AGL Energy Limited (AGL); Origin Energy (ORG):
There was a time when listed market-facing utility companies AGL and Origin were seen as boring investment prospects with entrenched market positions. Limited price competition was needed to keep their mum and dad customers. But that has all changed in recent years with rising energy prices making front page news on a regular basis. So far, investors have successfully bet that the two companies are more likely to be winners than losers from a transition to a more energyefficient and price-competitive world. Shares in AGL and Origin are up more than 50 per cent over the past nine months as investors factor in the benefits of rising wholesale prices. Indeed, AGL is trading at a near-record multiple of forward consensus earnings as investors bet that electricity prices will hold up over the forecast period. Independent utilities analyst David Leitch says that while AGL’s valuation is not yet stretched, the easy money has been made. ‘‘Valuation metrics for AGL are not necessarily demanding but the question now for investors is: is this as good as it gets, or is there more to come?’’ he says. AGL has benefited from being a large net producer of electricity, which means it gains from rising wholesale prices as long as they persist. Over the past nine months, consensus earnings per share for AGL in FY2018 have risen from $1.25 to $1.45 as forward contract prices for base load power have risen from $60 per megawatt hour to $100 per megawatt hour.
Australia and New Zealand Banking Group (ANZ)； Bendigo & Adelaide Bank; Commonwealth Bank (CBA); National Australia Bank (NAB); Westpac Banking Corporation（WBC）:
Credit downgrades to a dozen Australian banks by a global credit rating agency are not expected to have a lasting impact on funding costs, according to regulators, analysts and experts.The downgrades were driven by deterioration in Moody’s macroeconomic outlook, which it revised down to ‘‘Strong+’’ from ‘‘Very Strong-’’. Moody’s had reaffirmed the credit ratings of Australia’s banks as recently as three weeks ago.The agency said high levels of debt and rapid credit expansion in the context of nominal wage growth had forced its hand, increasing the sensitivity of household expenditure and therefore the banking sector’s exposure to a potential shock. Among those targeted in the downgrade were listed banks such as ANZ, Commonwealth Bank, NAB, Westpac and Bendigo & Adelaide Bank. Macquarie was not affected by the downgrade.
Arrium (ARI):
Australian steel industry veteran Ray Horsburgh has questioned why other countries haven’t adopted the Finex steelmaking technology from Korea being proposed for the overhaul of the Whyalla steelworks and warned substantial taxpayer funds could be at risk. Mr Horsburgh, who was the chief executive of Smorgon Steel for 15 years until a merger with OneSteel, which later changed its name to Arrium in 2012, said the long timeframe for installing the technology could also mean that Arrium missed out on fully capitalising on an infrastructure spending boom in Australia during the next few years .‘‘If it’s so good, then why hasn’t it been used in other countries?’’ Mr Horsburgh said on Wednesday. ‘‘It needs proper analysis. The real issue here is – are people being bogged down by the sexiness of new technology,’’ he told The Australian Financial Review. A Korean consortium of private equity firms, Newlake Alliance and JB Asset Management, has signed a deal with Korean steelmaker POSCO where it will use POSCO’s patented Finex steelmaking technology and also build a 200-megawatt power plant in a combined investment of about $US1 billion ($1.32 billion) at the Whyalla steelworks operated by Arrium.
Fairfax Media Limited (FXJ):
The associated mergers and acquisitions would provide investors with the opportunity to benefit from offers at a premium to the prevailing share price. Due to the competitive challenges within the industry, valuations of many media companies have fallen sharply making them appear quite cheap in the current market. In our view, HT&E (formerly APN News & Media), Fairfax Media and Southern Cross Media are among the companies representing good value and are well positioned to benefit from slated legislative and regulatory changes.
(Source: AIMS)
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