Grow Your Egg

Avastra - who writes their stuff?

Avastra released some 2008 guidance this week, presumably in an attempt to stem a rapid share price fall. You'll recall that some low occupancy issues (ie 11% - that is low!) meant Sleepwell was not and selling pressure continued after the release of the quarterly 4C on Jan 31. So here was the big attempt to show that things were back on track.

When an announcement is headed 2008 guidance and you start to be told a story (it could even have started 'once upon a time') you can be sure that not all is well. When the company announces that it is changing the method of offering guidance, you surely do not need any more confirmation. When you are provided with some of the gobbledegook in this one, well there's only one decision left. How to invest the proceeds from the sale of your Avastra shares.

MFS - Call that an update?

If you're nervously holding any MFS, your mood is unlikely to have been cheered by tonight's announcement. I can quote the full text (it's not very long!!):

Interim Results Delayed
MFS advises that its financial results for the six months ended December 31 2007 will not be released  on 21 February 2008 as previously advised.

Not much of an update and not very promising. Some wags have suggested that they actually forgot to assign anyone to work on the report given one or two other er pressing matters.

Certainly will not do much to stop the gossip - have to feel sorry for S8 and some of its acquisitions - Transonic Travel was a great earner for me prior to the takeover. Glad I sold on market....

Solid results, muted reaction

Alongside the headline results from the big banks and resource companies, there have been some solid numbers coming from the mid and lower cap companies reporting so far. You would hope that results would be good given business conditions through H1 08, notwithstanding resource and other cost pressures.

Today McMillan Shakespeare (MMS), GBST (GBT) and Melbourne IT (MLB) all produced good numbers but the market reaction was nothing out of the ordinary on a generally good day. Plenty of commentators have pointed out that many stocks are sitting with P/Es lower than they have been for a long time. The problem is that investors so not have faith in the 'E' values that are currently sitting in forecasts for H2 08 and beyond. Further interest rate rises here look locked in and that must have an impact on several discretionary sectors, the recessionary impact flowing from the problems of the developed economies overseas has still to flow through and writedowns continue to grab the main headlines.

So what's the go now? Well if you're in a buying mood, a modest P/e is a must, low debt is good, absence of heavy reliance on the Aussie consumer gets a tick and a solid H1 result with reasonable H2 outlook could round things off.

By the way if you can understand the MCG results, let me know how they look.......

Reporting season or hunting season?

Us warped market observers find the markets interesting most of the time. But you have to admit that we are in a particularly inetersting period. At the macro level you have a great divergence between the major developed economies (US, UK) and the BRIC economies with commodity rich economies like Aus caught uncomfortably in the middle. Can the RBA really keep raising rates against the global backdrop? How severe with the recession be? Have the RBA gone too far already given that the response to rates lags so much?

Then at the micro level we're into reporting season and boy are there some big reactions. Look at United Group - savaged on reporting day after a $10m profit miss and today CBA hammered after a result that disappointed (hello? anyone notice that little turmoil recently?). The other feature to note is how the peers of these companies have been sold down woith the reporting stocks (see NAB today).

And sometimes sellers are getting in early. AMP was down nearly 6% today to well under $8 ahead of its report tomorrow (14th). Let's see if this particular selldown was justified.

Trust the professionals

I have no doubt that Funds Managers make many good investment decisions in the course of their business.The many hours they spend talking to companies and delving behind the headlines must give them the insight to make decisions that the broader market may not understand.  However the decision of Macquarie Australian Small Companies Fund to increase its position in Blue Freeway in December "on share price weakness that did not reflect the company's near term profit outlook" is not one of those good ones. Mind you they were right in their commentary - the share price did not reflect the profit outlook - it should have been much cheaper!!

MFS, Blue Freeway, Centro, Tricom.....

The victims of the change in sentiment are many and varied. Blue Freeway is a great example of a stock going on positive sentiment based on the rollout of an operating model followed by the fall on negative sentiment once the model is seen to have major issues. The sector must still offer some opportunities but investors may switch to others such as MCU while Blue erhmm adjusts. The Tricom situation is a big blow to the broking fraternity but the warnings have been there since they started adjusting CFD margins down to zero without warning. Big links to MFS and the BnB family were good while they were going up....And MFS - amazing how many people apparently always knew it was a pack of cards, likely to fail at any time. It's not done the whole Queensland property sector any favours.

That was a week that was!

Most of the well known chartists are very bearish on the market. The recent rises are characterised as a bear market rally ie a correction in a new downtrend. On fundamentals too the picture is not looking great and the fear/negative sentiment was as strong as it could have been early last week.

We like to be optimistic here on GYE so here's an (overly?) optimistic 6 pack scenario for the Aussie market:
1. Profits in the upcoming season hold up OK and outlooks are better than expected with cost pressures not a major factor.
2. The Fed does indeed cut rates by a further 50bp.
3. The cuts flow through to US home loan rates and the feared reset squeeze does not eventuate.
4. Gradually the US excess of housing stock clears as rate certainty returns.
5. Economic activity slows but shows signs of a quick rebound following the cuts and the stimulus package.
6. China holds up through all this keeping commodity prices steady at high levels.

Let's see how many of these do not eventuate.....

MFS Trading halt - overheard at the coffee shop

"Jeez even my wife's on to me about the share price - she's worried about paying for the mansion - surely it can't go down like that again today?"

"Reckon it could mate - did you see the Dow overnight?"

"Hey I know, we could call a halt - that'll stop it falling"

"But we've got nothing to announce"

"Come on, surely we can think of something. The market expects a daily MFS announcement"

"I know, we could pretend that we were always going to separate Stella from the FS business anyway, before Sullivan lobbed in his offer"

"Hey yeah, add something about a share transaction, they'd buy that"

"Cool, i'll get the boys on to it......"

Shift in world financial power laid bare

News out tonight that Citigroup's clear-the-decks announcement (inc cutting 20,000 jobs!) will include the injection of $10bn in cash from investors such as Government Investment Corp of Singapore, the Kuwait Investment Authority and one of the many Saudi princes with a very long name. This follows on from the earlier $7.5bn injection from the Dubai ruling family.  Merill have also received large injections from Temasek and others.

What does this tell us? Well apart from the fact that the banks really are struggling to stay afloat (some analysts believe the losses are the largest since the Great Depression in relative terms), it clearly shows the reliance the US now has on the export-driven booming economies in Asia and the oil-rich Arab states to maintain its economic status. The mighty hasn't fallen but it's certainly wobbling.

Nomad - -trading halt - further expansion

Nomad is in a trading halt and a further purchase requiring a raising is in the offing. The shareprice has been hammered along with everything else but with so much revenue locked in for 07/08 and 08/09, it's got to be worth a look if you're in a buying mood.