Australian Foundation Investment (AFI); Argo Investments (ARG):
Australian Foundation Investment Company holds $1.9 billion worth of shares in the big four banks and managing director Ross Barker says the practical outcome of what he describes as a ‘‘strange’’ message the federal government is sending to investors, is that bank dividends will be cut further. AFIC and fellow listed investment companies Argo Investments and Milton Corporation have a heavy exposure to banks and are wincing more than most after the federal budget, as uncertainty swirls about whether the banks will now make shareholders bear the brunt of its new $6.2 billion bank levy. Argo Investments, with a market capitalisation of about $5.5 billion, has the full set of the big banks targeted by the federal government in its $6.2 billion levy announced in Tuesday’s budget, with Macquarie Group sitting at No.5 of the top 20 investments as at April 30. Macquarie represented 4.1 per cent of Argo’s total assets at that point, with Westpac at 7.0 per cent, ANZ at 5.8 per cent, Commonwealth Bank of Australia at 5.1 per cent and National Australia Bank at the No.6 holding with 3.7 per cent of its total assets.
Fairfax Media Limited (FXJ):
Signs of ongoing strength in the digital real
estate classifieds market have emboldened top Fairfax shareholders to press suitor TPG Capital for a higher bid for the company. The second-biggest shareholder in Fairfax, Legg Mason Martin Currie, which owns 6.1 per cent of the company, stuck by its view that TPG’s $2.2 billion bid ‘‘materially undervalues’’ its assets, particularly Domain. The comments came after the release of a bullish digital real estate outlook from REA Group, a competitor to Fairfax-owned Domain. ‘‘The low cost to advertise a property on Domain as a percentage of the total cost to sell a house means that there is still plenty of opportunity for Domain to keep increasing prices and grow earnings, especially given the strength of Domain’s mobile audience and the market share gains they are achieving,’’ chief investment officer Reece Birtes said.
Australia and New Zealand Banking Group (ANZ); Commonwealth Bank of Australia (CBA):
National Australia Bank Limited (NAB); Westpac Banking Corporation (WBC); Macquarie Group Limited: The big-four-bank chief executives have united in condemnation of the government’s shock bank tax, saying it could constrain lending and reduce both the strength and international competitiveness of the banking sector as the cost is borne by customers, shareholders and staff. Investors and market analysts say the federal government’s levy to be imposed on the six largest banks is harsh and will hurt profits but expect depositors and customers to ultimately foot the bill. Treasurer Scott Morrison unveiled the levy on the liabilities of the biggest five banks would raise $6.2 billion over four years as part of Tuesday night’s budget. Deutsche Bank analysts said the measure looked ‘‘unusually harsh’’ and was likely to materially impact earnings assuming it could not be passed on to customers, and might impact dividends. ‘‘While such a levy has been put in place in other countries such as the UK, typically this was in the years soon after the financial crisis and in countries which required bank sector recapitalizations.
CSR Limited (CSR):
The managing director of CSR says residential construction markets appear to have peaked, sparking an almost 12 per cent fall in the company’s shares as investors concluded the record profits generated by its core building products division won’t be repeated. But Rob Sindel, who has been running the company since early 2011, said there would still be solid demand for Gyprock plasterboard, tiles, bricks, insulation and walling systems on the eastern seaboard over the next year, with the company protected from a downturn in the high-rise apartment market because that only represents 12 per cent of its customer base. Rob Sindel has called the end of the longest building boom in Australian history, and his shareholders do not like it. When the chief executive of one of the biggest building materials companies says residential housing has peaked then it is worth listening. Construction bosses have a better read on the market than most. Sindel was correct 18 months ago when he said it was premature to call the end of the boom. There had been a sharp sell-off in building material companies at the time, triggered by interest rate rises and suggestions Chinese demand for property was waning. It was a different story on Wednesday when Sindel handed down a robust 25 per cent increase in annual profits. While any company reporting double-digit earnings growth is a stand-out in today’s market, expectations were high leading up to the result. CSR shares fell 11.8 per cent.
Cimic Group Limited (CIM); Downer EDI Limited (DOW):
Shares of building, construction and infrastructure companies soared on Wednesday as investors welcomed $75 billion in infrastructure spending from the federal government. Investors have already been betting big on the infrastructure stocks and the budget seems to have confirmed that faith, as many stocks extended powerful year-to-date share price gains. Shares of Australia’s biggest construction group, Spanish-controlled CIMIC, jumped $1.86 to close at $40.52, its highest levels for nine years. Contractor Downer EDI, which is trying to buy services provider Spotless for $1.2 billion to expand deeper into infrastructure services, rose 22¢ to $6.34.
(Source: AIMS)
Australian Foundation Investment Company holds $1.9 billion worth of shares in the big four banks and managing director Ross Barker says the practical outcome of what he describes as a ‘‘strange’’ message the federal government is sending to investors, is that bank dividends will be cut further. AFIC and fellow listed investment companies Argo Investments and Milton Corporation have a heavy exposure to banks and are wincing more than most after the federal budget, as uncertainty swirls about whether the banks will now make shareholders bear the brunt of its new $6.2 billion bank levy. Argo Investments, with a market capitalisation of about $5.5 billion, has the full set of the big banks targeted by the federal government in its $6.2 billion levy announced in Tuesday’s budget, with Macquarie Group sitting at No.5 of the top 20 investments as at April 30. Macquarie represented 4.1 per cent of Argo’s total assets at that point, with Westpac at 7.0 per cent, ANZ at 5.8 per cent, Commonwealth Bank of Australia at 5.1 per cent and National Australia Bank at the No.6 holding with 3.7 per cent of its total assets.
Fairfax Media Limited (FXJ):
Signs of ongoing strength in the digital real
estate classifieds market have emboldened top Fairfax shareholders to press suitor TPG Capital for a higher bid for the company. The second-biggest shareholder in Fairfax, Legg Mason Martin Currie, which owns 6.1 per cent of the company, stuck by its view that TPG’s $2.2 billion bid ‘‘materially undervalues’’ its assets, particularly Domain. The comments came after the release of a bullish digital real estate outlook from REA Group, a competitor to Fairfax-owned Domain. ‘‘The low cost to advertise a property on Domain as a percentage of the total cost to sell a house means that there is still plenty of opportunity for Domain to keep increasing prices and grow earnings, especially given the strength of Domain’s mobile audience and the market share gains they are achieving,’’ chief investment officer Reece Birtes said.
Australia and New Zealand Banking Group (ANZ); Commonwealth Bank of Australia (CBA):
National Australia Bank Limited (NAB); Westpac Banking Corporation (WBC); Macquarie Group Limited: The big-four-bank chief executives have united in condemnation of the government’s shock bank tax, saying it could constrain lending and reduce both the strength and international competitiveness of the banking sector as the cost is borne by customers, shareholders and staff. Investors and market analysts say the federal government’s levy to be imposed on the six largest banks is harsh and will hurt profits but expect depositors and customers to ultimately foot the bill. Treasurer Scott Morrison unveiled the levy on the liabilities of the biggest five banks would raise $6.2 billion over four years as part of Tuesday night’s budget. Deutsche Bank analysts said the measure looked ‘‘unusually harsh’’ and was likely to materially impact earnings assuming it could not be passed on to customers, and might impact dividends. ‘‘While such a levy has been put in place in other countries such as the UK, typically this was in the years soon after the financial crisis and in countries which required bank sector recapitalizations.
CSR Limited (CSR):
The managing director of CSR says residential construction markets appear to have peaked, sparking an almost 12 per cent fall in the company’s shares as investors concluded the record profits generated by its core building products division won’t be repeated. But Rob Sindel, who has been running the company since early 2011, said there would still be solid demand for Gyprock plasterboard, tiles, bricks, insulation and walling systems on the eastern seaboard over the next year, with the company protected from a downturn in the high-rise apartment market because that only represents 12 per cent of its customer base. Rob Sindel has called the end of the longest building boom in Australian history, and his shareholders do not like it. When the chief executive of one of the biggest building materials companies says residential housing has peaked then it is worth listening. Construction bosses have a better read on the market than most. Sindel was correct 18 months ago when he said it was premature to call the end of the boom. There had been a sharp sell-off in building material companies at the time, triggered by interest rate rises and suggestions Chinese demand for property was waning. It was a different story on Wednesday when Sindel handed down a robust 25 per cent increase in annual profits. While any company reporting double-digit earnings growth is a stand-out in today’s market, expectations were high leading up to the result. CSR shares fell 11.8 per cent.
Cimic Group Limited (CIM); Downer EDI Limited (DOW):
Shares of building, construction and infrastructure companies soared on Wednesday as investors welcomed $75 billion in infrastructure spending from the federal government. Investors have already been betting big on the infrastructure stocks and the budget seems to have confirmed that faith, as many stocks extended powerful year-to-date share price gains. Shares of Australia’s biggest construction group, Spanish-controlled CIMIC, jumped $1.86 to close at $40.52, its highest levels for nine years. Contractor Downer EDI, which is trying to buy services provider Spotless for $1.2 billion to expand deeper into infrastructure services, rose 22¢ to $6.34.
(Source: AIMS)
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