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Chart of the week: it’s good enough for Superman

Posted By Lance Lai On In Markets,Shares | No Comments

In my first chart last week, I chose a ‘Steady as she goes’ stock in Spark Infrastructure [1] (SKI). I said its gains weren’t expected to be ‘Herculean’, but in this time frame of a week, they have – a whopping 5.5% in a week! For a boring old infrastructure stock, piping electricity around, this is sexy in terms of gains.

So being last week’s hero (and I hope I don’t go to zero this week), I’m going to kick back a bit, and give you more of the same. Steady as she goes boring. Not to ‘jinx’ myself, I’m going to say again, this stock is not going to give you ‘Herculean gains’. (For those of you who know me, I’m always going to try to time things, I can’t help myself.)

Envestra Ltd (ENV) – 80 cents Friday Close 16 March 2012

(Stock went Ex Dividend 2.9  cents on Monday 19 March 2012)

Envestra is Australia’s largest distributor of natural gas. It is a Utility in the Utilities Sector. Its main assets are regulated gas distribution networks in Victoria, South Australia and Queensland. It also owns small gas networks and pipelines in New South Wales and the Northern Territory. Domestic and small industrial customers account for 90% of revenue, and have relatively stable consumption patterns. It is regulated by the Australian Energy Regulator.

Why I like the chart

  1. Price action is still above the yellow line (the 200-day moving average).
  2. The support line at 76 cents has held.
  3. The stock yields 7.25%.
  4. The 200-day moving average (yellow line) is still pointing up.
  5. The momentum is positive, such that the stock should break out above the 80-cent resistance level in the near term. This will open the stock up to another higher level of 84 cents and then 88 cents.
  6. The company has a market capitalisation of $1.2 billion.
  7. Lastly, an important consideration isn’t on the chart, but on the company register. Cheung Kong Infrastructure Holdings owns 19.5% of the company.

Cheung Kong means long river in Chinese, and rivers are important and lucky as they sustain the cities on its shores. Cheung Kong is owned by Li Ka Shing of Hong Kong, the richest person of Asian descent in the world and the 9th richest person in the world with an estimated net worth of US$25.5 billion. To put that in perspective, Gina Rinehart is estimated at $10.3 billion. Li’s personal story is just as impressive as his wealth. Born into the time of Japanese occupation of China in the 1930’s and growing up in war torn nation, he started life as a humble biro salesman.

Today, his companies make up 15% of the Hong Kong Stock Exchange by market cap. Hong Kong is the 6th largest exchange in the world with a market cap of US$2,258 billion, while Australia is number nine at $1,198 billion.

Mr Li, or Superman, as he is affectionately known, has been developing his holdings in infrastructure assets globally for some time now. Envestra is one of his forays down under. If it’s good enough for Superman, it’s good enough for me.

What I don’t like

  1. The stock price is 14% above its 200-day moving average. This means it is susceptible to a pull-back in price as the stock has already run up quite strongly.
  2. A stock that is regulated by a regulator as this one is, can be a bad thing. Shareholder interests and regulator interests are not aligned.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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