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Chorus (NZX: CNU) $3.32 BUY

We last recommended Chorus on 23 November 2011 when it was just about to list. Investors who bought then at $3.00 are now sitting on a 10% capital gain and a gross dividend yield yield on cost of over 11%.

CNU is New Zealand's largest telecommunications utility company which provides voice and fixed broadband services to 90% of the market, boasting a near monopoly position.

CNU demerged from Telecom NZ on 30 November 2011 as a condition of it participating in the Government's Ultra Fast Broadband (UFB) initiative. Eligible Telecom shareholders received CNU shares at a ratio of one Chorus share for every five Telecom shares held.

Growth: $1.35 billion Government Ultra Fast Broadband Initiative

CNU will play a leading role with government owned Crown Fibre Holdings Limited (CFH), who will invest $929m in CNU to fund construct the Government’s ultra-fast broadband (UFB) initiative worth $1.35bn which aims to be accessible to 75% of New Zealanders by the end of 2019, whilst maintaining its existing copper network. CNU is well positioned to capitalize on the UFB rollout and execute successfully given its proven management in rolling out large networks.

Future Shareholder Returns

Our Analyst expects CNU to add value to shareholders through a mixture of capital growth and dividends and to report well in its first result for the 7 months to 30 June 2012 around August 2012. The market anticipates an update from CNU around March/April. Future shareholder returns including dividends will be underpinned by the UFB rollout.

7.5% Cash Dividend Yield and Attractive Valuation

CNU is currently valued at ~$4 per share. The average analysts’ Earnings Per Share (EPS) estimate is 51.3 cps, which means at the current price of $3.32 the stock is trading at a forward PE of 6.5x which is a low multiple relative to the utilities sector.

CNU’s earnings and cash flow are expected to be stable and hence CNU’s initial dividend policy of 25cps (from year to June 2013) will likely to be sustained. This would mean the stock is trading on ~7.56% cash dividend yield (before imputation) at the current price which is very attractive from a dividend payment point of view.

Bear Points

CNU’s beta or business risk is higher relative to its peers and currently has a S&P BBB/Stable credit rating. If at any time CNU’s credit rating falls below investment grade while CFH Debt Securities remain outstanding, CNU is prohibited from paying dividends.

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Investor Alert: Newcrest Mining - January 2012

The following information is general in nature and not personalised. We have not taken into account your goals, risk preferences or personal situation. 

Newcrest Mining LogoNewcrest Mining (ASX:NCM)

Quality low cost gold producer with growth and strong exploration upside.

NCM is the leading ASX listed gold company.

What we like about his company?

  • Nearly half the assets are Australian based with low sovereign risk.
  • Low cost addition of new gold and copper resources and reserves driving increased production.
  • The exploration record over the last two decades underpins a superior historical return over global peers.
  • Many offshore peers trade on loftier multiples.

Good entry price?

The 12 month price range has been $29.60- $43.71

NCM last traded AUD $31.94. thus close to the lower end of its 52 week range.

Shares in Newcrest Mining represent a leverage opportunity to further upwards movements in the price of Gold.

Recommendation: BUY

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Mykris Limited

Picture of Brent King

IRG is pleased to be the sponsor of this years first sharemarket listing

Company: Mykris Limited

Issuer Code: MYK

Short Name: Mykris

Registered Office: Level 10, Swanson Towers, 20 Hobson Street, Auckland

Postal Address c/o Forest Harrison, Level 1, 18 Shortland Street, PO Box 828 Auckland

Telephone: +64 (9) 308 0080

Nature of Business: Mykris, through three wholly-owned subsidiaries, offers internet access services, application software development and IT-based products and services

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Fortescue Shows Steel - BUY

Fortescue Metals Group LogoFortescue Metals Group Ltd (ASX: FMG)

  • One of the world's leading producers of iron ore.
  • Major player in the Pilbara region which is widely regarded as the world's best area for iron ore.
  • Fortescue consistently adds over a billion tonnes per annum to its resource portfolio.

Why purchase now?

  • FMG appears cheap on fundamentals.
  • Demand for product remains strong, FMG is selling every tonne of iron ore it is able to produce.
  • Average iron ore selling price remains firm despite the European debt crises headwinds.

Good Entry Price?

Current prices are a good entry level as they are near the bottom of their 52 week range $4.06- $7.27

Status- BUY

Last traded AUD $4.69

Price target AUD $9.00

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Investor Alert - Chorus Opportunity?

Chorus LogoTelecom NZ has recently demerged into 2 companies. The Demerger has created two independent listed entities. The new Telecom & Chorus. Both will be dual listed on the ASX and the NZX.

  1. Chorus – The largest telecommunications infrastructure business in NZ with a current 93% market share of fixed line access market.
  2. Telecom (post demerger) – NZ's leading telecommunications and IT services provider with #1 and # 2 market positions across all key markets.

Chorus shares begin trading on the NZX today, 23rd November. In the demerger current Telecom investors receive 1 Chorus share for each 5 existing Telecom shares. Chorus will not be included in the MSCI World Index. Chorus' exit from this index occurs on November 23rd which, we believe, will likely trigger forced selling from shareholders who track the MSCI World Index. In our view this potentially creates a one-off opportunity. If the Chorus share price sells off down to levels at or below $3.00, then the following benefits become available to buyers:

  • Attractive Dividend Yield: at $3.00 a share Chorus would have a Gross dividend yield of 11.6%. At $2.70 a share Chorus would have a Gross dividend yield of 12.9%.
  • Potential Capital Gain: on current research analysis our 12-month valuation for Chorus is $3.95 per share. However, we would not expect the valuation gap to close in the short term as it may take a while for the market to fully understand the model for Chorus' business.

Telecom LogoIn summary, this is a dividend yield play with the potential for some capital gains over time. The key risks are around line losses given high operating leverage of the Chorus business.

If this potential opportunity sounds like something you would be interested in ring Jonathan or Andrew on 07 578 3863 and we can discuss further. For your information the window when the opportunity may occur is in the last 30 minutes of trading before the market close today.

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Investor Alert - Chorus Update

Chorus LogoTelecom NZ recently demerged into 2 companies. The demerger created two independent listed entities. The new Telecom & Chorus. Both are now dual listed on the ASX and the NZX.

  1. Chorus – The largest telecommunications infrastructure business in NZ with a current 93% market share of fixed line access market.
  2. Telecom (post demerger) – NZ's leading telecommunications and IT services provider with #1 and # 2 market positions across all key markets.

In the demerger current Telecom investors received 1 Chorus share for each 5 existing Telecom shares.

Chorus shares began trading on the NZX on 23rd November closing at $3.21 on the first day and subsequently have traded as high as $3.31.

At the time of the demerger we knew Chorus would not be included in the MSCI World Index (as Telecom was). We thought this would be likely to trigger forced selling from shareholders who track the MSCI World Index and this would likely create a one-off opportunity. As it happened demand exceeded supply and the initial price was higher than we expected.

On the 2 December S&P Indices announced changes to the S&P/ASX 200 Index as a result of its quarterly review. The changes will see Chorus removed from the S&P/ASX 200 Index effective December 16 after the close of trading.

It appears that this announcement may have been the catalysts for a sell off in Chorus and the shares have traded down to as low as $2.95 recovering to $3.03 yesterday.

With the Chorus share price down at levels at or below $3.00, then the following benefits become available to buyers:

  • Attractive Dividend Yield: at $3.00 a share Chorus would have a Gross dividend yield of 11.6%. At $2.70 a share Chorus would have a Gross dividend yield of 12.9%.
  • Potential Capital Gain: on current research analysis our 12-month valuation for Chorus is $3.95 per share. However, we would not expect the valuation gap to close in the short term as it may take a while for the market to fully understand the model for Chorus' business.

In summary, this is a dividend yield play with the potential for some capital gains over time. The key risks are around line losses given high operating leverage of the Chorus business.

If this potential opportunity sounds like something you would be interested in ring Jonathan or Andrew on 07 578 3863 and we can discuss further.

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Investor Alert: Newcrest Mining - October 2011

NEWCREST MINING (ASX:NCM)

RECOMMENDATION: GROWTH BUY

SHARE PRICE: A$35.87 (as at 10 Oct 2011)

Our preferred gold miner. Well leveraged to gold price. Strong reserve growth and cash generation. Robust balance sheet. Good geographic and mine diversification. Impressive growth outlook.

The recent pullback in the gold price from US$1,920oz to US$1,650oz provides gold bugs with a buying opportunity in the precious metal, which some investors believe will head towards US$2,500oz and beyond, as European sovereign debt issues and global uncertainty persist.

Gold mining shares are one way of accessing the gold sector and Newcrest Mining (NCM) is Investment Research Group's (IRG) preferred exposure to gold. NCM is the world's fifth-largest gold miner by production, and has since completed the acquisition of Lihir Gold in August 2010. While the PNG gold assets of Lihir raise the operational risk, NCM is still the premier gold stock on the ASX.

Newcrest had a transformational financial year in the year to 30 June 2011 with the successful acquisition and integration of Lihir Gold, a good operational performance, strong reserve and resource growth and solid progress on development projects. These results culminated in record net profits, strong cash flows, a final dividend of 20 cents and low gearing.

Underlying Profit of $1.05 billion was an increase of 36% from the corresponding year. The Statutory Profit increased by 63% from $557 million to $908 million. Gold production of 2.52 million ounces was 43% higher than the corresponding year. Copper production decreased from 86,816 tonnes to 75,631 tonnes, with lower production from Cadia Valley and Telfer.

The average price for all metals increased sharply in US$ terms, with gold rising to US$1,360/oz (2010: US$1,106/oz) and copper to US$3.88/lb (2010: US$3.02/lb). The corresponding impact on A$ revenue was reduced somewhat due to the increasing strength of the A$ versus the US$.

NCM will benefit from a rising gold price and its balance sheet leaves it in good position to make further acquisitions and fund growth.

Investment Research Group (IRG) views Newcrest Mining shares as a GROWTH BUY and the shares can be used as a hedge in the portfolio, for when markets turn south. NCM generally tends to outperform the market when the frequent sell-offs occur as investors tend to rush to gold as a form of safety.

There are other gold investment options available on the ASX such as gold exchange traded funds (ETFs) including an AUD hedged gold ETF for more 'pure' gold price play without taking on gold miner's business risk and reducing AUD/USD exchange rate risk.

Below is a 5-year NCM chart (in blue) relative to the spot gold price (in black) and the S&P/ASX 200 (in green):

Newcrest Mining Share Price Chart

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Will BHP & RIO Outperform?

In early October 2011, our friends at First NZ Capital Securities Limited released research from their associates at Credit Suisse on two of the major Australian resource stocks, BHP Billiton and Rio Tinto, rating both as "outperform".

If you would like further information on either of these stocks please call Andrew or Jonathan on 07 578 3863.

BHP Billiton (BHP)

Upgrade to Outperform on attractive valuation, recent underperformance and defensive characteristics. Credit Suisse view the shares as undervalued, trading at around 45% discount to DCF valuation and a 2013 P/E of 6.5.

They feel BHP should begin to trade on fundamentals as a relatively defensive mining stock with Tier 1 assets. BHP has the greatest earnings diversification and highest margins of the large cap miners, and, therefore the most secure earnings/ cashflow stream should commodity prices weaken further.

At the time of the report, 4 October 2011 BHP were trading at AUD$ 34.14.

Rio Tinto (RIO)

RIO remains Credit Suisse's top mining pick for its best in class balance sheet, exposure to strong iron ore prices and its willingness to return capital to shareholder (PLC buyback). World's second largest supplier of seaborne iron ore, with production costs some 25%of the current spot price, Credit Suisse expects RIO to continue to ship very profitable tones of iron ore irrespective of spot prices.

At the time of the report, 4 October 2011 RIO were trading at AUD$ 59.00.

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