2009 - May/June

WINNERS

Macquarie Communications Infrastructure Group (MCG)  A communication infrastructure investment group, this was the best performing ASX 100 stock for the period up 102.3 per cent. MCG reported a 1H09 statutory loss of $1.1bn which was significantly influenced by non-cash, mark to market losses on interest rate swaps which are used to fix MCG’s interest costs over the long term. Proportionate asset revenue, however, was $767m, up 9.7 per cent with solid contributions from all of MCG’s businesses. Distributions have been reduced with the cash being used to reduce fund level obligations. In addition, the distribution and dividend reinvestment plan have been suspended. The main driver of MCG’s share price has been takeover speculation. MCG stated on March 20 that it ‘continues to explore options which seek to enhance security holder value’. Shares rose 89c from $0.86 to $1.75.

Worley Parsons (WOR) A resources services supplier, WOR improved a solid 42.2 per cent. Surprisingly strong profit growth continues but the decline in international resources capital expenditure raises uncertainties, particularly for next year. 1H09 NPAT rose 29 per cent to $198m. Revenue grew 39 per cent to $3.15bn, through new work across various sectors. Hydrocarbons remain the growth engine, providing over 80 per cent of earnings. Earnings grew in each area though the decline in margins in all but Hydrocarbons reflects the easing of demand from peak levels, which is likely to accelerate. The lower A$ boosted NPAT by $7m through the higher value of foreign currency earnings. A 1c move in A$/US$ changes NPAT by $2m. WOR is well placed to capitalise on its strong global position over the long term. The share price increased $5.18, from $13.40 to $18.58.

ING Office Fund (IOF) IOF experienced a 43.4 per cent bounce in its share price over the month after being the worst ASX 100 performer in the last issue. It is unsurprising to see sharp share price movements in higher risk property trusts in this environment. IOF reported a decent 1H09 result with 8 per cent like-for-like net property income growth and, importantly, better than expected headroom to debt covenants. The outlook is challenging, with debt markets remaining difficult and property fundamentals weakening as global economies slow and office demand falls. IOF’s weak financial position makes it vulnerable and it will have to work hard to avoid breaching debt covenants. Overall occupancy was strong at 96% as improvement in Europe offset rising vacancies in the US. Distributions were up marginally to 5.4 cents per unit. The share price rose 12 cents, from $0.26 to $0.38.

LOSERS

Goodman Group (GMG) An owner, developer and manager REIT, GMG fell 40.7 per cent during the month.Deteriorating earnings and property write downs led to a disappointing result for 1H09, though distribution was confirmed at 9.65cpu. The risk from rising gearing and deteriorating global economic conditions adversely affecting the own-develop-manage business model are countered by low-risk, annuity-style underlying earnings. GMG announced a loss under AIFRS of $465.9m, following non-cash write downs for property investment of $493.0m and equity investments of $170.5m. However, underlying operating profit from property investment, funds management and development was $149.7m. 6.9 years. The share price declined $0.19 from $0.46 to $0.27.

GPT Group (GPT) An owner, developer and manager REIT, fell 41.5 per cent over the four week period. The full year result to December 31 2008, was an operating profit before tax of $0.52bn but a headline loss under AIFRS of $3.25bn following non-cash property and interest rate hedge writedowns. Profit from the underlying property portfolio was above expectations, supplemented by a $52.3m development profit. Portfolio metrics remain solid with the investment property portfolio 99.2% occupied overall with 5.2-7.2 years weighted average lease expiry and generating overall like-for-like income growth of 5.5 per cent. Following the resignation of the CEO and planned retirement of the chairman, GPT is currently under caretaker management. The share price dropped $0.23 from $0.52
to $0.29.

Boart Longyear (BLY)  A global drilling services and product provider, was the worst ASX 100 performer with its share price falling 44.3 per cent. BLY faces mammoth challenges over the next year, all equally critical to its survival. Market conditions are rapidly deteriorating, which is no real surprise given the sudden downturn in commodity markets over recent months. The extent of the downturn is troubling, with FY08 earnings falling below revised guidance as November and December slowed ahead of expectations. Net debt of around US $760m is planned to fall by up to US $100m over the next year under the existing pay-down plan. Note this forecast compares with a US $150m target in December, an indication of how far things have deteriorated in the past few months. The share price fell $0.07 from $0.16 to $0.09.