ADVISOR WATCHLIST
offerings . These are often pre-packaged offerings made available via businesses such as solar panels , motor vehicle servicing , dental , healthcare , home improvements etc . Importantly Humm is profitable with the 31 / 12 20 half year showing a NPAT of $ 38.6m . With a market capitalisation of only $ 500m and a broader product offering I think it is a safer way to access the growth in the personal finance sector of our economy . A move to tighter regulation and credit checks in the BNPL sector would favour Humm more than most other players .
Southern Cross Electrical Engineering ( SXE ) is an electrical , instrumentation , communication and maintenance company that services the resources , infrastructure and commercial sectors . Each acquisition over the years has broadened the Groups reach away from the traditional WA resources base with the Group now also providing services to retailers , security companies and even producing switchboards . Being a specialist in Electrical Engineering with both maintenance and Project work the margins with which they operate tend to be larger than what we often see with a lot of other service industries to mining and infrastructure . The effects of Covid have impacted the company as the movement of the workforce is at times more difficult . Various project delays were also seen , however the outlook for both resource and infrastructure work here in Australia has remained strong and these delays simply mean the coming halves will be stronger . I am looking forward to a very upbeat report in August given the company did revenue of only $ 135m in the first half and had given market guidance of $ 420m for the full year to 30 / 6 / 21 . The Balance sheet is strong with cash of $ 53m at 31 / 12 / 20 and a franking credit balance that allows them to easily pay the same 3c per share fully franked dividend . With a tight shareholder list I see this stock as a 2-5 year hold .
Mike Baker
Advisor mbaker @ burrell . com . au ( 07 ) 5353 5224
Over recent months , the debate around value versus growth investing has really intensified . As an adviser tasked with the job of preserving and growing clients ’ capital , I tend to ignore this debate and focus instead on identifying and owning quality businesses that can generate above average returns on capital and grow earnings organically and relatively consistently through any economic environment . Over the long term , share prices tend to follow a company ’ s earnings so an important first step in the investment process is to identify high quality businesses as it is these types of businesses that will exhibit high returns on capital and consistent earnings growth . This sentiment is echoed by one of the world ’ s best modern investors , Terry Smith of FundSmith in the United Kingdom . Whenever a discussion turns to value versus growth , people often use PE ratios to differentiate between the two – value stocks are seen as trading on low PE ratios whilst growth stocks trade on higher PE ratios .
Rather than discussing the pros and cons of PE ratios , I thought it best to reproduce an extract from Selector Fund Management ’ s March quarterly report as an interesting thought piece on the topic . Please find the extract below .
PE Ratios – What They Don ’ t Capture
“ Undertaking a comparative analysis of businesses through a price to earnings ratio ( PER ) is a lazy way to invest . Pick the low PER stocks , accompanied in most instances by overly generous dividend payouts and hey presto you have what appears on paper to be low risk and better valued stocks .
This short cut investment approach is alive and well , even among the most established and reputable of investment houses , despite considerable shortcomings .
Calculating a company ’ s PER requires a relatively straightforward formula : ‘ the share price of the business divided by the net profits expressed
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