Companies discussed include:
Telstra Group (ASX:TLS)
News Corporation (ASX:NWS)
Mirvac Group (ASX:MGR)
The following transcript was automatically generated
Hello. My name’s Chris Pedersen, and this is Stock Watch for the Finance News Network on Wednesday, the 15th of November 2023. Any advice provided is general advice and may not be suitable for you. Always consult your financial advisor before making any investments. All questions from viewers should be sent to [email protected]. Some of my market observations warn us inflation came down dramatically, especially last night.
Bond yields here in Australia and around the world are dropping. This is good for equity prices. US equities are rising accordingly. US government funding is now assured until January 2024 and February 2024. Personally, I’m not sure why they moved it to that period of time, because their primaries. Super Tuesday is the 5th of March. So talk about a lot of political rhetoric and confusion when they go to try to extend it further.
Companies earnings are up across the world and here in Australia, too. For me, my view is it looks good for the Australian 200 index to rally further and maybe to 7500 or higher. Here’s an interesting thing I wanted to share with you. Since I started Stock Watch again in July 2023. If you invested equal weight in every recommendation, you would now be outperforming the ASX 200 accumulation index by 240 basis points.
This is including dividends because the accumulation index includes dividends and this is not annualized. Think about it. This is giving you value. Bank reporting season. We’re now over. Here are some comments. Overall results were pretty lackluster. Weakness and getting costs under control. To me, this is the central theme throughout all the banks had massive cost problems. And one of the problems is technology costs continue to expand, making the technology benefit no longer a means to reduce costs.
Difficult to expand net interest margin when all the banks are chasing the same business. Bad and doubtful debts were very low, showing great credit management Revenue growth is slow. Dividend yield remains high and this is primarily to keep the share price up when they have slow earnings per share growth and slow revenue. This means that dividend payout ratios are slightly rising.
There’s still room for more in terms of the payout ratio, which is good. That means that if they continue to be slow, they can increase the yield to continue a slow growth in the share price. So banks will continue share buybacks and this is because it improves earnings per share. When you’re reducing the denominator, that increases your earnings.
Where will the banks find growth? Well, that’s a very good question. Banks are cyclical, along with other industry groups because we just went through the royal commission and banks divesting a lot of the peripheral business units. Their acquisition program is still a few years away. Here’s a chart of value for you. Inflation in the US. Well, take a look.
It spiked and has really come back down. I just wish the Australian inflation CPI would get back down just as quickly. But it doesn’t look like it will. Here is a chart on growth in superannuation funds under management, whether it’s yourself or by professional managers. Right now we have $3 Trillion under management by 2060. Using current trends, we’ll have around 33 trillion.
That is massive. I don’t know if the equities market is big enough to handle all of that, which means super funds will continue to explore elsewhere. This is partly why why they’re opening up operations in countries like the UK, US, etc. to help them expand their global net for investing. Non-energy commodity prices. Well, this chart tells you they’ve come down.
That’s good. We also know that price of oil has come down. That’s good at the bowser. So a lot of things are going right right now. Here are three companies that caught my eye this week. First one is Telstra. The code is tells it’s trading at $3.86 right now. To be honest, for a long time I’ve looked at Telstra.
It’s been boring. I haven’t been interested. I just don’t really see where they’re going to find growth. It’s like, why bother? However interesting things are happening in Telstra looking at the fundamentals. One, we have a market cap of 45,000,000,012 month price target. I have a price of $4.35. A lot of brokers are slightly higher at 435. That’s total shareholder return for the next 12 months of 18%.
That’s pretty good. The revenue growth rate from 2023 to 2026, I have it around 2.6%. But what is attractive is their earnings growth is around 10% per annum and the dividend growth is 10% per annum. Now bear in mind a low priced stock, it doesn’t have a huge amount of dividend, but it’s all percentages. The p e on the 2025 earnings estimate of $0.21 is only 17 times the yield is 5.2%, and that’s using a 20% dividend estimate for 2025.
Another thing that’s attractive, it’s free cash flow for Telstra is around 8%. Yes, it does pay out of their earnings basically 97%, but nonetheless Telstra is going to benefit from Optus missteps. They’re also going to benefit from population growth rate. All these new people moving to Australia will need phones, they’ll need telecommunications. Telstra will be the main beneficiary.
So in my book, Telstra is a solid company, it’s boring, has decent P has a very good yield, the yield is fairly safe. Valuations are not stretched anymore. I now rated ABI, I don’t actually think I’d ever say that, but as part of your portfolio it’s a good solid holding. Another company that I’ve looked at for years and have never really done anything is News Corp.
The code on the ASX is NWC. It’s trading around $33.50. You look at the chart, it’s looking a lot better than it has for a long time. Here is a breakdown of their revenue just in case you’re curious where they’re making their money. They own Dow Jones, they also own HarperCollins. They own a part in Foxtel and they own a big percentage of real estate dot com, which is an unbelievable performer and has huge value for their.
So News Corp is not just newspapers on a fundamental basis right now it’s around 20 billion capitalization. I have a 12 month price target of $40. That’s a big move from here. That’s a big call actually the revenue growth rate from 2023 to 2026 as estimated at 4% per annum. However, that’s not the true story. The true story for News Corp is earnings growth rate.
During that period, I’m showing around a 36% per annum growth in earnings. Now what is interesting about News Corp is still dominated by the Murdoch family. They pay a dividend of $0.20 and it’s going to remain flat for every year into the near future. The only way I see that News Corp will increase their dividend is if the price of petrol for their big yacht goes way up and they need more dividend income to cover those costs.
I’m being facetious, naturally. The PE on 2025 earnings estimate of dollar eight is 31 times. That’s slightly high. However, it has great earnings growth yield on the 2025 dividend estimate of $0.20. As I said before, is low at 0.6%. You don’t buy it for the dividend. The free cash flow is amazing right now at 9% and a payout ratio is only 20%.
So what that means is they can hoard earnings for acquisitions or whatever they want to do in the future. It gives management a lot of flexibility. Again, what they own, they own Dow Jones, big part of RCA newspapers, percent of Foxtel, Harper Collins, which is the second largest book publisher in the world. Great cash flow earnings growth. I now rate News Corp, a by third company is Mirvac Code, is MJR on the ASX and it’s trading at $2.06.
Market cap is around 8,000,000,012 month price target. I have a $2 FIFO revenue growth from 2024 to 26. I estimate around 10% per annum with earnings growth of around 10% per annum and dividend growth is trailing but still decent at 4.4% per annum. Looking at p e 2025 earnings estimate of $0.16 is only a PE of 13 times.
That’s cheap yield on 2025 dividend estimate of 11 and half cents is big at 5.6%. Net asset value per share is around $2 at $0.49. This makes it not only able to participate in this boom cycle of property development, but it also gives you a cushion on not trading too much lower because of the net asset value per share.
I like Mirvac because it’s always been a solid developer and with the population growth rate and the lack of supply and the huge demand for housing, it is estimated by many experts that we’re going to have a ten year bull market for property prices. That’s only good for property development. As always, if you want to learn more about anything I cover today sent an email request to stock watch it.
Fan dot com dry you and direct it to me. Chris Pedersen. Our endeavor to get back to you and I hope you have a wonderful profitable week thank you for your time.