Shortlisted – Tatts and DUET for yield

If you read Peter’s story today, you’ll know that we believe an eventual Australian dollar drop is coming, once the US gets more confidence in its recovery, QE slows and interest rates start rising over there. That should all push their currency up, and ours down.

That should be good for companies like Flight Centre, as prices will come down.

Roger Montgomery also recently wrote about the strategic approach that Flight Centre was taking. The question for Flight Centre, as more of us move our travel arrangements online, is how much people will value advice over cost. Roger believes there is still a section of the population – older Australians, those with more complicated requirements etc. – who will.

The gambling opportunities

Senior fund manager for Pengana Capital’s Australian equity fund, Rhett Kessler is very optimistic on Tatts Group after their compensation win in Victoria last week and also the renewal of their racing licence in Queensland on what Kessler says is “very favourable terms”. The deal locks up Tatts as the exclusive retail operator of betting shops in Qld for another 30 years.

“For Tatts about 70c [in the dollar] is a national lottery business which we think is one of the best businesses in Australia,” Kessler said on Switzer TV last week.

“Somebody else funds their business, they’ve got no stock, no warehouse
They’ve got 40-year contracts with the government.”

He also is big on Crown and doesn’t believe that the concerns about falls in gambling patterns in Macau warrant the current share price falls.

“We like Crown – we’ve bought quite a few at these lower prices and we think these prices definitely are for value.”

The yield buy

If you’re after a dividend play, Pengana is very big on DUET Group, which also has acquisition potential at the moment after Skilled Group came in and took up nearly 15%.

DUET Group (DUE)

“For a regulated utility to be on about an 8% yield that’s very tasty, we like that,” Kessler says.

“Another player in the industry has come in and taken a 15% stake in it so everyone is excited that there may be a takeover. But the underlying fundamentals are still very, very good.”

And the CBA story

Commonwealth Bank has been hit hard for its miscreant financial planners, which the bank insists were rogue.

Paul Rickard, ex CommSec chief and now Switzer Super director, says although there will be a short-term hit to the share price, it is still his preferred pick of the major banks.

Commonwealth Bank (CBA)

“The bank has said that the cost of further compensation is not going to be material – the potential cost is for long term damage to reputation and brand,” he says.

“It is now really in the bank’s hands to demonstrate that they have heard the community anger and outrage – fairly, empathetically and quickly address the aggrieved customers – make any necessary staff or management changes, and move on.”

He is not a seller by any means and has confidence in the executive team to be able to manage the situation and make the required structural change.

Important: 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. Consider the appropriateness of the information in regards to your circumstances.