Miss Universe shares
by Peter Switzer
It’s sometimes argued, especially by some women, that some men don’t think with their brain but some other organ! This terribly unfair accusation crossed my mind when I saw that Myer’s upcoming prospectus was fronted by our beauty queen Jennifer Hawkins.
Around the same time I could not help thinking about what the late Rene Rivkin taught me about investing. Among many direct lessons he shared with me in various interviews in the years before the world became very dramatic for him, he taught me a thing or two about how to think about a company and its underlying shares.
All this coincides with the stock market defying gravity while investors have had the challenge of getting their head around the Government’s gatecrashing of Telstra’s ‘party’ and the chance to buy into Myer when it’s soon refloated on the market.
The Myer story
Let’s take Myer first. Once owned by Coles Myer when Coles was sold to Wesfarmers, the Myer department store division was sold to a private equity mob called TPG.
As a private company and free of the dopes who used to run Coles Myer, the Myer business has improved. But is it a good buy as an IPO or initial public offering?
Department stores have had a hard time as specialty stores have taken a lot of the old cream that these businesses used to lap up. Some 25 years ago department stores took 14 per cent of the retail dollar and now have fallen to eight per cent of consumer retail spending. On expected float price and predicted P/Es around 16, this Myer deal could be priced at the high end and investors need to show caution. A P/E of around eight or 10 might be a good buy, but a P/E around 16 might be a case of goodbye. Its picture has been made prettier by the market rebound and the fact that the Aussie economy has dodged the recession bullet.
The Telstra situation
Similarly, the Telstra deal could be a trap for young and even old players. The weekend close for the telco was $3.2 but a number of hotshot equity analysts have tipped the company could be heading to $4.50! If you add in the usual 28 cents dividend, which some experts say can be sustained, the company looks like a hold for existing shareholders and a good speculative play for investors.
(This dividend question is an important one with some analysts saying it could increase thanks to any Government compensation to the company that flows from the virtual takeover.)
Some analysts think the Government’s interference will cost shareholders dearly but I doubt a Government heading for an election can afford to offend 1.8 million retail investors in the telco by slugging them unfairly.
I don’t know about Telstra but certainly the reasons to buy certainly stack up well against reasons to sell.
The Rivkin question
The Rivkin question about both shares would be: “Are there better companies for your money?” Buffett always says if you don’t understand it then don’t buy it and both companies look to be of head scratching material.
After tipping a very expensive share, I once asked Rivkin for a share more priced for the mums and dads. He pointed out that the share price is irrelevant but what is important is the expected percentage rise in that price.
The point is that if you buy a cheap $1 share with $100,000 and it only rises by 10 per cent then you make $10,000. However, if you buy a $50 share, which rises by 20 per cent then you make $20,000 on your money invested.
The bottom line is to understand the investment and think about what is the likelihood of an attractive return, not how attractive the prospectus’s showpiece.
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Published on: Tuesday, September 22, 2009blog comments powered by Disqus