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The centre of gravity of the global economy and for large corporations is being transferred to
We believe that the centre of gravity of the global economy and for large
Japan directly):
- the growth gap between
- the vigorous growth in
- the necessary savings, be it to finance fiscal deficits or the needs of
Dividend is king?
We analysed 82 companies with market cap of over US$1bn on trend in dividends in FY09 and see if there is any correlation with stocks performance. Interestingly in a year when profits grew by only 6% (for this universe), 42 companies declared higher dividend/ share than in
FY08 and only 23 companies declared lower dividend. Of the companies that declared a higher dividend, 79% have outperformed the Sensex in the last one year. In the same period, 57% of companies that have declared lower dividends have underperformed the Sensex.
Over the last one month, 33% of the 43 companies have underperformed the Sensex, but only 17% of the 24 companies underperformed the Sensex. The above indicates that in uncertain times companies expected to pay higher dividends will likely outperform and as risk appetite returns, as in the last one month, a higher proportion of companies that have paid lower dividends, but may have more exciting “stories” and potentially higher risks, tend to outperform. The average outperformance for companies that increased dividends was 29% over the last one year and 14% in the last one month. In uncertain times, dividend it seems is indeed the king.
We looked at companies with market cap of US$1bn
■ Of the 82 companies with market cap of over US$1bn, 42 companies have declared higher dividend/ share in FY09 vs FY08, 23 companies declared lower dividend.
■ Financials, particularly PSU banks, have declared higher dividends in FY09. Consumer, utilities and healthcare companies are other sectors where many companies have declared higher dividends. Materials, industrial and 4-wheeler companies have declared lower dividends.
■ It is interesting to note that in a year of uncertainty and slowdown, over 59 of the 82 companies have declared higher or unchanged dividend, a likely pointer to the fact that the outlook within India is not very gloomy.
Stock performance vs dividends
■ 79% of companies that declared higher dividend have outperformed the Sensex in the last one year and the average outperformance was 29%. The nine stocks that underperformed had an average underperformance of 12%.
■ On the other hand, 57% of the companies that declared lower dividends underperformed the Sensex over the last one year and the average underperformance was 15%.
■ The trends over the last one month are equally interesting. Of the companies that have declared higher dividends, 33% underperformed the Sensex, but only by 6%, whereas the 67% that outperformed, had an average outperformance of 14%.
■ Of the stocks that have declared lower dividends, only 17% underperformed the Sensex in the last one month by 6% on an average. The 83% stocks that outperformed had an average outperformance off 13%, not very different from the basket of stocks that declared higher dividends.
■ We believe that in uncertain times, stocks that are likely to maintain or increase their dividends are likely to do better over a longer time period. In the short term, even as risk appetite returns, the average performance of companies that declare higher dividends is comparable to the presumably riskier universe of stocks that have declared lower dividends.
To see full report: MARKET STRATEGY
Evaluating synergies on potential Bharti-MTN deal
■ The objective of this report is to identify potential synergies not yet reflected in our forecasts (we include a sensitivity analysis), particularly on capex per base station, and to explore potential benefits of a shift to the low-cost, high-volume ‘minute factory’ model. We also discuss the legal and regulatory issues around the deal.
While the potential deal is marginally EPS accretive (4% for FY11e), we believe most of the synergies are medium to longer term. Uncertainty over pricing, execution, and dilution are likely to be a drag in the near term while clarity on synergies, shareholder structure and longer-term use of FCF could be positive.
■ Procurement synergies and low cost high usage model. Our analysis suggests that MTN’s cost per unit of capex (base transceiver station, or BTS) is c3x times higher than Bharti’s, suggesting potential procurement synergies in a post deal scenario. We note that certain local market level factors may limit upside (c5-14% to DCF). Further, we see scope for MTN to replicate the Bharti-style ‘minute factory’ model, creating significant cost-competitive advantages. This implies a fundamental shift in the business model, and the possibility of competitors replicating the same cannot be ruled out.
■ We maintain our Overweight (V) and raise our target price to INR977. As we roll over our valuations to FY11e, our estimates remain conservative (8% below consensus on FY11e earnings). The possibility of 3G auctions makes FY11e relevant and, unlike consensus, we are factoring in the potential 3G impact. Possible INR appreciation offers potential earnings upside. Risks for Bharti include poor monsoons and higher spectrum charges.
■ We believe move to pursue MTN reflects Bharti’s view that marginal opportunities in
To see full report: BHARTI AIRTEL
Shadow banking moves from private banks to central banks
■ Leverage dynamics in play
Global leverage is largely unchanged from the summer of 2008 to now. Assets went up US$6tn, but capital went up thanks to Chinese retained earnings and the
■ Asian banks in a global context
Asian banks have the lowest leverage and highest ROE. European banks have the lowest ROE and highest leverage. Our global ranking puts CCB, Stan Chart and BOC among the most attractive banks in our universe of 195 banks. Korean banks are a problem, in our view.
■ RBS sale of Asian businesses
Robert Law and Anand Pathmakanthan thrash out the details of the RBS sale of Asian assets. Questions on costs and asset quality are a problem and the franchise is wide rather than deep. But it is worth something to a newcomer – but not to existing giants such as HSBC and Standard Chartered, in our view.
■ IMF Study of Federal Reserve balance sheet
Central banks now account for almost one-third of the assets of the top-ten banks globally. Conflicts of interest arise when central banks are both the marginal buyer and seller of credit. Central banks’ policy is everything and will determine equity valuations – not earnings! Read on inside.
