Bristlemouth

A Value Investing Blog

Posted on 25 Nov 2016 by Daniel Mueller

Will Amazon Destroy Australian Retailing?

Will Amazon Destroy Australian Retailing?

 

How big could Amazon.com, Inc. (NASDAQ:AMZN) be in Australia? There have been recent media reports that the U.S. online giant will hit our shores next year. The company, or at least an unnamed executive, has stated an intention to “destroy” Australian retail. And why not? Australian retail margins are among the largest in the world. But should retailers be shaking in their boots? Will Amazon march into the country like the Roman infantry, taking whatever market share they want? To me, this reads more like the blue sky case. So what does a more realistic scenario look like?

 

Continue reading “Will Amazon Destroy Australian Retailing?”

Posted on 02 Nov 2016 by Gareth Brown

Diabetics we need your help

Diabetics we need your help

 

Diabetics we need your help. We’re trying to understand the insulin market better. In particular we want to know more about customer loyalty to a particular brand or type of insulin.

Here’s what we gather from reading up on the matter. We’d love for you to let us know about any holes in the theory.

From what we’ve read, it’s a pain to establish an ideal insulin regime for diabetics. It involves numerous trips to the GP/specialist and trial and error to get everything optimised. And because competing and generic products are only bio-similar rather than identical, switching brands is something of a pain. It takes recommitting to another round of trial-and-error. Continue reading “Diabetics we need your help”

Posted on 13 Oct 2016 by Steve Johnson

Gale Blowing for Index Unaware

Gale Blowing for Index Unaware

 

Setting Daniel’s closet index huggers to one side, the past few years have been exceptional for Australia’s genuinely active fund managers. Our Australian Shares Fund has returned 34% over the last 12 months. According to Morningstar, that ranked the Fund just 7th out of 24 in its category. There are plenty of fund managers that have returned better than 30% this last year. And that’s one in which the main index, the All Ordinaries Index, returned just 14% including dividends.

Gale Blowing for Index Unaware
Forager Australian Shares Fund returns from morningstar.com.au

 

When it comes to international shares, the opposite has been true. Our International Shares Fund has outperformed the index by just 4.8% over the past year, yet that ranks it 10th out of 204 global funds Morningstar deems to be similar. Over three years, we are less than 1% ahead, yet Morningstar ranks the three-year performance 11th out of 176 funds.

Continue reading “Gale Blowing for Index Unaware”

Posted on 12 Aug 2016 by Gareth Brown

Rolls Royce Cleared for Take Off

Rolls Royce Cleared for Take Off

 

When large engine manufacturer Rolls Royce Holdings plc (LSE:RR) announced its first half result a few weeks ago it was above expectations. Which is to say, it was somewhat less bad than we expected.

But the current result is not the main game here. Rolls has a blockbuster wide-body aeroplane engine on its hands—the Trent XWB, the monopoly engine option on the very popular new Airbus A-350 that first went into service early 2015.

Over the next decade, merely by fulfilling orders already placed, the company will grow production significantly. And more orders will follow. All those engines will generate juicy service revenues for decades to come. Future revenue growth is both attractive and unusually predictable at this company.

The main opportunities, and risks, for Rolls’ shareholders revolve around expense management. If it can manage costs well, we will be happy shareholders.

There were a couple of interesting pieces of information in the recent profit release. One relates directly to what counts and another to how it’s counted.

Continue reading “Rolls Royce Cleared for Take Off”

Posted on 09 Aug 2016 by Daniel Mueller

Outage Outrage: Telstra Can’t Keep Customers or Shareholders Happy

Outage Outrage: Telstra Can’t Keep Customers or Shareholders Happy

Those of us old enough to remember Telecom Australia will recall that it was synonymous with poor service and issues with its copper network. In some respects not much has changed since Telecom Australia became Telstra (ASX:TLS) on 1 July 1995.

But to be fair, the last 21 years haven’t all been a disaster. Telstra has benefited from the digital era. The company has long been considered the leader in both fixed and mobile network quality, whether measured by speed, reliability or geographic coverage. This gave Telstra an important competitive advantage over its rivals and enabled it charge more.

However, Telstra’s reputation for network quality might be coming to an end. There have been outages across both its fixed and mobile networks, including seven since February this year. One can only speculate as to what has gone wrong and who knows whether management is on top things yet. But what makes this change in reliability so surprising is that Telstra still spends so much money on its network.

Continue reading “Outage Outrage: Telstra Can’t Keep Customers or Shareholders Happy”

Posted on 19 Jul 2016 by Steve Johnson

Fuzzy Future for Fundies

Fuzzy Future for Fundies

 

I have been questioning the sustainability of the asset management gravy train for the best part of two decades. Fred Schwed was lamenting the lack of satisfactory outcomes for clients way back in 1940 when he wrote Where are the Customers’ Yachts?: or a Good Hard Look at Wall Street (the book is full of wonderful quotes but the title sums up the main argument perfectly).

A brief look at the BRW Rich List or the largest and most profitable Australian companies suggests not much has changed. The big four banks all have wonderfully profitable asset management businesses. Macquarie Group‘s highly successful transition from traditional investment bank to asset manager has been the main driver of its share price appreciation in recent years. And a pure-play fund manager, Magellan Financial Group, has been one of the best performing stocks on the ASX over the past five years.

You could argue, therefore, that it would be a brave man or woman to suggest that the wonderful economics of the industry are about to change. I am going to suggest exactly that, however. It is already changing, but it is going to change a lot more over the next decade.

Three forces at play suggest to me that we are at a tipping point where the competitive nature of the industry changes dramatically.

Continue reading “Fuzzy Future for Fundies”

Posted on 09 Jun 2016 by Gareth Brown

How Jeff Bezos thinks

How Jeff Bezos thinks

 

Want an insight into how Amazon founder Jeff Bezos thinks? The Everything Store by Brad Stone is a good read. To summarise, very long term and big picture. He actively seeks out opportunities that promise years of losses followed by a lifetime of slim margins—as long as the eventual potential is big enough—because he knows he can endure that pain better than anyone else. There are few areas that offer such grand potential, or such promise of medium term pain, as the online grocery business. Continue reading “How Jeff Bezos thinks”

Posted on 18 May 2016 by Steve Johnson

Frank Can See Things ASIC Can’t

You can pick the inside trading a significant portion of the time in some of the smaller cap companies when they make a large move in one direction for no reason. Typically the ones with inside information (random order sizes) will be buying/selling indiscriminately into retail investors (order sizes in lots of 1000). One I am watching at the moment with this type of move is Beacon Lighting (ASX:BLX) which I strongly suspect will have a very poor upcoming result.

Two weeks ago I wrote a post Why ASX Companies Should Report Quarterly. One of our readers, Frank, added the paragraph above to the comments.

Today Beacon has announced a profit downgrade and the shares are down 20%. Our market is a global embarrassment.  Continue reading “Frank Can See Things ASIC Can’t”

Posted on 16 May 2016 by Steve Johnson

Do the Banks Need to be Broken up?

Do the Banks Need to be Broken up?

 

“What’s this about a royal commission or there’s a huge problem in banks? There’s no culture problem in banks”

– Lindsay Maxsted, Westpac Chairman, Boss Magazine May 2016

I hate to tell you this Lindsay but there is. It’s deep, it’s pervasive and if you don’t do something about it, the government should.

Last week’s Boss Magazine, a monthly liftout from the AFR, made for depressing reading. The Chairmen of all four big banks were interviewed about their organisations and their efforts to manage conflicts of interest. Some of the comments are extraordinary. Continue reading “Do the Banks Need to be Broken up?”

Posted on 14 May 2016 by Gareth Brown

Fairfax Sacks West, Heads South

Fairfax Sacks West, Heads South

 

To say that reporting standards at Fairfax have deteriorated is to state the obvious. With perhaps the exception of The Australian Financial Review, which we’ll let slide for now, most of the ‘Business’ content on The Sydney Morning Herald, The Age and equivalent mastheads around the country is written by 22-year olds with degrees in click baiting. I don’t even log in anymore, despite having a paid subscription. Steve installed a site-blocking program on his computer specifically to stop himself visiting the SMH site. That’s what I’d call a customer problem! Continue reading “Fairfax Sacks West, Heads South”

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