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Australian Stock Market - Australia Sucks - 09-13-2016 07:58 PM

I live in Australia and do invest in Australian shares/stocks.

I thought I would post up a little bit of information for those who are unaware of the dynamics of our stockmarket.

The first thing to note is that average dividend yield for Australian shares is quite high. This is in part due to our tax system. We have a dividend tax imputation system called franking credits. In many countries profits are taxed and dividends are taxed again i.e. double taxation.

In Australia companies get franking credits from the tax office based on the amount of tax they have paid on their profits which they can then attach to the dividend paid to shareholders to avoid double taxation. For example if a company earns $1 million dollars in pre-tax profit and pays 30% tax (the standard company tax rate though there are exceptions) that is $300,000 in tax paid. If the company pays $700,000 in dividends it will also attach $300,000 in franking credits to offset the tax they must pay on their income. If the person has a low tax rate e.g. self managed superannuation fund or unemployed person then the excess franking credits will be returned to them by the tax office as a cheque/debit.

For example if a shareholder recieves a dividend of $7000 with $3000 of attached franking credits but their tax bill for the year is only $1000 the ATO (Australian tax office) will refund them cash of $2000.

This dynamic means that many companies (especially the "blue chip" ones) will pay high dividends because investors often demand it. The average dividend payout ratio for large companies is between 60% and 70% currently. It is common for large companies to pay between 3 and 7% dividend yields plus franking credits with the average dividend yield for large companies being 4 or 5% plus franking credits. For smaller companies the yield may be higher or lower depending on the type of company. The dynamic of high dividend payout ratios coupled with a mature economy with oligopoly type large business and a currently sluggish (but still growing) economy means that on average currently there is really no aggregate earnings growth coming from large companies. Only a minority of large companies (mostly the ones which have expanded successfully overseas) are producing respectable earnings per share growth. Our large stocks therefore in the current environment are mostly good for yield but not for capital growth.

It is important to note that overseas investors are not always eligible for franking credits. Also Australian companies only generate franking credits on profits/taxes generated in Australia. Therefore companies with a high component of overseas earnings in Australia will typically only pay partially franked or unfranked dividends.

The Australian stock market is not necessarily reflective of the economy as a whole. The financial and resources (mining and energy) sectors present a far bigger proportion of the imdex than they do of the overall economy. Also the index weightings are very heavily lopsided to the top 50 stocks (from memory they make up nearly half the capitilization of the sharemarket indices).

Also our stock market is full of speculative stocks. There are in any given year two thousand and something (the number fluctuates) companies listed on the ASX (Australian Securities Exchange) but typically only 600 to 700 delcare a profit in any given year (due to the high number of speculative mining, energy, technology and biotechnology earpy stage loss making companies). In the U.S. they have companies that have increased dividends every year for 20, 30, even 50 years in a row. In Australia no such companies exist to my knowledge. We simply do not have the global powerhouse brands found in U.S.A. and Europe such as Nestle, Johnson and Johsnon, Unilever, 3M, etc that are capable of producing such consistent performance. Therefore typically when you buy an Australian company at some point you must sell because it becomes mature and runs out of growth/steam. We do not have the type of stocks you can pass on to your grandkids here.

Also Australian companies are usually small on a global scale (with a few exceptions) and when they try to expand overseas they typically lose a bunch of shareholders money and then divest their foreign operations to "focus on our core domestic market". The Australian companies that expand overseas profitably are the exception, although we do have a few global leaders (in the top 5 companies globally) in the online and the healthcare spaces such as Seek, Realestate.com, Computershare, CSL and Cochlear.

We do have some dynamic growing smaller companies but in Australia because there are a glut of analysts and fund managers (more managed funds than stocks) chasing a small pool of profit making companies even when a company with only $5 million in revenue turns profitable (for example less than a million in NPAT) there will often be three stock broking analysts covering the stock and multiple small and microcap fund managers buying it. This makes it relatively hard to find bargains in the micro-cap to small cap end compared to many other markets

If anyone has any questions feel free to ask away.


RE: Australian Stock Market - RatInTheWoods - 09-14-2016 02:15 AM

What are some of the dependable high yield stocks?

Besides ANZ and CBA

4-7% is much better than the 2% term deposits are getting at the moment, especially if it comes with a franking credit.


RE: Australian Stock Market - Julio - 09-14-2016 02:30 AM

What are your thoughts about Monadelphous pls?


RE: Australian Stock Market - Australia Sucks - 09-14-2016 08:13 AM

Julio Monadelphous is a quality company with good management and with good long-term prospects and a strong balance sheet, but is highly cyclical. I would say it is potentially worth buying if the share price ever dips under $6 again but you have to own it with a 10+ year time horizon to be able to ride out any potential commodities and or construction downcycles.

Ratinthewoods most of the higher yielding "blue chip" companies in my opinion could end up reducing dividends. In my opinion you are better off focusing on how much a company is likely to pay in dividends over the next 5, 10 and 20 years rather than just looking at the current yield.

Therefore I would focus on companies that pay a reasonable dividend but that will grow earnings over time. Some examples would be Seek (SEK), Blackmores (BKL) and Platinum Asset Management (PTM). For Blackmores you might get a modest reduction in dividends over the next 12 months due to a possible dip in earnings the coming year but I think after that the growth will pick up again. I think United Overseas Investments (UOS) the asian property developer listed on the ASX is undervalued with good long term growth prospects, however the yield is solid but unfranked. Tamawood (TWD) the Australian property developer is another good bet which pays a solid dividend yield and is a good bet if you believe as I do that the property bull market in Australia will continue for some years to come. Credit Corp (CCP) which is Australia's largest debt collector (I believe their overseas expansion will be successful in the long-term) is another good long-term bet, and if the share price pulls back to under $15 at some point it would be worth buying.

In terms of larger companies I think some of the big healthcare stocks like Cochlear (COH), Ramsay Healthcare (RHC) and CSL (CSL) are currently overavalued but would be good to buy on any major pullbacks as they have a solid growth trajectory and will increase dividends and earnings strongly over time. Also Realestate.com (REA) is another quality large company (it does online realestate advertising) that is currently overavalued but that you should look to buy on any major pullbacks.

I would avoid Woolworths (WOW), Wesfarmers (WES), the big banks, the big mining and energy stocks, the big insurance companies and Telstra (TLS). I think these companies will struggle to generate much growth (as in earnings and dividend growth) over the next five years.


RE: Australian Stock Market - Australia Sucks - 09-14-2016 08:24 AM

Please note the above post is just my opinion of a list of companies you should keep on your watchlist, I am not saying anyone should rush out and buy them. Always do your own research.


RE: Australian Stock Market - RatInTheWoods - 09-14-2016 05:50 PM

Thanks AS, great advice, appreciate it.


RE: Australian Stock Market - TheFinalEpic - 09-14-2016 06:13 PM

I've heard that most equities have very limited options in Australia, and that it would be better to focus on HKE instead. What are your thoughts on this.


RE: Australian Stock Market - Australia Sucks - 09-15-2016 12:57 PM

Thefinalepic that is true. If you want to trade options in Australia its generally only the top 100 companies that usually have options (sometimes smaller companies will issue free tradeable options to existing shareholders to raise capital but it is not common and they are very illiquid) and they are often limited in variety and sometimes lacking in liquidity. If you want to be an options trader do not bother with the Australian market.


RE: Australian Stock Market - Kangaroo - 09-18-2016 07:08 AM

What's your opinion of ETF's like VAS, VTS and IAA?


RE: Australian Stock Market - Australia Sucks - 09-18-2016 09:38 AM

Kangaroo my view is that these type of ETFs overall are low cosy, well diversified solid investment vehicles for the long-term passive investor but it depends on how they are used.

In my opinion most developed country sharemarkets including the U.S.A. Australia are overvalued based on long-term indicators. Some (not all) of the emerging economy stock markets appear to be good value however.

If you plan is to dollar cost average a fixed monthly amount into an index over many, many years to come then that is a sound plan as the dollar cost averaging will tend to smooth out the result and you will do okay.

However if you are planning to invest a substantial chunk of your savings today (especially if you will not be adding to the investment consistently) I would caution against buying an index fund (unless it is for a stock market which is undervalued like Brazil or Russia, etc) because I think the there is a high probability that the return from these type of index funds over the next ten years will well below historical average with a definite possibility of negative real returns.

Read the newsellter at the bottom of the page provided in the link to get a sense of long-term valuations and how the next 10 year period is likely to dissapoint.

http://www.chrisleithner.ca/newsletter/index.php#.V94Fzoo_6f0

Kangaroo, does that answer your question?


RE: Australian Stock Market - Australia Sucks - 06-06-2017 02:51 AM

I thought I would dust off this thread and do an update.


-The Australian stock market has headed higher over the past twelve months but is still well below its all time high. Here is a good long-term chart which puts key events onto the chart timeline http://www.asx.com.au/documents/resources/share_price_movements.pdf

You also have this long-term investing report tells you a bit about the market's long-term returns and other stuff

http://www.asx.com.au/documents/research/russell-asx-long-term-investing-report-2016.pdf

Here is a chart which also shows recent price movements:

http://www.asx.com.au/prices/charting/index.html?code=XAO&compareCode=&chartType=line&priceMovingAverage1=0&priceMovingAverage2=0&volumeIndicator=Bar&volumeMovingAverage=0&timeframe=

The ASX (Australian securities exchange) makes up around 1.5-2% of global stock markets.

http://money.visualcapitalist.com/all-of-the-worlds-stock-exchanges-by-size/

We also have the NSX (national stock exchange) but its tiny and liquid with mostly a bunch of irrelevant junk on there. Its not worth looking at. We also have ASSOB (the Australian Small Scale Offerings Board) which is a market for unlisted public companies and is also tiny.


RE: Australian Stock Market - Australia Sucks - 06-06-2017 03:07 AM

Resource stocks such as mining and energy stocks have enjoyed a cyclical bounce over the last 12 months due to rising Australian dollar commodity prices. Who knows if this will continue or not. The good news is that the over the past two years the bigger commodity producers in Australia have become a lot more efficient and slashed their costs of production drastically meaning they are better placed now to handle any future downtown in commodity prices than compared to 5 years ago.

Bank stocks are struggling with rising capital requirements/ratios and regulatory tightening. We tend to lag behind the U.S.A. in terms of financial regulation and trends, etc. While the U.S.A. government loks set to gradually loosen banking regulations we are still tightening them.

The banking regulator APRA (Australian Prudential Regulatory Authority) and the RBA have pushed the banks to limit residential investor lending growth to 10% per annum. This has caused the banks to differentiate their pricing and put up rates on investor loans compared to owner occupied loans. In addition to this they have substantially tightened investor loan criteria, which means that many investors are now turning to non-bank lenders. A gradual move to higher capital ratios and tighter lending standards is hurting the earnings growth of banks with some of the major banks showing no or negative e.p.s. growth in the latest results.

This means companies like FSA Group (ASX Code: FSA) and Pepper Group (ASX: PEP) should continue to show strong earnings growth. Even the mortgage brokers (who can choose to sign loans with banks or non-bank lenders) such as Mortgage Choice (ASX: MOC) and Yellow Brick Road (ASX: YBR) are showing earnings growth.

The "property bubble" in Australia looks set to continue for some years to come (at least if guys like Phillip Anderson are to be believed)
http://www.phillipjanderson.com/18-year-real-estate-cycle/ hence it could be worth taking a look at the above sorts of companies as well as debt collection and consumer lending companies, etc, as its not just mortgage debt that is rising but also credit card debt, personal loans, etc.

In terms of other ways to play the property boom, property developers like Tamawood (ASX: TWD) and Sunland Group (ASX: SDG) are doing well and this should continue. Western Australian property has been in a multi year downturn but could be set to reverse direction in the next year or two. A good way to play a rebound in Western Australian property would be the predominantly Western Australia focused property developer Finbar (ASX:FRI). Additionally related service companies like the property valuer Landmark White (ASX:LMW) should continue to do well. In a booming property market property turnover/transaction volumes increase as people flip properties quicker and also due to increased construction the need for property valuations increases. Additionally more people refinance their property loans to borrow against the increased property values (which often means getting a property valuation).

Debt Collectors such as Credit Corp (ASX: CCP), Collection House (ASX: CLH) and Pioneer Credit (ASX: PNC) are the stocks to watch, with Credit Corp being the largest, most profitable and most well managed of the lot. They are all currently growing their revenues and earnings and this sector will likely continue to run for some years as consumer debt continues to climb higher. Also Scottish Pacific Group (ASX: SCO)which does invoice factoring and other specialized types of small business financing is doing well, partly due to increased appetite for business loans and because of home ownership rates going down - due to declining housing affordability - means that less small business owners have residential property to pledge as collateral for a small business loan and are turning to other sources of finance.

On the flip side companies like Thorn Group (ASX: TGA) which owns the radio rentals brand and Cash Convertors (ASX: CCV) which is a micro-finance company and a pawn broker are struggling due to being hit with tougher regulations on "pay-day" and consumer rent-to-buy loans. These types of companies are best avoided.

Blackmores (ASX: BKL) is struggling but looks set to potentially turn the corner within the next year or two as it puts the China hiccup behind it. Meanwhile A2 Milk (ASX: A2M) continues to enjoy strong growth due to success in China (and Australia).

IPH Limited (ASX: IPH) is the leading intellectual property services company in the Asia Pacific. Due to the boom in technology and new patents and the growth of Asia, despite their temporary current dip in growth rate they should do well over the long-term (subject to not making too many dumb acquisitions and blowing up).

Whilst Magellan Financial Group (ASX: MFG) is doing well, most fund managers like Platinum (ASX: PTM), Perpetual (AS: PPT) and BT Investment Management (ASX: BTT) will continue to struggle due to the rush to index funds putting pressure on their fund flows and pricing/margins. The ASX itself (ASX code: ASX) which is listed on the ASX will continue to do well as the market rises bringing with it increased derivatives trading, increased share trading volumes, increased IPOs and capital raising, etc.

After a period of regulatory tightening/shakeup in the vocational education market, the better players in the industry are set to do well. Companies like Navitas (ASX: NVT) which does university student placements from overseas as well as its own vocational training and Seek (ASX: SEK) which runs the Seek.com.au job board and also does online/vocational training/learning should benefit from increasing numbers of foreign students coming to Australia and the continue increase in further education due to an increasingly competitive job market.


RE: Australian Stock Market - Australia Sucks - 06-06-2017 03:59 AM

The big healthcare stocks such as Ramsay (ASX: RHC), Cochlear (ASX: COH), CSL (ASX: CSL), etc are all doing well in terms of earnings and that will continue given Australia, and the world's ageing population and the increased spend on health-care but their shares overvalued. Aged care (nursing home, etc) providers in Australia have all been hit due to regulatory changes and I would be wary of this sector. Small cap medical device and hospital companies are worth watching with some of them growing quickly but trading on much lower p.e. multiples than the big healthcare stocks. I cannot think of particular names at the moment but this sector is worth researching (although stay away from the small biotech/drug companies which are too speculative).

Xero (ASX: XRO) which globally sells accounting and business software is set to finally turn profitable soon and is showing soon sales growth. In the software and IT services sector in Australia there are a lot of companies showing strong profits and growth such as Data 3 (ASX: DTL), DWS (ASX: DWS), etc are showing good growth and margins and this should continue, especially if they are successful in riding the cloud computing theme (their execution in this area needs to be watched).

Its not an exhaustive list of sectors and companies to watch in the Australian market but I thought I would point out some of them at least to give people a start on where to look.

The 2017 edition of Top Stocks (by Martin Roth) is worth a look.

https://www.kobo.com/au/en/ebook/top-stocks-2017?utm_campaign=shopping_feed_au_en&utm_source=google&utm_medium=cpc&gclid=CLDcmbTsqNQCFdYHKgodReADpQ

Its a book which comes out every year and gives a brief run down of what you could call "established". Its basically a list of companies from within the All Ordinaries Index (top 500 stocks in Australia) that meet certain minimum criteria such as being listed for at least the past 5 years, having a debt level (based on debt to equity ratio) which is not too high, earning a profit and paying a dividend every year for the last 5 years, and earning a return on equity in the last year of at least 10%. Every year the companies (and number of companies) on the list changes. In the latest edition there is 90 stocks listed and it gives a very brief overview of each one.

If anybody has any particular questions about the Australian stock market, economy, particular sectors or stocks, feel free to post it here and I will try to help.


RE: Australian Stock Market - Australia Sucks - 06-06-2017 06:24 AM

Here is a link to a Australian business news program:

http://www.abc.net.au/news/programs/the-business/


RE: Australian Stock Market - BB1 - 06-06-2017 05:23 PM

Good info Australia Sucks...do you work in the finance industry?

I have an account with Interactive Brokers so have full access to the Australian Stock Exchange.

Out of the companies you have mentioned I own A2 Milk, Xero, and Pioneer Credit.

A couple of my biggest positions in Oz are Altium and Hansen Technologies.

Yesterday I brought Catapult Group (CAT). This company has the potential to become a 10-bagger, but is riskier. Interested in hear your thoughts on them.


RE: Australian Stock Market - Australia Sucks - 06-06-2017 09:31 PM

BB1 I do not work in the finance industry. I had a brief look at Catapult Group (CAT). They are growing their revenues quickly and they do have some potential, and the fact that a meaningful chunk of their revenue is subscription/recurring is a big plus. However it is a loss making company with limited track record that recently made some big acquisitions (always a big risk). For me this company is in the too hard basket, with its future success being too difficult to judge.

I think its too early, and its better to wait (even if the stock moves somewhat higher) until they have more runs on the board before investing in them. If you are investing keep your position size small due to the high risk.


RE: Australian Stock Market - [email protected] - 06-06-2017 10:44 PM

Australian stocks are a waste of money and opportunity cost.

Get into crypto-currency NOW. I warned you.


RE: Australian Stock Market - Australia Sucks - 06-07-2017 01:02 AM

burneremail crypto currency is a highly speculative bubble. Its not in the same league as Australian stocks. We don't even know if any of these cryptocurrencies will exist in 10 years time.


RE: Australian Stock Market - [email protected] - 06-07-2017 01:23 AM

You mean like how the stock market is not in a bubble? American stock market is gonna pop probably this year and take Australia down with it too. Enjoy your 5-12% gains!


RE: Australian Stock Market - Australia Sucks - 06-07-2017 01:43 AM

At least stocks have earnings, WTF value does Crypto-currency have? That is the most insane shit I ever heard for somebody to claim that stocks are in a bubble but Crpto-currency is undervalued.


RE: Australian Stock Market - Australia Sucks - 06-19-2017 09:47 AM

Just an FYI for the non-Australians out there, in Australia companies listed on the ASX (Australian Securities Exchange) are not required to post quarterly financial reports, except for companies generating negative operating cash flow which must publish certain financials quarterly.

So you will see many companies that post only a half year report and a full year report as well as of course any posting any important announcements which occur from time to time. The end of financial year in Australia is the end of June. Companies under normal circumstances have a maximum of around a 2 month window to post their full year report (i.e. roughly until the end of August). For the half year period the majority of companies have the half year as being the end of December with their half year reports being posted to the ASX before the end February.

I will update the thread again after full-year results come out. Certain companies use their own customized reporting periods (for various reasons) which do not fit into this schedule. That being said the vast majority of companies on the ASX have the financial reporting period based on the end of June (and end of December for the half year results).

Most countries have a similar system for the financial year ending at the completion of June but I believe there are some countries which use December as the end of their financial year so I thought it was worth pointing out.

In the meantime if anybody has any questions about the Aussie stock market including questions about book recommendations or websites blogs to look at, questions about particular companies/sectors or the market overall post it on this thread.


RE: Australian Stock Market - Australia Sucks - 06-19-2017 11:47 PM

I just want to make it clear to everybody that although I do not work in the finance industry I have been investing my own money in the Australian stock market for 10 years and currently have a 6 figure sum invested in Australian shares. That is just to give context to my posts on Australian shares.


RE: Australian Stock Market - Australia Sucks - 07-11-2017 10:07 PM

[email protected] the U.S. and Australian stock markets are still going strong meanwhile Ethereum has recently crashed 50% from its all time highs very quickly. Crypto-currencies are the modern day tulips. Sure you might make big and fast profits if you are lucky but don't expect most of the current ones to still be around in 10 years time.


RE: Australian Stock Market - BB1 - 07-15-2017 12:43 AM

(06-19-2017 09:47 AM)Australia Sucks Wrote:  In the meantime if anybody has any questions about the Aussie stock market including questions about book recommendations or websites blogs to look at, questions about particular companies/sectors or the market overall post it on this thread.

Just wondering what blogs, investor forums, newsletters, fund manager reports, twitter accounts you can recommend in the micro/small cap space?

Im currently using the Hotcopper forum, and follow Tony Hansen - Ethernal Growth Partners.


RE: Australian Stock Market - Australia Sucks - 07-15-2017 03:14 AM

Good question BB1

Micro-equities a micro-cap fund manager which also produce research reports (some are free some you have to buy indivudally) on micro-cap companies. http://microequities.com.au/

WAM microcap (ASX Code: WMI) is a newly listed micro-cap listed investment company run by the highly successful wilson asset management
http://wilsonassetmanagement.com.au/news-and-insights/

Undertheradar provide a paid e-newsletter that picks micro-cap and small cap stocks http://www.undertheradarreport.com.au/

Forager is not specifically a small cap manager but they do tend to own a lot of small caps and there Australian fund has done well
https://foragerfunds.com/

There are more players in the small and micro-cap space but for the most part their performance track records are more patchy so I have not listed them.

Aussiestockforums (again covers all sizes of stocks)
https://www.aussiestockforums.com/
is way better than HotCopper in my opinion.

Open briefing http://www.openbriefing.com/
and boardroom radio https://boardroom.media/
both interview companies (of all sizes) and are good sources of information.

EGP is good and HotCopper is so-so.

If you have any other questions let me know.