Wesfarmers – European Options Boost Cash Flow to 12% per annum

Posted on | by Leon Hinde | Leave a Comment on Wesfarmers – European Options Boost Cash Flow to 12% per annum

Wesfarmers reports 1Q FY18 sales on 25th of October and industry feedback suggests that Coles is not executing as well as it was and is losing market share back to Woolworths.

We expect 10% growth from Bunnings and Coles to deliver flat or low single digit growth.

FY18 forecast revenue is $70b, EBIT $4.3b with net profit after tax of $3 billion.

EPS $2.60 and DPS of $2.35 places the stock on a forward yield of 5.5%. We see relatively flat earnings for the conglomerate over the next 2 – 3 years.

Buying WES and selling an at the money European call option will provide investors with access to the dividend, franking credits and an additional 6% per year of income, on top of the 5.5% dividend yield.

Wesfarmers

 

 

Woolworths -How to achieve 12% per annum in cashflow

Posted on | by Leon Hinde | Leave a Comment on Woolworths -How to achieve 12% per annum in cashflow

Woolworths will report their first quarter sales for FY18 on the 31st of October. We expect continued growth of around 5%  from the key Food and Liquor business, while Big W is likely to struggle.

FY18 total revenue if forecast to be $58b, EBIT, $2.5b delivering underlying net profit of $1.6b.

EPS $1.35 and DPS of $1.00, places the stock on a forward yield of 3.5%.

Our Algo Engine generated a buy signal in Woolworths near $25, we see this as fair value and when complimented with a covered call, we’re delivering 10 – 12% per annum in cash flow ASX:WOW

Woolworths

 

 

ALGO UPDATE: Look To Take Profits In Rio Tinto

Posted on | by Todd | Leave a Comment on ALGO UPDATE: Look To Take Profits In Rio Tinto

Based on the production numbers released earlier this week, RIO Tinto will produce over 300 million tons of Iron ore this year.

The price of Iron Ore has seen an increase in week-to-week volatility which has kept RIO’s share price active.

With Spot Iron Ore prices around USD $63.00, a drop back into the $50.00 area represents a material risk to the company’s cash flow, and to the share price.

Our ALGO engine triggered a buy signal in RIO back in April at $61.40.

Even though we have not seen a sell signal generated, proper money management suggests that taking profits over $70.50 is a reasonable strategy.

We will look for a pullback in price to reenter long positions.

RIO Tinto

 

 

 

 

 

Telstra Chairman Connects With Shareholders At AGM

Posted on | by Todd | Leave a Comment on Telstra Chairman Connects With Shareholders At AGM

During the recent AGM, Telstra chairman John Mullen covered many topics including market penetration to the NBN.

However, what shareholders were most interested in hearing was that the 22 cent dividend would be a low as it would go and, if anything, will be increased.

Shares of TLS have been beaten down pretty hard since trading over $5.00 earlier this year. In our view there is plenty of pessimism priced into the stock.

TLS is the dominant player in the domestic telecom industry, with strong brand recognition and a network quality advantage which underpins a 49% subscriber advantage.

The stock currently trades on a P/E of 10X and hasn’t been this fundamentally cheap since 2010, when base interest rates were 5.5%.

It’s our view that TLS offers good value at current levels and we have a medium-term price target of $4.15.

Telstra

 

 

 

 

 

TRADE UPDATE: Take Profits In Ansell

Posted on | by Todd | Leave a Comment on TRADE UPDATE: Take Profits In Ansell

Since trading down to $20.30 on September 15th, shares of ANN have rallied over 18% and are priced at $24.00 in early trade.

Even though we see organic growth tracking at the upper end of their 3% to 5% guidance, internal momentum indicators are now looking overbought.

ANN is currently trading at 18X earnings and we estimate the FY18 EPS around USD 95 cents.

Investors holding shares of ANN can look to either sell their shares outright, or sell the December $24.50 call option and collect 80 cents of premium to enhance cash flow.

Ansell

 

 

Key Data Points For The Aussie Dollar

Posted on | by Todd | Leave a Comment on Key Data Points For The Aussie Dollar

From a trading perspective, the main numbers to watch this week for the AUD/USD are the Chinese GDP and local employment data on Thursday.

According to the recent PMI readings, labor market activity has slowed and the headline jobs number is estimated to fall from 54,000 to 14,000.

Since posting a multi-year high at .8125 on September 8th, The AUD/USD has been largely driven by comments suggesting the RBA may join other G-7 central banks in beginning to raise interest rates.

If theses two data points show weakness, it’s reasonable to expect the RBA to keep its easing bias and the  AUD/USD to continue its downward trend.

Investors looking to profit from a lower AUD/USD can buy the BetaShare ETF with the symbol: YANK.

YANK is an inverse ETF, which means the price of YANK increases as the AUD/USD trades lower. It also has a weighting of 2.5%, which means the unit price will fluctuate  by 2.5% for every 1% change in the AUD/USD exchange rate.

With a current price of $13.00, we calculate that the price of YANK will be near $16.50 as the AUD/USD returns to the January low of .7160.

 

Aussie versus US Dollar