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Companies of the future

Shares expert Simon Bond, partner at ABN AMRO Morgans and expert on returns to help Peter Switzer discuss the companies of the future to put together the perfect portfolio. It appears that online companies are emerging as strong contenders.

Bond says given the company earnings reports so far in Australia, the outlook is positive.

“So far we’ve seen 24 companies that have reported their profits. Since they have reported, eight are down and 16 of them are up. So if we look at the glass half full rather than half empty scenario, we’ve got some more positive news to look forward to.”

Companies that have “flawed” Bond with their company reports include JB Hi-Fi, which reported a 45 per cent net profit for the last financial year and are looking to grow 20 per cent over 2009/2010.

“I have had this company so far wrong,” he said, adding that it was thought that everyone is going to downloading songs over the internet.

“People are going to be spending less, yet [JB Hi-Fi] continue to deliver the goods,” he says. “All of a sudden, they’re busy, they’re looking to roll out 50, 60, 80, 90, 100 new stores, so growth is good.”

Bond says he has watched the company’s share price increase significantly from eight dollars and “it looks like next stop is $20.”

Come fly with me

Flight Centre also said things are looking up for the next year.

“The share price was up 20 per cent, and this is an environment where people are saying ‘no one’s travelling business class, people are going to be doing video conferencing’, yet Australians continue to travel and their business is much more buoyant,” he says.

People have been saying not to invest in insurance or airlines, or anything to do with travel, Bond says, but recently confidence has returned. Online travel company Webjet released “fantastic results last week”, and Bond reckons its their technology which sets them apart from the rest.

“The technology is allowing these companies to do some really cool and interesting stuff,” he says.

More positive reports came from Reckon, a group of companies which includes Quicken and Reckon Esperon.

Online performers

There appears to be a pattern forming, and that is online companies are becoming more prominent.

“One thing I can sit here and I can tell you for certain. What we’re seeing is continual migration to the online world,” says Bond. “These are companies that might not necessarily have to sell you the shrink wrapped box in the future. You’ll be able to go online, download the updates, purchase things online.”

He adds that Ebay, with their Paypal business is another example.

“All of a sudden the costs come down for companies like Reckon because they don’t have to produce these shrink wrapped products. You can do all your downloads online – everybody is moving to the web, so if you follow the online experience for so many of these companies, you could do very well indeed”

Bond says one of the “all time favourites” is Pipe Networks who are rolling out a Sydney to Guam PPC1 cable.

“Guam’s a US military base, lots of security, plenty of safety and straight across from LA to Tokyo,” he says. “Now what this cable will do, is it will increase the Internet capacity into Australia by 50 per cent.”

He says ISPs in Australia will be “champing at the bit because the cable will help them significantly. Costs for the ISPs will come down, which Bond says will enable companies to do more online. Higher speed will also be a benefit.

“Anything that speeds up e-commerce and online commerce, I think is a positive thing and the South Korean model has shown you just what an online economy can do, with their solid growth.”

“You look at companies like Samsung, which are doing well. It’s interesting if you look at JB Hi-Fi, the new LED TVs, which are just wafer thin, that’s going to be a significant leg of growth for them going forward as well,” he says. “So they’re moving more towards a home entertainment style of business. So, do you put a cinema company in there? Do you invest in Austereo, because people are going to be getting more of their music online? There’s so many balls in the air at the moment.”

For advice you can trust, contact Switzer Financial Services.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Thursday, August 13, 2009

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