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Message subject : SHAREMARKET POINTERS

This message was posted by bill on October 23, 2000 :

SHAREMARKET POINTERS

STEPPPING ON THE GAS ... There's been a lot of market excitement in the 163-year-old Australian Gas Light Co (ASX Code: AGL) - the biggest energy concern in Australasia and, it modestly suggests, "the best - particularly ahead of the annual meeting. The shares started rising on October 2 and the run didn't end until the price reached a record $11.85 on October 16, which is well up from the year low of $7.63. Since the meeting the shares have drifted back to around $11.40. Dividend yield is 4.4 per cent and price/earnings ratio is 8.6 times, well below market average. The price probably came off the top of the disappointment that there was no news on the 5 per cent shareholding cap the NSW Government has on the company and which AGL is trying to get removed.

In the past year AGL broke profit and earnings per share records while carrying out its biggest ever expansion program. In 1999 AGL net profit beat $200 million for the first time and in 2000 it more than doubled that to $450 million (EPS almost doubled to 134c). The latest result included a swag of abnormal gains. Without them profit was $249 million, up 19.8 per cent, still a very solid result in difficult, highly competitive conditions and the ninth record in a row.
This year it will have to cope with some important new regulatory decisions, and some of the company's restructuring will be in the interim stage between introduction and full profit performance.

AGL still expects to report record profit number 10 this year. It is obviously a stock for longer-term investors. AGL is channelling its activities into four main business areas. They are investment in mainstream energy projects; marketing of an increased range of energy-related products; management of infrastructure assets; and development of new projects intended to widen its horizons in profitable new directions.

An important step in the past financial year was the float of the Australian Pipeline Trust in which AGL retains a 30 per cent interest after realising net proceeds of $754 million. AGL recently became a $40 million, cornerstone investor in Australia's first Internet protocol based wholesale carrier COMindico Holdings, which it sees as an important part of AGL's technology strategy. But best of all for investors is AGL's declaration it is committed to unlocking the embedded values of the company for the lasting benefit of its shareholders - such as the floating off of its gas and electricity infrastructure assets. The market is likely to remain excited with AGL.

CONSTRUCTION WOES CAUSE LOWS ... United Group (ASX Code: UCR) is one of those profitless prosperity situations. Well, not quite profitless because it is still well in the black, but it's just that the level of earnings has been moving in the opposite direction to the level of its operations. In the past two financial years sales have risen more than 50 per cent, to $498 million and $754 million respectively. Yet net profit in 1999 rose just 0.4 per cent to a record $18.8 million and fell a thumping 43 per cent in 2000 to $10.7 million.

The company, which has been a victim of the depressed conditions in the resources construction sector, says that revenue growth exceeding 50 per cent for two years running clearly demonstrates the scale and significance of the changes that have occurred. It employs more than 3,000 people servicing clients in four businesses across Australia and overseas. At June 30 balance date its order book stood at $1.2 billion. Importantly, more than two-thirds of the order book consists of recurring revenue that will provide the necessary foundation for future sales growth. Yes, that's all very nice but shareholders want to see rising profits and dividends.

The company makes the point that its strength and the success of its diversification was demonstrated by Earnings Before Interest, Tax, Goodwill Amortisation and Abnormal Items - this was down only slightly from $33.1 million to $30.8 million, with just the United Construction subsidiary causing most of the pain, falling from $23.5 million to $4.4 million. The company believes it has significant financial potential and its focus is on making sure that this potential is realised for the benefit of shareholders. Revenue base is much less vulnerable to cyclical movements in key markets and while the outlook for the current year is positive, any improvement is more likely to incur in the second half. The recently appointed new chief executive, Mr Richard Leupen, who joins United Group from Kaiser Engineers of the US, says the next year will be one of consolidation. In the meantime, United Group shares are starting to attract buyers again and at $1.13 are showing a dividend yiled of 7.8 per cent while price/earnings ratio is 8.2 times. It high/low for the year is $2.47/91c and the stock has been as high as $4.06 the year before.

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