Update No. 23 – 4/09/11

The second month of the new financial year has been completed.  Wednesday saw a flood of profit results, as a lot of smaller companies released results detailing FY2011. The last day of August & the last day of February (and the first day of the next month) are the only days I look to the Small-Ordinaries index in comparison to the S&PASX200.  The reason being is that on these days, the flood of last-minute reporting from the smaller end of the market can sometimes move the Small-Ordinaries out of step with the ASX200 (which has usually substantially completed reporting beforehand).  This is not for the purpose of some ‘technical indicator’; regular readers will know I don’t care for technical analysis.  In my view, due to the disproportionate amount of late reporting from the small businesses in the Small-Ordinaries, and the way the market reacts to the results give me a feeling about how the smaller end of the market is doing (without reading every Appendix 4E).  Generally, the behemoths like the banks and the big miners are responsible for most of the movements in the indices, the only days we can notice the little guys in any significant way is when there is a flood of information.  So I generally feel that if the Small-Ordinaries is stronger than the ASX200 on these days, the little businesses as a whole are probably doing better (or giving upbeat commentary about the future) than the market was expecting.  We need to remember, however, that a lot of the businesses that report on these days are explorers and other highly speculative enterprises, profit & loss statements for these businesses are rarely a driver for share-price movements.

As for the comparison, the Small-Ordinaries was scarcely different to the ASX200 on Wednesday, up 0.8% compared to 0.6%.  So the little guys didn’t report any remarkably unexpected results as a whole.

Talking about the flood of reporting that accompanies the last day of reporting season gives me a chance to get on my soap-box over an issue that really irks me.  This is the reporting of price sensitive information during trading hours.  About 240 x 4E’s were delivered on 31 August; nearly half of these hit the market during trading hours.  Of all the market releases a company makes, probably the most important to an investor are the profit announcements, as they give investors the chance to understand how their company has performed in a given period.  In my view it is imperative these should be released out of hours, to give shareholders time to digest the information properly before acting on it.  Particularly for retail investors, who perhaps don’t have ready access to the market during market hours, it places them at a disadvantage, if the result is a good deal better or worse than the market expects, they are unable to react to the information as quickly as others.

As I mentioned last week, we had half of our holdings report this week (not part of the Wednesday flood, ours reported on Monday/Tuesday).  There was a couple of outstanding results, one about on par, and one that was a good deal weaker than I’d hoped, though the weaker than expected result can be clearly explained by revenues being delayed into FY2012, which should mean a good 12 months ahead.

The next 2 or 3 months will be very busy for me as I use the recent reporting season to refine my Intrinsic Valuations (IV’s) for those businesses I am interested in.  Five or Six months ago, I produced IV’s for 440 companies based on February reports.  I have trimmed my list down to 687 already, and by the time I get to reading some of their information, I will likely confirm that more than 200 of the 687 are still rubbish, and either can’t be valued or aren’t worth the effort – For Example, when I looked to see how many were on the list, I noticed Brisconnections (BCS) are on it.  Without reading their latest report, I can remember they have something like $3.5b of intangibles that relates to future cash-flows from toll-roads currently under construction (from memory there’s a 40 year concession to operate the roads).  I feel no capacity to place a value I could be happy with on this – which is the key asset of the company, with a couple of years traffic I could start to make an assessment, but for now, when I get to the letter ‘B’, BCS will fall off my list.  I will probably end up by late October with values on about 440 companies. Tony Hansen 04/09/2011

EGP Fund No. 1 Pty Ltd. Up by 0.00%, leading the benchmark by 6.88% since July 1^st. Since inception, EGP Fund No. 1 Pty Ltd is Up by 8.4%, leading the benchmark by 19.02% all-time (April 1^st2011).

EGP 20.  The EGP20 index is Down by 7.82%, lagging the benchmark by 0.94% since July 1^st.  Since inception the EGP20 is Down by 18.55%, lagging the benchmark by 7.92% all-time (since April 1^st2011).

S&PASX200TR  The benchmark index is Down by 6.88% since July 1^st. The benchmark is Down 10.62% all-time (since April 1^st 2011).