Fixed Interest Weekly - 17 April 2015 

Weekly trading idea: Buy IAGPC

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The Collins Street farmer - Agricultural sector review  

Our Agricultural Analyst, Jonathan Snape, reviews the agricultural sector, covering 4 major emerging themes and our top stock picks.

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An accompanying video summary can be viewed here.

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Ringing the Bell. 2015 so far  

Please find below an excerpt from Ringing the Bell, a market commentary note authored by Charlie Aitken that is regularly distributed to Bell Potter clients.

2015 has already proven a year of sharp movement in equities, bonds, commodities, property and currencies. For an investment strategist who starts top down it clearly has been an active period attempting to be ahead of Central Banks and ahead of global and domestic cross asset class investor flows.

Today I am publishing a complete compendium of my "Ringing the Bell" notes for 2015. It is a chronological record of the 100 pages of ideas I have written this year

I have had three major themes this year.

1.Yield compression

2. The US Dollar (and vice versa short AUD, EUR & JPY)

3. USD industrial earners

My 4th clear theme has been do NOT buy resource stocks for "yield".

Click here to read our Ringing the Bell: 2015 so far document.


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Charlie Aitken: Today I am recommending “taking trading profits” in QAN . 

From a low point of 95c back in December 2013 QAN shares have gained +200%. Airlines are trading stocks: always have been, always will be. They are not long-term investment grade in my opinion due to the fact they control very few of the variables in their business.

Pretty much everything went right for us in this QAN "trading idea". The Oil price collapsed, the AUD collapsed, the domestic capacity war ended and QAN's earnings recovered as confirmed in yesterday's interim earnings result. The QAN share price has tracked the FY15 consensus EPS revisions. That drove a +200% share price appreciation and that's enough for me.

Despite QAN management doing an excellent job, I suspect the next +20% gain in the QAN share price will be much harder and slower than the last +200%, and that is why I am recommending taking trading profits today.

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AVJennings (AVJ): Good result, better outlook  

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Strong start to the year: AVJ reported a +95% uplift in underlying NPAT to $9.3m (BPe $5.6m) and its first interim dividend ($0.01ps fully franked) since 2012. Lot settlements were up +22% YOY and +10% ahead of expectations and this was the main driver of the beat. Lots under development, a key lead indicator of future sales, continued to expand up +22% HOH and +58% YOY and are now at levels almost five times the 2H12 low. We retain our Buy rating with a target price of $0.82ps.

Near term drivers remain sound: Near term demand remains robust with lots under development up +22% HOH (to 1,539) and FY15e contract signings guidance raised from 1,500-1,700 to 1,700-1,900. 1H15 gross margins were strong and impaired inventory continues to exit the system (provisions down 45% since FY13) through a combination of sales and provision releases ($9m in the last 2 years), which should assist margins in FY16-17e.

Changes to forecasts: Following the result we have raised our FY15e NPAT forecast by +19.8%, reflecting an uplift in lot settlements (+100) and development gross margins (+300bp) offset in part by lower price points. The latter two principally reflect changes in mix to land only sales. Changes in FY16-17e NPAT are more modest at +4.3% in FY16e and +3.8% in FY17e. Our target price remains broadly unchanged at $0.82ps with this principally derived from NTA, net working capital and FY16e ROIC methodologies.

Investment view: Buy retained: AVJ enters FY15e with its highest level of lots under development in seven years with the tailwind of a buoyant housing market. Despite this, AVJ continues to trade at an 22% discount to its net working capital backing and a 23% discount to NTA. With a 7 year tail in the development book (based on 1H15 settlements), undemanding valuation metrics and seven year high in projects under development, we retain our Buy rating with our target price unchanged at $0.82ps..

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BHP: An attractive divdend yield play. 

BHP: An attractive divdend yield play.

Watch our latest video by Peter Quinton on BHP. "To put it into very simple terms, in fiscal 2016, the fully franked dividend yield to BHP shareholders is going to be around 6.6% fully franked


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