September is traditionally the worst month for stocks in Australia and the US.
The average return for the Australian market since 1950 in September has been minus-0.76 per cent. While this doesn't sound significant, it takes on greater status when you consider the local bourse has jumped almost 10 per cent since early June, with the banks leading the rally.
Just as importantly, October is traditionally the best month for the Australian banking sector. According to stockmarket analyst Andrew McCauley of Veritas Securities, the banking sector has delivered a hefty 3.6 per cent return to its shareholders since the 45-day holding period to receive franked dividends was introduced in 1997.
The driving force behind this is three of the big four banks - Westpac, ANZ and NAB - report their earnings for the 12 months to the end of September. The three then go ex-dividend in early November. Investors like to snare the large fully franked dividends the banks pay, and start buying them in early October.
This outcome sets up an interesting scenario for those who already own bank shares or those who are looking to get into the sector. Investors who don't mind paying out some brokerage would sell their bank shares now and look to re-enter the sector in the first 10 days of October. For those sitting on the sidelines, early October is historically the best entry point.
If we look at CBA, which went ex-dividend $1.97 a share earlier this month, the stock hit a peak of $58.05 on July 31 and now trades 6.4 per cent lower at $54.30.
In contrast, Westpac has risen 24 per cent since early June, while ANZ is up 20 per cent and NAB up 14 per cent.
Change at K&S
A change in managing director is always a lightning rod for attention at a public company. It can also prove to be a major catalyst for a stock to re-rate positively or negatively.
K&S Corp is a case in point.
The South Australian transport company has found the going tough in recent years with a large exposure to the domestic steel industry. The stock peaked in February 2007 when its share price hit $4.37 only to spend the next four years in freefall.
More recently the share price has spiked from $1.30 to be sitting just under $1.50.
There have been two major catalysts for this turnaround. First, the company's earnings have surprised on the upside recently, with the company reporting earnings per share of 16.8¢ for the 12 months to June 30. This puts it on a historical price to earnings ratio of around nine times. Of more interest is the company earned 10¢ a share in the second half of the year. If it can annualise this number then it is only trading on a price/earnings ratio of 7.5 times, which makes it attractive. It will be intriguing to see if they can keep this run rate up. The company is also trading at a 15 per cent discount to net tangible assets.
The other major catalyst has been the appointment of former Swire Group operative Greg Stevenson as managing director. Initial reports suggest Stevenson is a no-nonsense type of manager who understands that some of the company's larger exposures are to industries that are tracking below trend, including the paper and domestic steel sectors. Stevenson, though, brings a fresh set of eyes that could rejuvenate the group. If the company can post 20¢ earnings per share over the next 12 months a share price approaching $2.00 is not out of the question.
Pretty's Hills
Another South Australian company that has seen fit to change its managing director is conglomerate Hills Holdings.
Long-term finance director and more recently managing director Graham Twartz is vacating the top job and will be replaced by Ted Pretty, who is best known for his eight years at Telstra as head of technology innovation and products.
Pretty was at Telstra when the tech boom was at its peak. He was central to several deals undertaken by the telco into non-core tech companies. Most of these transactions were done at prohibitive prices and have amounted to little.
To say the decision by the Hill's board to appoint Pretty caught most of the company's followers and investors off-guard is an understatement. Since Twartz took the top job four years ago, the company has been cruelled by the concurrent downturn in the domestic steel and housing markets. Twartz and his team have worked desperately to get the group's balance sheet in order and restore investor confidence. This has largely been achieved with Hills recently buying back its own stock.
More known for his deal making activity than operational excellence, it will be interesting to see what direction Pretty takes the small industrial company from his base of Adelaide. Investors should adopt a wait-and-see approach before determining whether the appointment is a positive or negative catalyst for the stock.
matthewjkidman@gmail.com
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