ASX:TCL | Investor Signals

Update on the Yield Trade

Posted on January 7, 2017 | by Leon Hinde | Leave a Comment

In late 2016 we began highlighting yield names which were oversold and were likely to bounce back coming into the year end. Our preferred names in the yield basket were WFD, SCG, GPT, SYD and TCL. On average, these names have rallied over 10% from their November low.

The consolidation of US yields, (bond prices no longer falling & yields no longer moving higher), along with the oversold condition in our domestic yield sensitive companies, were enough to generate the rally.

From here we feel these names will remain supported, especially if volatility picks up in the broader market during the Jan – March period. With this in mind, we continue to hold our yield basket and overlay covered calls to boost the cash flow to 10%+ on an annualised basis.

Property Trusts & Infrastructure

Posted on November 21, 2016 | by Leon Hinde | Leave a Comment

The sell-off in property trusts and infrastructure names has been substantial, 15 to 20% since early September.

The REIT sector has underperformed as bond yields have rallied. The repricing has seen the dividend yield of REIT’s back above 5%.

Historically, the correlation between Australian yield names and US 10-year yields has been inverse; as US yields fall, Australian property trusts and infrastructure stocks rise.

US 10-year bond yields have risen by 79 basis points, or over 50%, since early October. We see this pace as unsustainable and expect the local yield names to trade higher as the US Treasury yields drift lower.

We continue to track WFD, GPT, SGP, SYD and TCL versus the US10 year bond yields.

Chart - Sydney Airports — Chart – Sydney Airports

Yield Names Remain Under Pressure

Posted on November 11, 2016 | by Leon Hinde | Leave a Comment

Yield sensitive names remain under pressure as the bond sell-off in the US continues. As bond prices trade lower, the yield is increasing. Higher yields, make interest rate sensitive names like infrastructure and property trusts less appealing.

The sell-off in domestic names such as APA, GMG, GPT, SGP, TLS, TCL, SYD, WFD & SCG has been significant. With many of these names now trading on yields within 4.5 to 6.5% range.

There’s a case to be made for the above stocks to find support as the outlook for interest rates begin to stabilise.

The Yield Basket We’ve Been Tracking

Posted on November 2, 2016 | by Leon Hinde | Leave a Comment

Over the last two months, bond markets have been repricing the probability of a US rate increase. During that time, we’ve watched the US10YR yields trade up from 1.3% to 1.9% . As a consequence, money managers have sold-off defensive yield names. This has been most evident in ASX 50 names within the infrastructure and property sectors.

We maintain a positive interest in these names as the current share prices now have many of the yields offering 100 basis points, (or 1%), more than they were trading at 2 months ago.

WFD and GMG are now trading back on 4% yield, whereas TCL, SYD, GPT and SCG are on average trading near 5% yield.

The December FOMC rate decision meeting will likely be the catalyst for a bounce, however, we’re not expecting these names to recapture the recent highs. Therefore, we’ll look to sell the rally into the early part of 2017. The algorithm engine will track these names and I’ll be certain to alert you to the next lower structural high, but for the time being, you may want to position around the short term bounce which could offer up to a 10% rally.

Transurban Group 1Q17 Traffic Growth

Posted on October 14, 2016 | by Leon Hinde | Leave a Comment

Overall the traffic results for TCL.ASX were in line with expectation. New projects over the next 2 – 3 years help to underpin the valuation, along with the rising dividend.

We expect to see the traffic growth rate steadying, which then requires a favourable back drop in bonds, i.e slow gradual interest rate rises in the US, to allow TCL to track sideways.

We’ve been buyers on the recent dip and we see TCL as a sell back above $11.75. For portfolio investors it will pay to cover TCL with an $11.75 call into next year with a view towards collecting the $0.25 December dividend plus the call premium.

Fy17 revenue of$2.2b, on EBITDA of $1.65b, DPS $0.50 places the stock on a forward yield of 4.7%. Fy18 DPS should increase by a further $0.05 to $0.55 per share.

TCL.ASX

Property Exposure – Are You Watching?

Posted on October 12, 2016 | by Leon Hinde | Leave a Comment

The recent market rotation towards growth assets and in particular, materials and financials, has resulted in selling utilities and property trusts. In many cases, these names have seen 10 to 20% correction.

The following post takes a quick look at some of the relevant chart patterns.

SCG.ASX (forward yield 4.9%)

SGP.ASX (forward yield 5.5%)

WFD.ASX (forward yield 3.5%)

DXS.ASX (forward yield 5.2%)

GMG.ASX (forward yield 3.7%)

GPT.ASX (forward yield 5%)

MGR.ASX

On the utilities, we think that both Sydney Airports and Transurban should be back on the radar and maybe looking oversold.

SYD.ASX (forward yield 5%)

TCL.ASX (forward yield 4.8%)

Long TCL

Posted on July 15, 2016 | by Leon Hinde | Leave a Comment

Long TCL.ASX

TCL reported 4Q16 traffic – trend remains positive for NSW, some softening is emerging in Melbourne and Brisbane. FY16 Proportional revenue across Australian roads was $1.7 billion. Look for FY17 dividend to increase from $0.45 in FY16 to $0.50 in FY17. This places TCL on a forward yield of 4.2%.

TCL is close to full value short term (12 month outlook) and should be complemented with a $12.70 covered call into March. We’ve collected an additional $0.50 for this call option and we expect to remain exposed to the $0.22 cent dividend in December. This trade allows for some capital gain if exercised. If TCL trades sideways, a combination of the dividend and the call option income creates approximately 10% cash flow on a stand still basis.

Tag: ASX:TCL