In today’s daily we have covered stock research on SP AusNet (Expensive).

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S&P 500 was up 10.82points or0.55%on Thursday and closed at 1985.44.  Wall Street's holiday-shortened session ended with multiple records on Thursday, with the Dow topping 17,000 for the first time after the June jobs report came in much stronger than expected. Both the Dow and S&P 500 ended at their third consecutive record highs. Goldman Sachs Group Inc. and MetLife Inc. advanced at least 1.5 percent, pacing gains among banks and insurance companies. Paccar (PCAR) Inc. added 5.4 percent amid speculation that the maker of Kenworth and Peterbilt trucks may receive takeover interest from Volkswagen AG. PetSmart (PETM) Inc. jumped 13 percent after Jana Partners LLC disclosed a new activist stake. Lululemon Athletica Inc. gained 2.9 percent after a report that the yoga-wear company has explored a buyout by a private-equity firm.

The keenly awaited US employment report was released a day earlier than usual because of the July 4 holiday – showed that non-farm payrolls rose by 288,000 last month, much more than expected and up from 224,000 in May. Upward revisions to the previous two months left the 3 month average job gain at 272,000 while the unemployment rate fell from 6.3% to 6.1%. The payroll data suggests that the economy has shown further improvement this year and the weak first quarter GDP figures released in June were a blip in the underlying trend likely driven by severe weather.


Goldman Sachs Daily Chart (Source – Thomson Reuters)
 
S&P ASX 200was up by35.8points or0.66%on Thursday and closed at 5491.20 points. Sherwin Iron announced that it has completed fourth shipment of iron ore from its Roper River tenement. CFS Retail Property Trust (CFX) announced the valuation of its property assets resulting in 1% increase on its prior book value. SDI Limited the manufacturer of dental materials announced the increase in sales by 15.4% to $65.3m compared with $56.6m for the corresponding period last year.

Emerchants has announced signing of a multi-year agreement with sportsbet.com.au to provide their customers with customized cards. Iron ore rose 1.9 per cent to $US96.50, according to the Steel Index. Spot gold was down 0.6 per cent to $US1319.15.  Nickel surged to a six-week peak after strong US jobs data boosted hopes that economic recovery would spur demand for industrial metals. Some of the best performers in the market were Bluescope Steel and Worley Parsons. The latest ABS Retail Trade figures show that Australian retail turnover fell 0.5 per cent in May 2014, seasonally adjusted, following a fall of 0.1 per cent in April 2014.


Bluescope Daily Chart (Source – Thomson Reuters)

The top gainers on ASX 200 were:-



Stock of the Day – SP AusNet (SPN)

SP Ausnet reported fiscal 2014 revenue of AUD 1.8 billion and EBITDA of AUD 1.0 billion. On our numbers, adjusted net profit after tax excluding one offs and customer contributions was AUD 275 million, close to expectations and up 14% from last year. Adjusted earnings per security increased 11% to 8.1 cents. SP Ausnet looks overvalued at present following the strong share price run in recent months. 


SPN Electricity Network (Source – Company Reports)

Fiscal 2015 guidance is for distributions of 8.36 cents per security flat on 2014. While there have been some one offs which could partly excuse the lack of distribution growth, we view this as a confirmation of our negative view on regulated utility earnings while assets reset to tougher regulatory settings. For SP Ausnet we expect the main hit to earnings in fiscal 2017 following the regu7latory reset of the electricity distribution network.



SPN Network (Source – Company Reports)

 
The firm’s financial position remains sound with financial leverage measured as net debt to regulated and contracted asset base of 69%.  This is in line with or better than Australian regulated utility peers. The electricity distribution network remains the best performer with EBITDA up 24% in fiscal 2014. Following a tough regulatory reset, the gas distribution network performed poorly with adjusted EBITDA falling 13%.


SPN Daily Chart (Source – Thomson Reuters)

The electricity transmission network increased EBITDA 3% to AUD 437 million on regulated price increases and unregulated growth projects. Ongoing new projects will help earnings in fiscal 2015, but a softer result is expected due to lower allowed returns following the recent regulatory reset. We believe the stock is expensive at its current price and would review the stock at a later date.

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