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Kalkine Daily - 11/03/2014

Mar 20, 2014

S&P 500was down by 0.87 points or 0.05% to 1877.17 on Monday. U.S. stocks slid pulling the Standard & Poor’s 500 index down from a record as a slowdown in Chinese exports fuelled concern about global economic growth. Nine of the 10 main industries in the S&P 500 declined today with materials dropping 0.5 percent as a group.

China's exports unexpectedly tumbled 18.1 percent in February, against expectations for a 6.8 percent rise, swinging the trade balance into deficit and adding to fears of a slowdown in the world's second-largest economy. We caution against reading too much into single-month figures for January or February, given possible distortions caused by the long Lunar New Year holiday, which began on Jan. 31 and covered early February. Many plants and offices shut for extended periods during the festival.
 

S&P 500 Daily Chart   (Source – Thomson Reuters)

S&P ASX 200 was down 50.8 points or 0.93% and closed at 5411.50 points on Monday. Iron ore has suffered its biggest one-day price fall in more than four years, tumbling below $US105 per tonne, and Chinese steel futures have dropped to record lows as concerns mount over the outlook for the Chinese economy. China's total credit growth slowed dramatically in February as Beijing tightened its grip on the loosely regulated shadow-banking sector amid concerns over default risk.

Plans by Spanish-controlled global construction group Hochtief to take control of Australian builder Leighton Holdings have run into immediate problems, with sharemarket investors pushing shares in the ASX-listed company well above the offer price. The new chairman of David Jones, former Westpac director and current Origin Energy chairman Gordon Cairns, wants the department store's CEO to take back his resignation decision and has begun lobbying him to remain at his post.



S&P ASX 200 Daily Chart (Source – Thomson Reuters)

The top gainers on ASX 200 were:-

 
Code Name Price Change %Change
LEI LEIGHTON HOLDINGS LIMITED $23.09 $2.37 11.44%
PBG PACIFIC BRANDS LIMITED $0.56 $0.05 8.74%
RRL REGIS RESOURCES LIMITED $2.48 $0.15 6.44%
DMP DOMINO'S PIZZA ENTERPRISES LIMITED $22.29 $0.72 3.34%
HZN HORIZON OIL LIMITED $0.33 $0.01 3.17%

Stock of the Day – Duet Group (DUE)
DUET is an infrastructure investment trust with majority interests in three Australian energy infrastructure assets. It owns 80% of the Dampier to Bunbury Pipeline (DBP), 100% of the Multinet Gas and 66% of United Energy. The DBP is a gas transmission pipeline in Western Australia operating under contracts while Multinet and United Energy are regulated energy distributors in Victoria.

Duet posted another weak result with proportional revenue from transmission and distribution falling 3% to AUD 372 million. The poor performance was due to lower revenue from Multinet Gas following its regulatory reset and lower capacity based revenue at Dampier to Bunbury Pipeline or DBP. Adjusted proportional profit before tax fell 4% to AUD 30 million. Growth should improve modestly in fiscal 2015 but the medium term outlook is poor.



Source - Duet 
 
We believe DUET is overvalued and is likely to disappoint investors in coming years. We consider relatively aggressive gearing, an aggressive distribution payout ratio and lower returns from 2016 to DBP and United Energy to be ab unsustainable combination. We expect distributions per cent to be cut by a few cents probably in fiscal 2016.



Duet Daily Chart  (Source - Thomson Reuters)
 
Gearing is at the bottom of management’s 75-80% stated target range but we think that this range is too aggressive given the poor outlook. Ongoing equity issues could indicate management no longer believes that gearing of 80% is appropriate either. DUET is unable to reduce gearing organically due to the aggressive distribution payout ratio. We think that DUE is too expensive at the current price and would review this at a later date.



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