subject: Managed Accounts Share Trading Investment Notification - Purchase Of Wow [print this page] We were reading with interest an article printed in the Criterion Column of the Australian newspaper on February 11 about Quickstep, our long term investment (QHL).
They identify the company as having excellent long term growth potential and rate it as a buy. Interestingly, they also mention that the recent share price weakness can be attributed to selling from a United Arab Emirates shareholder (the one who took up a convertible note at 20c per share) who seems to have gotten themselves into some financial strife. Originally, their intention was to remain a long term shareholder however it seems that circumstances have changed.
"The feeling is that the investor has - or has almost - completed the selldown." Writes Tim Boreham of The Australian. The point is that once this selling is completed we should see another strong jump in the share price.
We also took the decision on Friday afternoon to purchase shares in Woolworths Limited at around $25.56 per share for 15% of the portfolio. This purchase takes us to 50% invested, which we would like to remain for the time being unless the market falls any further.
Our rationale for this purchase was two fold. First, with the market having fallen 10% from highs and now trading below its long term average PE ratio, there is every possibility that in the medium term we will see a recovery across our market based on valuation. There is also a short term recovery possible in world markets based on the 'assistance' offered to Greece in Europe. If we are correct in our assumption and markets rally, we will be invested enough to benefit from that rally. However if we are incorrect and markets continue to fall, we will be protected from the downside by the quality of the shares we have purchased, and we will have half the portfolio remaining in cash to deploy into still cheaper stock.
Secondly, Woolworths has historically traded on a PE approaching 20 times. It has commanded a premium particularly because of the duopoly position it shares with Coles supermarkets in Australia, and because of the management, which have always been very strong. With the share price having moved sideways for four years now and with rising profits, the PE ratio is down to 14 times on this year's numbers, and the dividend yield a healthy 4.3% on todays price.
Speaking of dividends, WOW pays it's next div in March of around 56c, and with a purchase price around the low point of its wide range, we see upside of 10% to $28.00 plus the dividend within 12-16 weeks. WOW is not a volatile stock, and as such is low risk in the context of the equity market and so we are confident to hold this share trading investment for the medium term.
You will receive notice in the post of your purchase from the registry, and I suggest sending back your Tax File Number on the notification form if you would like to receive the dividend without further tax taken out.
If you would like to speak with me about anything at all, please call the desk.
by: Hayden Kerr
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