In today’s daily we have covered stock research on Envestra. To view 4 Growth + Dividend Stocks to buy click here

S&P 500 was down by 2.54 points or 0.13% to 1881.14 on Friday. U.S. stocks eased on Friday as concerns about more violence in Ukraine prompted profit-taking ahead of the weekend and offset optimism about the fastest job growth in more than two years. Healthcare shares were among the biggest drags on the S&P 500, including U.S. drug maker Pfizer Inc, Its shares fell 1.3 percent to $30.75 after its sweetened bid for AstraZeneca Plc was rejected.

All three major indexes posted gains for the week. The Dow was up 0.9 percent, the S&P 500 was up 0.9 percent and the Nasdaq added 1.2 percent. Oil prices rose on the Ukraine violence, lifting shares of Exxon Mobil and other energy companies, which limited some of the S&P 500's decline. So far in this earnings season, 75 percent of companies have beaten earnings expectations, above the 63 percent long-term average. But just 51.3 percent have exceeded sales expectations, below the 61 percent long-term average, continuing the recent trend, Thomson Reuters data showed.


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

S&P ASX 200 was up by 9.3 points or 0.17% on Friday and closed at 5458.1 points. Origin Energy has signed up for a $200 Million Shale exploration venture withFalcon Oil and Gas (Ireland Based) in Northern Territory. South Africa’s Sasol is also involved with the project. ANZ Bank has been increasing its exposure to the agriculture sector which it believes has done comparatively well compared to the other sectors of the economy. Total exposure has increased by $3 Billion to $32.1 Billion.

WestfieldGroup mentioned that sale of its interests in the Merry Hill, Derby and Sprucefield shopping centres in the UK, as announced on March 20, has completed. The Australian dollar has regained ground following losses on the back of stronger-than-expected US jobs figures.


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

The top gainers on ASX 200 were:- 



Stock of the Day – Envestra (ENV)
 
Envestra is Australia’s largest distributor of natural gas with more than 1 million customers. It’s main assets are regulated gas distribution networks in South Australia and Victoria. It also owns small gas networks and pipelines in Queensland, New South Wales and the Northern Territory. The company is internally managed, but operation of the pipelines is outsourced to APA Group, Envestra’s largest shareholder.

Strong regulated tariff increases drove a 7% increase in revenue to AUD 293 million and a 47% increase in net profit after tax to AUD 87 million. With painful inflation in household energy bills, the regulatory environment will remain tough for the foreseeable future resulting in lower returns following regulatory resets in 2016.


Source - ENV

We believe the market is placing far too much emphasis on strong current earnings and failing to account for tough regulatory environment and the high probability of lower returns following regulatory resets on South Australian and Queensland Networks in 2016. Further some of Envestra’s long term debt was locked in cheaply prior to the global financial crisis. Within a few years this debt will mature and Envestra’s cost of debt will increase in line with assumptions being used by the regulator.


ENV Daily Chart  (Source - Thomson Reuters)
 
Revenue in the half benefited from large tariff increases in South Australia and Queensland of 18% and 12% respectively and new connections. Current strong earnings growth will not continue. We expect only modest growth in net profit in fiscal 2015 and 2016 before a material fall in 2017. We believe the stock is overvalued at its current price and would review the stock at a later date.

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