TRANSCRIPTION OF FINANCE NEWS NETWORK INTERVIEW WITH AUSBIL DEXIA LIMITED, CEO/HEAD OF EQUITIES, PAUL XIRADIS
Clive Tompkins: Hello Clive Tompkins reporting for the Finance News Network. With the reporting season over and the Australian economy in good shape, Paul Xiradis from Fund Manager Ausbil Dexia provides an update.
Paul welcome back. What’s your assessment of the reporting season just gone?
Paul Xiradis: Look all in all, it was actually an excellent reporting season in our eyes. The result in upgrades occurring following reporting season - just to give you a bit of history, six months ago the market was expecting for the Financial Year 10, for earnings to be in the order of negative 1 or 2%, because of the dilution factor of the capital raisings last year. Following the reporting season, that’s been upgraded to plus 7%, so it’s been a very, very strong reporting season and some good upgrades. Overall there were about 5% upgrades just as a result of the reporting season.
Clive Tompkins: Paul any surprises?
Paul Xiradis: There are always surprises in the market. We mentioned a couple of the healthcare stocks, we mentioned Telstra, Toll was a negative surprise. It performed a little less than expected – it didn’t miss the results too much but it was actually marked down quite savagely because expectations were pretty high. On the other side there was - and QBE was another one which disappointed I should just add as well - but on the positive side, there was quite a – it came from a number of different areas - the likes of the mining sector was better than expected overall. We saw retail better than expected despite some concerns about the softness of the retail trading during the Christmas period. We saw, you know quite a few of the building material related stocks perform a little bit better than expected - steel stocks. So again those stocks and sectors which were ahead of - which were very much attuned to the Australian economy, did do a little bit better during the reporting season. But overall I think that as a group there was certainly a far more surprise on the positive side than the negative side, so basically Corporate Australia had a pretty good reporting season.
Clive Tompkins: Unemployment’s heading down, rates are up and the dollar will presumably follow suit. At this stage of the cycle where is the money headed?
Paul Xiradis: Our view is that the second half of this year as in calendar this year, we are likely to see a strong rebound in expectations and activity out of the US and that will be quite supportive for the US dollar, we believe over the next twelve months. So we could see the recent weakness in the US dollar start reverse and that will have a slight negative impact on the Aussie dollar. But all in all we do expect the Australian dollar to remain quite high. So, what are we looking at? I mean some of the sectors which look interesting to us are certainly those stocks and sectors which are exposed to an improving US dollar and also in an improving US economy. There has been some recent – media’s been an area that we’ve looked at recently as far as News Corp is concerned - we’ve added to our exposure there.We’re also looking for some offshore earning streams as well which are more exposed to an improving US economy and there’s been a number of stocks which we have added to the portfolio over recent months.
Clive Tompkins: You’re in the news regarding your stake in Seven Network and its intention to merge with Kerry Stokes privately held WesTrac business. What have they told you?
Paul Xiradis: We’ve had a lot of discussions with Seven Group over recent weeks, clearly leading into or just leading into and also following the announcement of WesTrac – announcement. We’ve spent a lot of energy, a lot of time examining the prospect and also the proposal. Myself, recently has been over to Western Australia with my analyst looking at the WesTrac operation and we certainly walked away being quite impressed with that business. There’s no doubt that the WesTrac business is a very well run business, very well exposed to an area that we do like which is mining, particularly that of iron ore in Western Australia and also coal in New South Wales. So the outlook for WesTrac is actually very, very promising. So it all gets down to you know, is it a good fit for the group, are we paying a reasonable price for that acquisition and what are the prospects going forward. So that’s something that we are assessing in total right now.
Clive Tompkins: Paul recent corporate history hasn’t been kind to conglomerates, why should this merger be any different?
Paul Xiradis: Look it’s interesting, I mean there has been some concerns about Seven Group changing its colours with this acquisition or proposed acquisition. It’s still proposed, it hasn’t occurred yet and it still requires minority shareholders to approve it, but there hasn’t been too many conglomerates that you can really look at I guess. The only conglomerate that really operates here in this country is Wesfarmers and that’s proven to be a very, very good performer. It has exposure in a number of different areas, some counter cyclical to each other and that’s one of the things that potentially that this Group could actually offer if they do acquire WesTrac.So, therefore there’s you know, just because it is a conglomerate doesn’t mean it won’t perform well. So it really is - you know, that’s something that you need to assess, that’s something we need to assess as shareholders to determine what the mix will look like. And will the market actually assign a greater valuation to the combined group to its present group which is more media exposure - and in cash, because there really is no, not too much value being assigned to the cash element of the Seven Group holdings at this point.
Clive Tompkins: And for the merger to succeed at 50% vote in favour of the deal by 75% of shareholders via value excluding Kerry Stokes is required, when is the vote due and how will you be voting?
Paul Xiradis: The vote’s due around the 20th or the 22nd of April so it’s coming up soon. We haven’t disclosed publicly how we will be voting at this point. We’re still assessing the total offering at this point and we’ll be having some further discussions with management to clarify a few of the issues that need clarifying in our mind.
Clive Tompkins: Now to Telstra. Shareholders continue to desert the stock with the trading near all time lows, what’s your view on the telco?
Paul Xiradis: Telstra’s again one of those stocks which disappointed I think and again because the uncertainty about Government intervention and also it being handicapped potentially with this rollout, which they’re reviewing and looking at as far as the NBN Rollout. But also what it is doing is taking a lot of time I think as far as management is concerned, they’re really you know, spending a lot of focus and a lot of time management in trying to resolve this issue. And as a consequence of that I think the rest of the business has suffered somewhat.It was clear in their recent reporting that they’ve gone backwards in a number of different areas which is quite disturbing as a shareholder, because not only are they being influenced by potential Government intervention, their core business is underperforming as well which is not a very good cocktail. So from our way of thinking its stock that we’ve avoided and will remain underweight.
Clive Tompkins: Paul thanks again for your views.
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