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Market’s 7-year itch
This week marked the seven-year anniversary since the Australian sharemarket reached an all-time high on 1 November 2007. The S&P/ASX All Ordinaries Index peaked at 6853 and today closed at 5522, still 19% off its high, seven years later. If we include dividends by looking at the S&P/ASX All Ordinaries Accumulation Index, it’s actually 8% higher. Over the last week in the US, stocks hit all-time highs, driven by positive employment data and hopes of further stimulus in Europe.
Locally, the RBA kept rates on hold on Tuesday, as predicted. This marked the fourteenth straight month of rates on hold. Mining stocks continue to dramatically underperform driven by weaker commodity prices and concerns over future growth in China. This financial year to date, the Small Resources Index is down 24%, whilst the broader market is up 3%.
Medibank health check
As many of you are well aware, Australia’s largest private health insurer, Medibank, is looking to IPO in the coming weeks. This will be the largest IPO since QR National (now Aurizon, ASX: AZJ) floated in 2010. Given retail applications close next Friday, 14 November, we thought it timely to make some observations about the company.
Medibank is the market leader with 29% market share in a country where 55% of the population have private health insurance. Medibank looks to be a strong future dividend payer with a target 70-80% payout ratio. We also note that Medibank’s sister brand AHM – Jetstar’s equivalent to Qantas – has been experiencing much higher levels of subscriber growth in recent years. This has been driven by aggregator websites, such as iSelect and Compare the Market. Other observations include that 22% of total group profit comes from investment income, driven by Medibank holding funds on behalf of policy holders and regulatory capital. Medibank will also be paying a $197 million special dividend to the government prior to listing.
The institutional offer closes on 20 November and we are continuing to do our research on the company.
Genworth: generally worth more
Mortgage insurance business, Genworth (ASX: GMA) published its third quarter results this week. The strong update included an upgrade to profit guidance to a new range of $250-$270 million of Net Profit After Tax (NPAT). This marked the second profit upgrade in its short listed life of only six months. Genworth is experiencing lower loss volumes across its book and is being assisted by the buoyant housing market. We own GMA in the investment portfolio.
Credit to Credit Corp
Debt collection business, Credit Corp Group Limited (ASX: CCP), held its AGM in Sydney on Thursday. The company upgraded its purchase guidance for debt ledgers and reaffirmed profit guidance for the financial year. The business has been a large beneficiary of consumers deleveraging over the past five years and shows promising growth prospects with its new lending business. CCP has been a stellar performer under the new management team who helped pick up the business after the GFC where the shares hit a low of 39c. This week the shares closed at $10.11. We own CCP in the investment portfolio.
In the media
Be sure to tune in to Sky News Business at 4pm on Monday, 10 November, where Senior Equity Analyst, Matt Haupt, will be discussing current market themes.
Upcoming Investor Roadshow
We will be holding investor presentations in Adelaide, Brisbane, Canberra, Melbourne, Perth and Sydney in November and December. We look forward to seeing you there. Please feel free to bring along anyone you feel will be interested in attending. To view the invitation, click here.
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