Overly Geared Listed Companies

[chops_a_must]

As Pollyanna continues to drop her shoes, I'm just wondering if anyone has any opinions on ASX listed stocks that they think are dangerously geared. For me, the extent of the debt problem dawned on me earlier this year, when a client of mine, a tyre fitter, said that he "owned" 4 properties, and was paying $1200 a week in servicing debt for those. Needless to say, he had to stop seeing me because he couldn't afford anything. And after this I haven't even looked at banks, financials or anything like that.

But, I'm wanting to get a watchlist together for these over geared companies, so I can jump on them as inevitable bad news breaks.

Perhaps the only one I personally would be sure about putting here, would be BBW. I've held it for quite a while, and traded it occasionally. They keep funding acquisitions with massive debt, paying dividends with it, and even recently done a cap raising. Which to me seems silly.

Anyone want to suggest MQG or something belongs here?

 

[Bushman]

As Pollyanna continues to drop her shoes, I'm just wondering if anyone has any opinions on ASX listed stocks that they think are dangerously geared. For me, the extent of the debt problem dawned on me earlier this year, when a client of mine, a tyre fitter, said that he "owned" 4 properties, and was paying $1200 a week in servicing debt for those. Needless to say, he had to stop seeing me because he couldn't afford anything. And after this I haven't even looked at banks, financials or anything like that.

But, I'm wanting to get a watchlist together for these over geared companies, so I can jump on them as inevitable bad news breaks.

Perhaps the only one I personally would be sure about putting here, would be BBW. I've held it for quite a while, and traded it occasionally. They keep funding acquisitions with massive debt, paying dividends with it, and even recently done a cap raising. Which to me seems silly.

Anyone want to suggest MQG or something belongs here?

The question should be 'who has a substantial amount of debt due to roll over in the midst of the credit crunch'. I would be having a look at some of the infrastructure funds esp Macquarie funds.

Did anyone feel any clearer about AFG's recent disclosure that it had $6.1b in debt but that the majority of this did not have recourse against company assets? I mean what does that mean? Surely if they run into cashflow problems then the banks would hammer them.

 

[Garpal Gumnut]

As Pollyanna continues to drop her shoes, I'm just wondering if anyone has any opinions on ASX listed stocks that they think are dangerously geared. For me, the extent of the debt problem dawned on me earlier this year, when a client of mine, a tyre fitter, said that he "owned" 4 properties, and was paying $1200 a week in servicing debt for those. Needless to say, he had to stop seeing me because he couldn't afford anything. And after this I haven't even looked at banks, financials or anything like that.

But, I'm wanting to get a watchlist together for these over geared companies, so I can jump on them as inevitable bad news breaks.

Perhaps the only one I personally would be sure about putting here, would be BBW. I've held it for quite a while, and traded it occasionally. They keep funding acquisitions with massive debt, paying dividends with it, and even recently done a cap raising. Which to me seems silly.

Anyone want to suggest MQG or something belongs here?

An important post chops, and below are my thoughts much filched from elsewhere

Michael West in the Australian 19th Dec

And so it is that the market turns its attention to the obvious question: who's next?

A piece of research from Goldman yesterday listed stocks with near-term refinancing greater than 15 per cent of company value.

Ranked by absolute level of debt needed to be refinanced, analyst Chris Pidcock put Wesfarmers at the top (with $5 billion to be rolled in 12 months), followed by Centro (which needs to roll twice its market cap).

Then there's Goodman Group, GPT, Centro Retail, Fairfax, Downer EDI, SP AusNet, NuFarm, Goodman Fielder, Ten, AACo, Paperlinx, Energy Developments, Flexigroup, Macquarie DDR, Austereo, Envestra, Sedgman, Perseverance, Rubicon Japan and Housewares.



and this from mysharedtrading.com

Why are interest rates important? They impact everyone, either directly through loans or indirectly from rising prices. Since interest rates are the cost of borrowing, so any increase or decrease affects the level of investment as well as company bottom lines (depending on their gearing). So companies with heavy liabilities will need to service a larger interest payment. (Fundamental analysis tip: Do a search on highly geared companies. Look at their coverage ratio. Start with Newcrest Mning (NCM), PaperlinX (PPX), McGuigan Simeon (MGW) and Foster’s (FGL))

Here's another way to look at it. When you put money into a bank, you earn interest. This is the income your money is earning – the banks' payment for depositing your money with them, allowing them to lend out your money. At the moment you can earn just over 5 percent if you put your money into a bank. Keep in mind that this is a very low risk investment. Now any investment that yields above that say 10 percent will look attractive. Of course, with a higher return, you expect to have increased risk. Now, what if interest rates rise? Then, other investments will seem unattractive and their returns will need to rise proportionately. And this s across the board – with rising interest rates, all financial assets like property and stocks become relatively less attractive.

Now check your credit card or your mortgage. It's been reported earlier this year that Australians are heavily geared. This will of course hurt the hip pocket of consumers. Discretionary retailers as a result will hurt. Have a look at Brazin (BRZ), Strathfield Group (SRA), JB HiFi (JBH), Repco (RCL), Super Cheap Auto (SUL), while necessities like Telstra (TLS) and Woolies (WOW).



I'd add anything with the word Macquarie in it.

gg

 

[chops_a_must]

Thanks for that GG. I actually have WES as finishing a W5 and breaking down from a lower low. I was going to post in anohter thread about that. The coles deal seems to have really racked up some massive debts for them. I can't see the sentiment coles had with them helping WES.

 

[chops_a_must]

This is the sort of thing I'm looking for. Understandably, AGK crapped its pants on the close when this came out...

asx statement
21 December 2007
Attached is a statement from Standard & Poor’s in relation to AGL’s long term credit rating.
Paul McWilliams
Company Secretary

AGL Energy ‘BBB’ Rating Affirmed; Outlook Revised To Negative On Weaker
Credit Metrics
Melbourne, Dec. 21, 2007—

Standard & Poor’s Ratings Services said today that it had affirmed its ‘BBB’
long-term corporate credit ratings on AGL Energy (AGLE) and AGLE’s 100%-owned subsidiaries AGL Hydro Partnership and Powerdirect Australia Pty Ltd. At the same time, we revised the outlook on AGLE and AGLE’s subsidiaries to negative, from stable, because of AGLE’s expected underperformance in the group’s credit metrics.

“AGLE’s credit metrics are below those acceptable for a ‘BBB’ credit,” Standard & Poor’s credit analyst Andrew Palmer said. “However, we expect AGLE to implement capital-management strategies in the next six months to return the company’s credit metrics to its stated public policy of maintaining funds from operations to interest cover of 5x.”

AGLE’s credit profile has been weakened by its aggressive growth strategy and downgrade of its profit forecasts. Standard & Poor’s expects AGLE’s management to demonstrate a consistent track record in its growth strategy, capital structure, and recent management changes.

Mr. Palmer added: “Any further deterioration in AGLE’s earnings outlook, or a delay in the recovery of AGLE’s credit metrics, will likely result in a rating downgrade.”

Have any others like this come out recently? I've been short AGK most of this week, with nothing doing. You really wonder who will lend to them, to help them expand with something like this, at this point in time. What possibly could drive this thing up now? I just can't see anything...

 

[Garpal Gumnut]

This is the sort of thing I'm looking for. Understandably, AGK crapped its pants on the close when this came out...



Have any others like this come out recently? I've been short AGK most of this week, with nothing doing. You really wonder who will lend to them, to help them expand with something like this, at this point in time. What possibly could drive this thing up now? I just can't see anything...

I just noted this on Compareshares this evening. Nufarm are significantly geared.

* IOOF Holdings Ltd reduced its interest in Nufarm Ltd on December 20 from 11.8 million (6.9pc) to 10 million shares (5.9pc).

I don't follow Nufarm so know nothing about them apart from the quote in my previous post.

gg