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

S&P 500 was down by 4.16 points or 0.22% to 1875.39 on Wednesday. S&P 500 declined halting the longest winning streak since September.  U.S. stocks dipped at the open on Wednesday despite upbeat corporate earnings as buyers appeared scarce following the longest streak of daily gains on the S&P 500 so far this year.

In Europe the FTSE Eurofirst 300 fell 0.6 % weighed down by a 6% drop for Ericsson shares after the company’s first quarter sales and profits fell short of forecasts. Chinese stocks also came under pressure with the Shanghai Composite slipping 0.3%. The slowdown in Chinese economy appears to be moderating helped by the government’s move to support growth with spending on railway and housing.


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

 
S&P ASX200 was up by 38.50 points or 0.70% on Wednesday and closed at 5517.80 points. Auction for Brisbane toll road portfolio of Queensland Motorways has been won by Transurban Group (TCL) for $7.057 billion. This puts TCL in charge of an established urban toll road network with capacity for growth in attractive Queensland market and also adds long term value to the portfolio of existing assets.

AustralandProperty Group has rejected $1.95 billion proposal from the Stockland Group to increase its stake thwarting Stockland’s move to expand its residential business. Newcrest mining reported costs of $988 an ounce for the March Quarter, 7 % higher than the $921 during the December Quarter. The production was broadly in line with guidance.


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

The top gainers on ASX 200 were:- 



Stock of the Day – SP AusNet (SPN)
 
SP AusNet is a diversified energy infrastructure business, operating Victoria’s primary electricity transmission network, an electricity distribution network in eastern Victoria, plus a gas distribution network in Western Victoria.  Singapore Power owns 31% of SP AusNet and China’s State Grid owns 20%.
 
Following the global financial crisis most externally managed Australian infrastructure and real estate firms internalized management. Internalization occurred for a range of reasons but poor performance or high management fees was a common thread. True to form most demanded huge payouts to give up their management rights.


Source - SP AusNet

Despite SP AusNet’s external manager, Singapore Power performing relatively well and charging reasonable fees, it is now internalizing management. The internalization fee of AUD 50 million is considered very cheap compared with peers and is immaterial compared with Firm’s AUD 8 billion enterprise value. The internalization also increases the appeal to a would be acquirer such as China’s state grid which already owns 20%.


SPN Daily Chart  (Source - Thomson Reuters)

The tough regulatory environment reduces the potential for excessive returns. The main blight against the management was the attempt to merge the Alinta assets bought by Singapore power at the top of the cycle in 2007, into SP AusNet at an equally inflated price. A takeover bid for SP AusNet cannot be ruled out. We believe the stock is slightly overvalued at its current price and would review the stock at a later date.

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