds admitted for settlement under the ASX Operating Rules: although The ASX also hosts a global infrastructure securities not listed on the ASX, mFunds are bought or sold listed investment company (LIC): through the ASX in a way that is similar to buying or selling shares. Argo Global Listed Infrastructure Fund (ALI, $1.84) Investors transacting in mFunds simply use their normal brokerage account: the mFund settlement Management fee: 1% a year up to portfolio value of service provides a straight through process (STP) to $500 million, then 1.1% invest into a managed fund, removing the need for extensive paper work and potential errors and/or Listed in July 2015 at $2 a share, the ALI listed delays associated with completing forms. investment company (LIC) represents an actively managed, diversified portfolio of global listed Investors do not trade mFund units with other infrastructure securities and assets. The ALI portfolio investors: they buy units from (and sell units to) the is managed by New York-based specialist real-assets managed fund issuer’s unit registry, in a process fund manager, Cohen & Steers Capital Management, facilitated by the ASX’s CHESS settlement system. Inc. The price of units is set by the fund manager and not on a traded market, as is the case in share The fund is 64.4% invested in North America, with the transactions. rest of the portfolio spread across Europe, Australia, Latin America, the UK, Japan and Asia. Electric mFunds have certainly opened up greater power is the largest sectoral exposure, at 26.5%, and possibilities for portfolio diversification, but their major the portfolio is very well-diversified, including a 9.1% drawback compared to ETFs and LICs is the exposure to global infrastructure bonds (the fund can minimum investment sizes: the reduced paperwork invest up to 20% in these assets.) Transurban Group through mFunds should allow much lower minimum is the ALI portfolio’s fourth largest holding, at 3.5% of transactions compared to wrap platform providers, the invested funds. and some mFund issuers have done this, to $10,000 and even $5,000 in some cases (like the UBS Clarion The ALI fund, which is unhedged, will try to beat its Global Infrastructure Securities Fund below). But blended benchmark, which is 90% of the FTSE most mFunds still require about $20,000 to start with. Global Core Infrastructure 50/50 Index – which covers developed and emerging markets – and 10% Infrastructure mFunds of the Merrill Lynch Fixed Rate Preferred Securities Index. AMP Capital Global Infrastructure Securities Unhedged Since inception in July 2015, the ALI share price and net tangible asset (NTA) value of the portfolio have MER: 0.84% a year both under-performed the benchmark index and the S&P/ASX 200 accumulation index. The AMP Capital Global Infrastructure Securities Unhedged mFund represents the same portfolio as However, the unique selling point of LICs versus the GLIN ETF. Since inception in 2010, the fund has

Monday 29 May 2017 10 delivered an average return of 13.9% a year, strong track records, although the unhedged version compared to its benchmark index return of 14.5% a has performed better. Since inception in November year. The minimum investment through mFunds is 2006, the hedged RARE fund has returned 8.4% a $10,000. year to 30 April 2017, compared to its benchmark on 7.1% a year; the unhedged version of the fund Alpha Infrastructure Fund (inception May 2011) has generated 11.4% a year, versus 6.9% a year for its benchmark. MER: 1.23% a year The fund will always be between 45% to 70% The Alpha Infrastructure Fund aims to outperform invested in regulated utilities (for example, energy (after fund fees and expenses, and before taxes) the and water) and will also hold between 55% to 75% of S&P Global Infrastructure Total Return A$ Index, on a the portfolio in the developed markets. Greenfield rolling three- to five-year basis. The fund is allocated projects – that is, new projects being built – will only between Magellan and Maple-Brown Abbott, the only represent a maximum of 20% of the portfolio at any two global listed infrastructure securities managers time. whose funds carry the ‘highly recommended’ rating from Australian research firm Zenith Investment Western Europe is the largest geographical exposure, Partners. on 35%, closely followed by North America on 34%, with Asia-Pacific next on 17%. Electricity In the three years to April 30 2017, the Alpha infrastructure heads the sector allocation, on 23%, Infrastructure Fund returned 9.9% a year, made up of with gas (21%) and rail (17%) also prominent. The 7.5% growth and 2.4% income. That lagged the largest stockholding is Groupe Eurotunnel, on 5.9%. fund’s benchmark, on 10.2%. ASX-listed infrastructure stocks Spark Infrastructure Group (4.9%) and APA Group (3.5%) are top 10 Even on the mFund service, the minimum initial holdings. investment in the Alpha Infrastructure Fund is $25,000, with a minimum additional investment of The minimum investment is $20,000, whether direct, $10,000 and minimum withdrawal of $10,000. through a platform or through the mFund service.

RARE Infrastructure Value Fund – Hedged Redpoint Global Infrastructure Fund

MER: 1.02% a year, with performance fee MER: 0.7% a year

RARE Infrastructure Value Fund – Unhedged Managed by Sydney-based boutique fund manager Redpoint, the Redpoint Global Infrastructure Fund is MER: 0.97% a year, with performance fee an actively managed global listed infrastructure funds, investing in 118 listed infrastructure companies out of The RARE fund is an absolute return fund: it is 151 holdings in the benchmark. benchmarked to the OECD G7 Inflation index, plus 5.5%, and it aims to exceed that combined number. Redpoint also blends ESG (environmental, social and RARE doesn’t want to compare its fund to a formal governance) measures into its stock assessment, infrastructure index: it argues that because it narrows seeking a company ‘quality’ factor, and tries to down the global infrastructure stocks into a overweight the portfolio towards stocks with higher, 200-strong universe, then uses a very tight definition more sustainable yields. The Fund is fully hedged. when choosing them, it shouldn’t be compared, instead it tries to target a real return of 5.5% above About 60% of the portfolio is North American inflation. infrastructure, with Europe 16.4%, Japan 8.5% and the UK 5.4%. Australian stocks make up 4% of the The fund is highly concentrated: it usually holds holdings. between 30 to 60 stocks. Both forms of the fund have

Monday 29 May 2017 11 The fund uses the FTSE Developed Core Infrastructure Index (A$) index as its benchmark: since inception in April 2012, the fund has earned 13.8% a year. The minimum investment is $20,000, whether direct, through a platform or the mFund service.

UBS Clarion Global Infrastructure Securities Fund

MER: 1% a year

The hedged UBS Clarion Global Infrastructure Securities Fund, managed by US-based property and infrastructure manager CBRE Clarion, is benchmarked to the FTSE Global Core Infrastructure 50/50 Index (Net) A$ Hedged, which it aims to beat over rolling three-year periods.

Since inception in August 2016, the fund has delivered a return of 7.9% a year, matching the benchmark. In the three months to April 2017, the UBS fund has gained the equivalent of 8.5% a year, versus 8.1% a year for the benchmark.

The portfolio is 56.6% invested in North America, with Europe (19.1%) and Australia/New Zealand (8.1%) the next largest allocations. Transurban and Sydney Airport are the second-largest and tenth-largest stockholdings.

The minimum initial investment is usually $20,000, but on the ASX mFund service, the minimum is $5,000.

Monday 29 May 2017 12 Buy, Sell, Hold – what the brokers say by Rudi Filapek-Vandyck

In the good books With more than 10% upside envisaged to the target, the rating is upgraded to Add from Hold. STOCKLAND (SGP) Upgrade to Buy from Neutral by Citi B/H/S: 2/3/1 In the not-so-good books

Citi suggests Stockland is benefitting from a AUTOMOTIVE HOLDINGS GROUP LIMITED (AHG) favourable residential mix shift which is enabling Downgrade to Neutral from Buy by UBS B/H/S: earnings to grow while land sales moderate. The 4/2/1 broker believes retail net operating income growth could exceed current expectations. The company has downgraded FY17 net profit guidance to a range of $87-89m, down -8.4-10.5% Valuation looks attractive on a 5.5% yield and modest versus FY16. The company has also flagged -$35m PE, Citi suggests. Upgrade to Buy. Target rises to in restructuring costs, which will be taken below the $5.08 from $4.91. line. The refrigerated logistics division is expected to report a materially improved second half.

The weaker performance is driven by continued weak new car sales in Western Australia and a softening on the east coast, UBS observes. The broker believes, given an apparent plateauing of house prices and subsequent wealth effect, there is a risk that the weaker household cash flow that is forecast will impact on new car sales data in FY18.

Rating is downgraded to Neutral from Buy. Target is SIRTEX MEDICAL LIMITED (SRX) Upgrade to Add reduced to $3.05 from $4.95. from Hold by Morgans B/H/S: 4/0/0

Two recent trials have both failed to show a survival advantage in primary liver and colon cancer, Morgans notes. The broker is not surprised, citing poor study designs and prior failed studies, although the lack of utility in liver-only colon cancer patients is disappointing and relegates the therapy to salvage.

Nevertheless, Morgans believes the core business is viable and unlikely to be detrimentally affected by these results. The broker lowers FY18-19 dose sales expectations and reduces the target to $13.63 from $15.60.

Monday 29 May 2017 13 ANSELL LIMITED (ANN) Downgrade to Sell from $32.00. Neutral by UBS B/H/S: 0/4/2 MELBOURNE IT LIMITED (MLB) Downgrade to The company will sell its sexual wellness business for Hold from Buy by Ord Minnett B/H/S: 0/1/0 US$600m. This has been the fastest growth asset for the company, UBS observes. On a three-year The company has now completed the acquisition of outlook, the broker estimates the continuing business WME and the associated capital will grow operating earnings at 2% to 4%. raising. Nevertheless, given a strong recent share performance Ord Minnett is downgrading to Hold from The broker believes valuation is not supporting the Buy. Target is $2.59. current stock price and downgrades to Sell from Neutral. The company will commence a buyback on Management expects 12% to 18% accretion for market for up to 10% of issued stock. earnings in 2017 on an underlying basis, which assumes WME is owned for a full year. The company The broker suspects the growth outlook may improve has updated FY17 guidance to $37.5-41.5m. with industrial recovery. The company continues to examine acquisitions but has conceded there is a MYER HOLDINGS LIMITED (MYR) Downgrade to lack of opportunities that satisfy its valuation metrics. Lighten from Hold by Ord Minnett B/H/S: 1/4/1 Target is raised to $24 from $22. Ord Minnett believes the outlook for the Australian AUSTRALIAN PHARMACEUTICAL INDUSTRIES consumer discretionary business is deteriorating and (API) Downgrade to Underperform from Neutral the pending entry of Amazon into the local market is a by Credit Suisse B/H/S: 0/0/2 negative for multiples and forecasts for earnings per share. Following Sigma’s (SIG) trading update, Credit Suisse revises assumptions for earnings for Myer’s rating is downgraded to Lighten from Hold Australian Pharmaceutical industries. and the target cut to $0.80 from $1.15.

Credit Suisse lowers revenue growth assumptions for SIGMA HEALTHCARE LIMITED (SIG) Downgrade the company’s retail division and this results in to Sell from Neutral by Citi B/H/S: 0/1/3 earnings downgrades of -3% to 5% over the forecast period. Yesterday, in a first response post bad news announcement from the company, Citi analysts had Target is reduced to $1.90 from $2.05 and the rating elected not to make any changes to their $1.20 price is downgraded to Underperform from Neutral. A target, forecasts or Neutral rating. This has all slower shopfront trading environment and a more changed 24 hours later. Citi has downgraded to Sell. competitive wholesaling dynamic suggests the sector will be challenged over the short to medium term. Behind the downgrade hides a significant change in view and that is now that Sigma is likely to lose its JB HI-FI LIMITED (JBH) Downgrade to Lighten major customer Chemist Warehouse (CW) once the from Accumulate by Ord Minnett B/H/S: 2/3/2 current agreement expires in 2019.

Ord Minnett believes the outlook for the Australian This, the analysts explain, will translate in the loss of consumer discretionary business is deteriorating and 33% of revenues in H2 FY20. Target price tumbles to the pending entry of Amazon into the local market is a 65c from $1.20. Estimates have been culled. negative for multiples and forecasts for earnings per share. SUPER RETAIL GROUP LIMITED (SUL) Downgrade to Lighten from Accumulate by Ord JB Hi-Fi’s rating is downgraded to Lighten from Minnett B/H/S: 6/0/1 Accumulate. Target is reduced to $20.50 from

Monday 29 May 2017 14 Ord Minnett believes the outlook for the Australian consumer discretionary business is deteriorating and the pending entry of Amazon into the local market is a negative for multiples and forecasts for earnings per share.

The risks include a heavily indebted consumer, rising energy prices and low wages growth. The broker remains downbeat on the retail sector and very downbeat on retail inflation.

Super Retail’s recommendation is downgraded to Lighten from Accumulate and the target to $7.25 from $11.50.

SUNCORP GROUP LIMITED (SUN) Downgrade to Hold from Accumulate by Ord Minnett B/H/S: 3/4/1 Important: This content has been prepared without taking account of the objectives, financial situation or The latest disclosures on the company’s banking needs of any particular individual. It does not arm show weak lending growth in retail in the March constitute formal advice. Consider the quarter, although Ord Minnett observes this was appropriateness of the information in regards to your offset by very low loan losses and a strong capital circumstances. position.

The broker remains cautious about the stock and the potential divergence in general insurance margin trends between Suncorp and Insurance Australia Group (IAG). The fact that the stock is also trading around the broker’s steady target price of $14.11 leads to a lowering of the recommendation to Hold from Accumulate.

SYDNEY AIRPORT HOLDINGS LIMITED (SYD) Downgrade to Neutral from Outperform by Macquarie B/H/S: 1/5/1

The company has reported traffic for April, with the boost from Easter clearly evident in the numbers as international was up 12.1% and domestic up 0.7%.

The fundamentals remain robust, in Macquarie’s view, as the near-term traffic growth outlook is strong. Nevertheless, the broker believes value is already captured in the current share price.

Rating is downgraded to Neutral from Outperform. Target is $7.15.

Monday 29 May 2017 15 Hot stocks: Henderson Group and JB Hi-Fi by Bernadette Morabito

This week’s survey respondents have placed an “Myer somewhat suffers from an identity crisis. Are investment manager based in the UK on their ‘likes they luxury, or are the cheap? In many ways, they are list’ and offered a word of caution on the retail sector. caught in no-mans-land somewhere in between.

Michael Wayne from KOSEC explained why he likes Wayne says that despite the business undertaking a one of Europe’s largest investment managers, number of capital raisings, as well as executing Henderson Group (HGG). different strategies in recent years, Myer hasn’t been able to turn things around. “Relative to its peers, HGG trades on far less challenging multiples and a superior dividend yield”. “The potential demise of anchor brand Topshop could add further pressure to sales and profit “The business has been under pressure since the margins.” Brexit vote, however signs are beginning to emerge that retail fund outflows are slowing, and the Topshop Australia was placed into voluntary momentum has shifted.” administration last week, just six years after opening its doors in the country. Myer holds a 20% interest in HGG previously closed at $41.30, down from its Austradia, the Australian franchisee of 52-week high of $54.95. TopShop/TopMan.

Myer previously closed at 84 cents, compared to its 52-week high of $1.46.

Source: Yahoo! Finance Source: Yahoo! Finance Myer woes

In the dislikes list this week is the embattled Myer Despite Wayne’s take on the retail sector, this week Holdings in light of a challenging retail environment. Peter Switzer wonders whether the selloff in other quality retail businesses like JB Hi-Fi and Harvey “We remain wary of execution risk and there is no Norman has been overdone. Read his article today. silver bullet for a sector that is facing structural change, with the advent of Westfield, internet Just last week, Paul Rickard tipped these stocks as a shopping and the emergence of strong international “courageous buys”, with investors having to face a entrants such as Zara,” notes Wayne. wall of short sellers who are steadily building

Monday 29 May 2017 16 positions.

Rickard says while these businesses will have to compete with Amazon, they’ve had a long time to prepare, and in his experience, market hype is usually worse than reality.

“Long term buyers will need to be very patient investors, and potentially have to ware quite a bit of short term pain. They will, however, be rewarded with quite attractive dividend yields.”

JB Hi-Fi previously closed at $23.12. Its share price has been clobbered from its 52-week high of $31.21. See the one-year chart below.

Source: Yahoo!7 Finance

Our Super Stock Selectors is a survey of prominent analysts, brokers and fund managers. Each week we ask them to name a stock they like, and one they don’t like. We purposely ask for ‘likes’ and ‘dislikes’ instead of recommendations, so it provides an idea of what the market is looking at, rather than firm buys or sells.

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