Centre Capital Blog

Limited time investment opportunity - take advantage before 30 June!

Tue, 19 Jun 2012 01:03:00 GMT

Current market conditions has created a compelling, limited opportunity that you can take advantage of before 30 June.

Tailor a low volatility portfolio using 100 per cent financing, and take advantage of the current combination of high dividend yields and low interest rates.

In this environment you can create an investment portfolio with potentially very low post-tax servicing costs, with limited recourse protection on the downside and unlimited participation in the upside performance of the underlying shares.

Current pricing: compelling breakevens

To illustrate current opportunities,workings of a five year cashflow including allocations to Westpac, Telstra, NAB and the MSI Cash Trust.

Portfolio interest rate of 8.47% pa (fixed for one year) versus a RBA deductible benchmark of 8.05% pa
Potentially very low post-tax servicing costs over the five year term after factoring in interest deductibility, distributions and franking credits received from the portfolio
Estimated average post-tax servicing cost of $981 per annum on a $200,000 GEI loan amount, based on starting assumptions
Therefore stocks only have to appreciate by 1.45% pa to breakeven
To look at this another way, if you invested in this GEI plus portfolio on 5 June 2012, and WBC, TLS and NAB returned to their closing share prices as at 30 April 2012, over the five year GEI term the investor would make a profit. And this is a scenario which includes one of those stocks, TLS, actually falling in value
No cap to the investor's upside.

Key features - take advantage before 30 June

Blend new unlisted managed funds into the portfolio to:
- enhance portfolio diversification and asset allocation
- lower portfolio interest rates
- reduce portfolio volatility
Tax certainty of an ATO Product Ruling - PR 2011/5³
Deductible interest costs up to the RBA benchmark rate (currently 8.05% pa)
Fix and pre-pay interest before 30 June (interest loan available)
Uncapped direct share ownership: access current improved dividend yields, benefit from franking credits⁴
access uncapped capital growth potential
Borrow 100 per cent of the initial investment amount
100 per cent capital protection throughout the term⁵
No margin calls

Please contact me on 1300 132 214 or by email to find out more about this offer.

Arena Office Fund Capital Raise Update

Thu, 14 Jun 2012 08:20:00 GMT

The details of the Arena Office Fund Capital Raise have been finalised and it looks like a great opportunity to claw back some value in regards to these investments due to a very attractive discount of 36% on our purchase price.

Please review the details on our website.

Should you wish you can contact us directly on 1300 132 214.

Cheers

Rob Coyte

Pardon?

Tue, 15 May 2012 00:25:00 GMT

Financial markets have not yet returned to "normality" as can be very readily seen in the following scenario.

There is a listed Investment company Premium investors ltd (ASX:PRV) that is current buying back its shares at a premium to the last share price. Yes that's right the shares are trading on the sharemarket at $0.65 but the company is offering to buy back from investors at $0.80 per share.

How is this possible?

A listed Investment company simply buys shares in other companies therefore it only owns shares which are themselves listed on exchanges throughout the world at a price. Therefore, in theory the share price of the Listed Investment Company (LIC) should trade at the market value of all the stocks it owns.

In this case it is trading at a large discount. The LIC can therefore sell the shares that it owns and receive funds which can then be used to buy back its own stock back of its shareholders for far greater than what the market is trading at providing them some liquidity at a "real" price.

Opportunity for a long term investor is to but a portfolio of shares for a big discount to the current value.

Bank practices during the GFC

Thu, 12 Apr 2012 00:23:00 GMT

Four Corners had a very interesting episode on last night dealing with banking practices during the GFC in particular BankWest which was formerly owned by HBOS (Bank of Scotland) click here to view

The behaviour of the banks collectively has directly impacted thousands of people around Australia. These people vary from small to medium size businesses, some of whose stories can be seen here, to investors in any property fund (such as Orchard) that was forced to sell assets at ridiculous prices at the height of the panic. Interestingly, these people are the same taxpayers who through Kevin Rudd provided the banks a life line and competitive position to be able to ride out the GFC storm.

There is currently a senate inquiry into the banking industry and its behaviour click here to view . I would suggest that those that have been effected ensure that your views and concerns are shared.

If you don’t do anything it is unlikely to wield any change.

Current State of Dividends for Shares

Mon, 19 Mar 2012 02:08:00 GMT

It is ultimately the dividends from our shares that give us an income stream to be able to fund our lifestyle. This income needs to grow over time as the cost of the goods and services we require rise with inflation.

What is the current state of the dividends from shares?

Howard Silverblatt, S&P’s senior index analyst announced recently that annual dividend rate of US$29.02 per index share the highest since June 2008 when it was US$28.96. With the GFC this figure fell 26 percent to US$21.44 in August 2009. It has subsequently risen 35 percent from that time.

According to Bloomberg, S&P 500 companies are paying out 30 percent of profits, less than the average of 52 percent. This means that actual dividend amounts have never been higher and companies are paying out proportionately less than they have previously providing a buffer for investors.

Are you Positioned To Take Advantage of Market Changes?

Fri, 09 Mar 2012 02:17:00 GMT

The last 4 years have been difficult for investors the question is how do we go forward?

Quite simply we can lick our wounds and crawl in the corner or we can get on with “moving forward” (copyright Julia).

If we choose the later than the question then becomes how?

At the moment for patient and astute investors there is a plethora of opportunity in the markets as the world struggles to grasp the current economic issues. As the markets sell off has been considerable this means that a lot of this “bad” news is already factored into the share price.

However, as an investor you have some doubts on how you can benefit. Where am I going to get the money from and am I taking on too much risk? If you decide that you would like to have a go then we can build a strategy around some very good products to manage the later. Importantly, all we need to participate is some free cash flow every month.

Please refer to our website for further information and please hurry as this opportunity will close shortly.

If the world financial markets are turning are you positioned to benefit?

Smart Money - Part 2

Thu, 01 Mar 2012 04:32:00 GMT

Following up from last week's blog on what the smart money is doing...

The major shareholder and founder of Billabong, Gordon Merchant, sent a letter to the board saying they believed a bid of $4 per share grossly underestimated the value of the company so they would not be engaged at the current bid of $3. It is believed that this has resulted in discussions ceasing on the matter. Back in 2007 the company had a share price north of $17 and a market capitalisation of nearly $4 Billion.

The company has sold some assets by way of selling a 50% stake in its Nixon business which will result in the receipt of some $285 million. These funds will be used to reduce the company debt which currently stands at $525 million.

Meanwhile, Singapore based Wilmar International Ltd., the world’s largest palm oil trader, bought a 10.1 percent stake in Goodman Fielder Ltd. for $115 million. Buying the stake in Goodman Fielder, which has local rights for Crisco oils and Newman’s Own salad dressings, increases Wilmar’s exposure to Australia after paying $1.75 billion recently for the nation’s biggest sugar company, Sucrogen Ltd.

Goodman Fielder shares, had a low of 39.5 cents in early Jan, and are now trading at 65 cents.

As reported in Bloomberg, Goodman’s second-largest shareholder through David Herro, Chief Investment Officer at Chicago- based Harris Associates LP,“At this price, we think Goodman remains substantially undervalued”.

The bid is “opportunistic”, Goodman Fielder spokesman Ian Greenshields said by telephone from Auckland when interviewed by Bloomberg. “Value lies well north of 60 cents,” he said. Goodman Fielder, whose brands also include Helga’s and Wonder White bakery, is trading at 6.63 times estimated full-year EBITDA.

When Business Are Cheap – Smart Money is Buying

Sun, 19 Feb 2012 23:42:00 GMT

Investors have been dealing with a lot of “big picture” issues. They have been following the Greece and European debt saga for nearly 2 years, we are also working through the inevitable hangover of the GFC and the fact the world economic growth has slowed. This has seen a reluctance for investors to be buyers in asset markets which when people invariably need to get out leads to softer and weakening prices.

This means that the underlying assets or business become cheaper.

As with all investing the decision to invest needs to reconcile what the value of the asset is “worth” to what it is actually trading at.

Invariably over its lifetime a business will have periods where it is struggling with certain factors or indeed dealing with undesirable issues the question invariably becomes when investors start selling the company when has it gone too far? The value as measured by the share market (price we can buy for) has gone beyond a “reasonable price” for that business notwithstanding the matters it may be faced with. This means opportunity.

At the moment a real life scenario is playing out with Billabong who has been looking at options for its balance sheet amid a collapse in earnings caused by stalling consumer spending in Europe and Australia and a surge in the Australian dollar.

Billabong reported a 72 percent slump in earnings, with net profit dropping to $16.1 million in the six months ended Dec. 31. Billabong have announced a wave of store closures for its global network which plans to cut $30 million from costs. This has seen Billabongs share price fall off a cliff from over $11 some 2 years ago to just below $2 at its low and dividends cut over this period. Just 2 years ago the business was valued at over $2.3 Billion and now about $500 million.

TPG Capital, the buyout company run by David Bonderman, offered to buy Billabong International Ltd. for $765 million or $3 per share on 17th Feb. This offer was some 68% premium to the previous day’s closing price. Naturally, after hearing the news the share price for BBG jumped quite quickly. “The TPG offer at $3 is quite opportunistic when you consider the value of the business and the value of its brands,” said Tim Montague-Jones, an analyst at Morningstar Inc. in Sydney speaking with Bloomberg. “I don’t think they would sell at $3 and it would have to be a lot higher than that.”

Prosper or Panic?

Thu, 06 Oct 2011 01:00:00 GMT

Well it appears that the financial markets are here to test us again. No doubt the very recent memory of the GFC is contributing to the fear that has overcome markets in the last few weeks.

According to Bloomberg around US $75 Billion worth of mutual funds were sold in the past 4 months a similar amount to that sold in the period of Lehman Brothers collapse.

So where is the market and what are investors doing?

Bruce McCain, manages US $22 billion told Bloomberg recently “When we’re getting close to a market bottom, the phone starts ringing off the hook and our clients want us to sell everything. Market bottoms are less about an improvement in the fundamental situation, whether the economy or outlook for earnings, and a lot more about getting rid of all the anxious investors.”

“The five months after Lehman were an epic buying opportunity, yet investors liquidated en masse,” Barish an investment professional who mnaages US $8 Billion told said. “Retail unfortunately tends to time things poorly. I don’t expect the current situation to be all that different.”

Where are the underlying fundamentals of the businesses?

Data compiled by Bloomberg show US corporations have been hoarding cash and paying down borrowings. The S&P 500’s net debt to earnings before interest, tax, depreciation and amortization ratio is down to 2.5 from 5 in the second quarter of 2008. Furthermore this year’s earnings will increase 18 percent to a record US$99.57 a share and break $100 next year. This means we have companies at their most profitable and with a strong financial structure (less debt) meaning we are getting an absolute bargain if you are a long term investor.

What is The World's Greatest Investor Doing?

Warren Buffet is not concerned about European debt as he believes it will have fallout but nothing like the GFC. He doesn't believe the US is going into a double dip recession and that a recovery is underway.

His company Berkshire Hathaway is buying back its own shares because "they’re undervalued", Buffett said. He was quick to point out this won't preclude them purchasing shares of other firms or entire companies, who told shareholders in his annual letter that his “elephant gun” is loaded. “If the stock is cheap we will buy it in. If it isn’t cheap we won’t buy it.” said the Oracle.

A Revolution Occurring?

Tue, 13 Sep 2011 02:35:00 GMT

An investor in the US, Southeastern Pennsylvania Transportation Authority, is looking to sue Goldman Sachs over their employee compensation schemes which rewards employees at shareholders expense. Goldman Sachs, the fifth-biggest US bank by assets, has lost US$50 billion in market value since 1999 while the company has paid out billions in compensation to the firm’s 31,000 employees. The lawyers remarked how “Goldman officials received billions in pay and bonuses last year while the firm settled claims by the U.S. Securities and Exchange Commission that executives misled investors in collateralized debt obligations linked to subprime mortgages”.

According to Bloomberg, Goldman’s set a Wall Street pay record in 2007, and was subsequently “pilloried by politicians and labor unions for its compensation practices after getting taxpayer aid during the financial crisis”.

It is hard to imagine how employees of banks who have lost billions in capital for their owners and sent the world to the brink of disaster forcing governments to bail out these banks for their misdeeds have been eligible for “bonus” payments. I can’t see how they keep their job yet alone the former.

However, is this a sign that maybe people are starting to have enough?

I have long believed that fund managers or mutual funds in the US have taken a way to passive role in the governance of senior management. They effectively let them get away with whatever they want surely part of the fund managers duty is to scrutinise the reasonableness of staff remuneration the same way they would if THEY owned the business. Clients in fund managers are paying fees and the fund managers should be earning those fees on the governance side by holding senior management to account if actions are not in share holders interests.

How to Pay Off Your Mortgage

Mon, 05 Sep 2011 03:59:00 GMT

The most common mistake I see as a financial planner is the strategy that people employ to reduce the mortgage on their house. It is natural to want to live in a house that you own and be debt free. After all once you repay the debt you don’t have any more monthly loan repayments.

However, the most common way that people go about this is to try and pay back the debt as quickly as possible from their wages. This is unfortunately the hardest way to go about doing this given the nature of how our tax structure works.

Lets also take a look at your monthly budget. Your loan repayments, be they principal or interest are only a small part of your expenditure requirements. The rest is made up of food, clothing, ever increasing electricity bills, running cars and all of other our activities that we need or enjoy.

This being the case the notion of financial security depends on 2 things; being able to own your house debt free but also being able to have enough passive income to cover your living requirements. Therefore, if we are focusing purely on the paying off your house debt then we are only addressing part of the problem. This is why I see people who think they are ready to retire and they proclaim "we own our house” only to be bitterly disappointed when they realise they cannot afford to stop working as they still need to earn an income to fund their lifestyle.

What is required

You need to come up with a holistic strategy that will encompass all of your goals that you need to achieve. With the help of our expertise in taxation and finance we can then help you design a strategy that will achieve all of these goals in the quickest possible fashion. This is really a case of working smarter not harder, don’t struggle on the steps for 30 years when we can take an elevator and dramatically reduce the time but also improve the outcome.

The Inside Job - Film Review

Fri, 29 Jul 2011 05:13:00 GMT

I watched this film last night and it was a good overall package describing what happened during the Global Financial Crisis (GFC). Whilst there were no new discoveries the film does provide a good overview for the lay man to explain what went wrong.

It really focuses on the fact that the whole finance food chain is broken and is in desperate need of reform. It also makes the statement that Obama will not be able to deliver the needed reform as he has engaged “current players” to be important members of his staff.

The ineffectiveness of regulators and politicians is a focus of the film. You could even draw a longer bow and say they knew what they were doing and profited themselves. The same can also be said about the academic’s who offer “unbiased” advice and the absolute ineffectiveness of the credit ratings agency’s who got it so wrong. By the time you finish listening to their disclosure and what they are assessing you can see that it is an absolute waste of time paying any attention to anything they say.

The world continues on.

Do you realise that the people that caused the heartache of the GFC have all got away with the money they have stolen? Not one has been jailed or told to give back the money. It has been such a huge transfer of wealth to the rich that effectively figured a way to steal from the poor.

Valuations Determind Long Term Value Not Sentiment

Thu, 21 Jul 2011 14:00:00 GMT

The old saying you make your money when you buy not when you sell is absolutely true. Guess what we are right now in a very exciting time for long term investors.

Last week I read a Bloomberg article discussing the fact that US equity valuations “were stuck at near credit crisis levels”. The article also went onto say that companies were going to increase their profit by 19% in 2011. The article goes onto say that the earnings growth is back in line with long term averages however the index is trading at 13.5 times earnings which is roughly 8% discount to the long term average.

What does this mean...quite simply? The operational performance of the companies is back to “average” however from a valuation perspective investors can acquire these businesses for less than they could on average in the past.

I believe that nothing short of “new” economic dangers surfacing that ceteris paribus this valuation effect could lead to a rise in markets.

US Economy – World’s Greatest Investor Speaks his Mind

Mon, 11 Jul 2011 02:20:00 GMT

There has been financial markets action that suggests that people are indeed concerned with the direction of the US economy. These concerns were reinforced last week with economic data showing the unemployment rate had grown to 9.2% as the US economy only added 18,000 jobs last month. Any continued weakness in the job market will adversely impact upon the levels of consumer spending.

Billionaire Warren Buffett said he is wagering on continued US economic expansion and he doesn’t expect a second recession. Buffet told Bloomberg Television’s Betty Liu on the “In the Loop” program, “How fast the recovery will come, I don’t know. I see nothing that indicates any kind of a double dip.”

Concerns for not only US economic growth but also world growth have resulted in share markets all over the world falling.

As long term investors what should we be doing?

The Google Index

Wed, 06 Jul 2011 07:01:00 GMT

I have been saying that the direction of the Australian economy is very dependent on the events that unwind in Asia predominantly China. These countries are fuelling our resources sector as they demand more and more.

Well guess what we are in the age of new technology so maybe we need to start looking at new economic indicators. The most famous economic indicator drawn from everyday life is the “Big Mac Index” which compares the price of the very famous burger in different currencies. This measures, however crudely, the difference in purchasing power of different currencies.

However, maybe we need to be considering the “Google Index”.

According to a recent article by The Economist, It appears that many Chinese are now concerned with the implications of their economic position if the frequency of the Chinese equivalent to “Hard landing” and the amount of times it has been searched in Google is any indication.

Has Australia utilised these good times in regards to establishing ourselves for post resources boom? Or will we look back and think what a wasted opportunity?