Spotless (SPO.AX)

From the AFR this morning.

UBS is attracted to Spotless Group's growth potential and says "buy" with a $2.20 price target. "SPO announces a conditional agreement to acquire Utility Services Group (operating under the Skilltech, Fieldforce and Utility Asset Management brands), with annual service revenues of about $200 million and around 1500 employees nationally.

The business is a leading provider of retail meter reading and installation services in the electricity, gas and water sectors (around 50 per cent mkt share), as well as offering asset management services (eg maintaining poles and wires, clearing vegetation etc) in electricity distribution. Whilst no detail on earnings or acquisition price was included, we would expect this is a relatively lower margin business than the existing SPO businesses (but with relatively high predictability of earnings, as well as high renewal rates). We see this acquisition as further diversifying SPO's customer base, gaining them access to the key utilities sector, with work they already do (albeit in smaller scale when it comes to meter reading, and with different customers in defense and resources when it comes to asset management), and gives SPO the ability to cross sell other services to these utility customers."

Deutsche Bank retains a "hold" with a target price at $2.14 from $2.06 previously. Macquarie Wealth Management rates the stock an "outperform" with a target price at $2.35, saying "this looks a strategically sensible acquisition".

Lynas.. Malaysia..

I sold my Lynas holding for a substantial loss this morning...  

I guess it's all my own fault. Looking back, I managed this trade very badly... Damn!

Ok, let me go through my mistake:

1. First rule of investing : Does the company make any money?
2. Second rule : Does the product susceptible for price fluctuation that they can't control? i.e boom and bust scenario?
3. Does the company have any legal proceeding or issues in their operation?
4. Did I  apply stop loss properly?
5. Was the company's sp affected by any hype in any way?
6. Did I enter the trade, aware of those condition, but enter it anyway, because the price MIGHT come back up? (this trade was entered after a steep crash in SP) 

Just Another Day on the ASX..

Feeling the frustration ..lol

The drag on the US government started to bite me yesterday. I was watching and preparing to buy again. This time I had my eyes on MGX.AX (Mount Gibson Iron Ltd).  I sold MGX a short while ago for 0.82 which is turn out to be a good selling price. MGX price went down and down, it reached $0.70 two days ago.  I thought it would be great to grab it again, so I put a buy order at $0.68.

The US shutdown spooks people, and that's including myself. The ASX tanked and I got cold feet, I pulled out my order. MGX did hit $0.68, and I would have got them (it went up strongly afterward on the close).

That's fine, tomorrow I'll try again.. (But this did not happen..)

MGX was very strong from the beginning, up over 7% and the sellers are disappearing.

Many things happen this morning:

1. US Government still in shut down
2. Credit Suisse raised MGX from Underperform to Neutral
3. The Iron ore bears, Credit Suisse, has upgraded its price forecasts
4. Increase in MGX total Proved and Probable Ore Reserves, by 1 M tonne 

And I was left here, annoyed to myself for pulling my order yesterday

McMillan Shakespeare (MMS)

McMillan Shakespeare (MMS) is probably one of the most obvious evidence on how Australian government policy can affect the stock market.
SHARES in MMS have been smashed in the last few days by the Rudd government's surprise crackdown on the FBT treatment of leases on cars used predominantly for private use.

Analysts believe that they've seen the worst of the carnage, but obviously, the exact damage will remain unknown until after the election. It will be valid to consider, however, that the current event may have exposed the company’s business model inherent risks from which it is unlikely to ever fully recover regardless who is going to win the election.

I am asking myself, is it worth to risk it and buy?

Now, I consider myself a chicken when it comes to risks, and while every investment have it’s own risk, there is a significant level of risk in buying MMS. If the government win the next election and the changes in the regulation are implemented, the effect for MMS might be quite devastated. It is possible to imagine 30 or 40% lost of investment in a short space of time (August-September).

On the other hand, what if the opposition win the election? Opposition Leader Tony Abbott has said that he does not support a change to the FBT car rules.  If the changes were not implemented, McMillan Shakespeare would be left intact and growing. The price before the plunge was $18.

Other consideration:
As I mentioned earlier, regardless the election outcome, there will be a scar in MMS business model due to this recent scare. The market might reassess the value of MMS, so it probably will not shoot back up to their previous price in the short run.

I am not good at estimating stocks’ future price, especially with this sort of uncertainty towards it. Let’s see what the analysts and experts said:

• Tim Boreham - Criterion:  Criterion believes that even if the amendments survive the election, this morning's share reaction has been overdone because the affected leasing arrangements are only part of McMillan's business. We'll back the bookies with a speculative buy call. 
• James Lennon, of Ord Minnett, estimated shares would steady between $8 and $9. He said this was based on half the company's novated leases being for private use, which would equate to a 30 to 40 per cent hit to earnings. "There has always been this risk with this stock," he said, adding he expected revenues to recover, but not the share price.
• Claude Walker - Motley Fool ; Even if the changes to salary packaging do not go through, the risk that the rules will change will not go away. That’s because under the current system people are (in effect) allowed to claim tax deductions for cars that are used mostly for personal tasks. If you forecast earnings to be 90 cents per share this year and were happy to pay a P/E of 14, then you would still only pay $12.60 for each share in this company. Personally, I wouldn’t even buy at that price. 
• Bank of America Merrill Lynch is urging investors sell the stock with a price target of $6 a share.
• Citi set a target price of $12.60 on the shares earlier before the halt lifted, with a 'sell' recommendation.
• Goldman Sachs has put a 12-month price target of $9.45 on the shares, with a 'neutral' recommendation to clients, on the view that uncertainty will overhang the sector for up to four months before the proposed changes are abandoned.