The following is a summary of content and answers to each question asked in Virtually Live episode for January 23. It also includes links to the relevant articles have been included...
Apologies for any inconvenience caused by the technical issues related to audio quality of the Virtual Live episode for January 23.
Introduction commentary
A note to all clients, William O’Loughlin has left Rivkin and Thomas Brunton will be stepping in moving forward.
Now to the markets. Over the week we saw domestic and global markets alike experience moderate swings as reports of the coronavirus began to circulate. Despite the somewhat dramatisation of the news markets moved along and sustained minimal declines as WHO authorities showed restraint and China responded at pace and with transparency until the 2003 SARS outbreak. Tension related to global trade relations appeared to dissipate as markets put the US-China trade war in the review mirror.
President Trumps impeachment trials appeared to have little impact, and ‘current expectations’ are that the US elections will have minimal impact on equity markets.
Is it time to sell?
Arguments to suggest it is a good time to sell that relate to current P.E multiples don’t necessarily stand up when one reflects on the state of global equity markets. To quote Kerr Neilsen, trying to pick the top of the market instead of investing for the cycle brings with it risks of missing out and over the long run this can be detrimental. In 2018, when markets were stagnating slightly below 6,300 the overwhelming argument was that perhaps markets had reached their peak. Had you acted on this argument with limited reference points, outside of GFC highs, moving forward you would be have missed out on an additional 900 points or 1,400 points from the December lows that followed four months later. Corrections are a part of the ride and Rivkin strategies are intended for the long-term with expectation that such events will occur.
Right now, we are facing unprecedented times where we face low interest rates and low inflation. Bonds aren’t paying, cash isn’t much of an option so there are limited investment options, which is forcing more investors towards equities. Long-term growth is being priced more favourably and P/E ratios are now at levels that cannot be compared accurately against historical levels.
Note to listeners: the above commentary related to P/E ratios, Kerr Neilsen and long-term conditions are described in detail in the following article, please click here
Questions time
Question 1: Patrick from WA asks;
Hi Team, would you be able to give your opinion on IVE Group (IGL) as a reliable dividend stock?
Answer:
IGL is a fairly innovative company that is adapting well to the changing digital landscape, which some media companies have struggled with over the past 10 years.
Its current dividend yield sits at 6.7% and since 2016 dividends per share have risen from 8.6% to 16.3% (2019). The next ex-div date is expected early march following half-year results February 26.
The main focus right now is the recent purchase of Reach Media and Salmat Marketing in New Zealand. The acquisition was completed earlier this month and cost $25m and an additional $25 to $30 million is going to be used to automate the division. It is expected that both will generate earnings in FY20, and the purchases were also funded with debt, which might indicate short-term dividends are safe, but consideration of debt levels should be considered as time goes on. IGL has maintained a good balance between growth and dividend payments, but short-term and long-term debt analysis would help determine how stable future payments will be.
Looking at its payout ratio, which is sitting at 77%, we can see this is reasonably high and to add to that dividends paid over 2019 represented 94% of free cash flows. Despite this, dividend forecasts still sit at 17 cents in 2020 and 19 cents a year later. For this reason, investors should pay close attention to their next report to gauge the accuracy of these forecasts.
Once again debt levels and their ability to sustain vertical integration are two areas I would assess when making any significant investment decisions. Another consideration should be franking levels, they are 100% right now but the acquisition of the two NZ based companies pay impact that level as well.
Question 2: Paul from NSW asks;
Hi Team, could you please give some information about QMS Media Ltd Scheme Meeting and how to vote?
Answer:
An update on this Event trade was sent out via email and to view the full article, please click here
When moving into this position there was a good chance for further sector consolidation as QMS was the last standing single name. The litigation between QMS and John Singleton reduced the odds of bidding tension. Despite this a small arbitrage will likely be achieved.
With the general meeting set for February 6, now is a good time to get voting under way. If you would like to do so, please click here via the Computershare portal.
Question 3: Bruce from NSW asks;
Hi Team, could you please provide your opinion on OMN?
Answer:
an in-depth answer to this question was provided in the most recent update via the Event Trade page. To view this article, please click here
Closing note
Once again, we apologise for any inconvenience that resulted from the audio quality and the issue has since been fixed.
Kind regards,
The Rivkin team
