Periodo de generación del incremento

Good morning,

What’s catching my eye?

1.

Dow Jones Industrial Average @ all‐time high↑ 

2.

S&P500 @ all‐time high↑ 

3.

NASDAQ up 8 sessions in a row↑ 

4.

VIX @ 14.30↓ 

5.

AGB 3yr yields @ 1.86%↓ 

6.

Sydney weekend auction clearance rates @ 87%↑ 

7.

Crown’s (CWN) domestic VIP revenues↑ 

8.

Servcorp’s (SRV) earnings growth↑ 

9.

Telstra’s (TLS) 4GX network↑ 

10.

Super Retail Group’s (SUL) sales growth↑ 

11.

SUL’s 16.6% open short↑ 

12.

Fairfax (FXJ) buyback↑ 

13.

Macquarie Group’s (MQG) operational update↑ 

14.

WTI Oil @$50.81bbl↓ 

15.

CSL back above $90.00↑ 

16.

Virgin Australia (VAH) making a 1H profit↑ 

Last week I sat down with one of Australia’s greatest investors, Kerr Neilson, founder and CEO of Platinum Asset Management (PTM). Over the last few years, due to a top down bearish view of the Australian Dollar combined with a view of relatively weak Australian economic growth, I have encouraged all investors to “lose the home bias” in terms of asset allocation. That advice has been correct and in the wide-ranging discussion that is linked below Kerr Neilson further explores the opportunities in global markets at this point in time.

The interview below plays on YouTube for roughly 20 minutes and I encourage you to view it when you have a spare 20 minutes. PTM shares fell -12% on Friday after reporting 1H earnings. I’d also be encouraging you to take advantage of that trading pullback and collect the 27c in interim and special dividends that have been declared (ex 2nd of March). PTM will pay another 20c dividend in August taking the prospective 7 month yield to 47c or 5.90%. As you can see from the CSL and IAG recoveries from knee-jerk one day results reactions, quality stocks don’t stay down for long. PTM remains in my high conviction buy portfolio.

At the macro level I remain bullish on listed fund managers as equity markets make fresh record highs. With the return on cash likely to remain low for an extended period, equity fund managers can expect further inflows from retail investors. With relatively fixed cost bases, fund managers have good operational leverage to increases in FUM, both market driven growth in FUM and inflow driven growth in FUM.

In my high conviction portfolios we recommend holding Macquarie Group (MQG) who smashed through my $70.00 target price, AMP (AMP), Platinum Asset Management (PTM), Magellan Financial Group (MFG), Challenger (CGF), IOOF (IFL), Perpetual (PPT) and even the stock exchange itself in ASX (ASX).

If I am proved right about my macro views on cash rates then these listed fund managers have many years more of outperformance to come as investors abandon cash.

When it comes to ASX listed fund managers to two top 20 plays are MQG (1.56% of ASX200) and AMP (1.33% of ASX200) . Today I want to focus on AMP after last week’s FY14 results.

Let’s start at the top: the 17 year downtrend in AMP shares has broken.

This long-term downtrend break makes perfect sense when you take into account that AMP is now (finally) showing leverage to the structural growth theme known as compulsory superannuation.

However, despite the operational improvements (off of a low base), AMP remains under-earning and under-valued vs. it’s potential. Last year I called AMP “the Coles Myer of financial services” when analysing the logic of Wesfarmers bidding for AMP. I remain of the view that AMP is the Coles Myer of financial services and AMP should take that as encouragement because we can all see the value that has been created by WES in turning around Coles.

In my opinion AMP remains the ONLY ASX20 stock vulnerable to takeover. Whether it’s WES, Japan Inc., a US fund manager or private equity, Australia’s 2nd largest FUM fund manager remains a classic takeover target despite the share price recovery from recent lows.

Don’t get me wrong, new CEO Craig Meller and new Chairman Simon McKeon are doing an admirable job turning AMP around organically, but to me that makes it an even easier takeover play because its cleaner and giving a potential buyer the ability to split AMP up into the pure play, massive scale, wealth manager that could be so valuable. If I had $20b I’d bid for AMP myself: that’s how big an opportunity there still is in AMP despite the recent share price rise.

AMP (a calendar year reporter) has good momentum coming into 2015. 2014 underlying profit rose +23%

There was double-digit growth in all contemporary businesses.

Solid net cashflows in wealth management and a $4.8b improvement in AMP Capital external net cashflows Cost to income ratio down 4.6% to 44.8%

Surplus capital of $2b

Underlying ROE +2% to 12.7% Gearing 10%: interest cover 14.6x

It’s worth noting that the AMP FUM positions were as at Dec 31st 2014 and as we all know since then global equity markets have done this in AUD terms

Dow Jones

It would be fair to assume AMP’s FUM has advanced solidly in the first two months of 2015 from both market movements and inflows. To me that simply means AMP is earning management fees from a higher FUM base and the stock will remain in an earnings upgrade cycle for 2015 as analysts chase the share price higher.

As has been the case in Telstra (and QANTAS), AMP analysts have been broadly underweight/neutral the whole way up. That remains the case today with the BUY/HOLD/SELL ratio at 3/10/4 and the median 12 month price target recently upgraded to $6.54 from $5.83 before the FY14 earnings surprise. You can see that in the yellow line below.

In terms of our own forecasts we see another two years of double-digit EPS growth and associated dividend growth.

AMP remains a self-funding call warrant on rising equity markets, the dash from cash, compulsory superannuation and potential M&A activity.

AMP are cum the 13.5c (80% franked) final dividend until March 3rd. We then forecast another 29c of dividends in 2015, taking the prospective 13 month yield to 42.5c (80% franked). At the current share price of $6.63 that equates to a prospective 13 month gross yield of 6.41% (80% franked).

Over the last few years we have done well from AMP shares as a turnaround play. It is very similar to Telstra. However, just like TLS I am going to let this winner run as it starts to generate the earnings and dividend growth it should have over the last decade.

Similarly, with the scrip of potential acquirers also being re-rated do not rule out one morning coming in and seeing AMP has been bid for. Just to remind you below is a long-term common performance base chart of Wesfarmers (WES) and AMP (AMP). Only +720% outperformance in the period! (before dividends and franking credits).

On the basis that AMP now has multiple earnings and valuation tailwinds I reiterate our view that AMP is a high conviction buy and set a medium-term price target of..

$8.00

25 FEB