The Australian Stock Exchange Essay Research Paper

The Australian Stock Exchange Essay, Research Paper The Australian Stock Exchange Assignment for year 11 Economics By David Jones Part 1 Telstra- 2272 shares @ $4.40 each = $99998.80, yield 2.5% (fully franked) Telstra has been very strong on the market recently, as brokers have come out with increasingly positive assessments of it’s worth. Telstra is one of the few full service telecommunication companies in the world. After applying “indicative valuation parameters” to all of Telstra’s businesses, one broker told me that Telstra is undervalued relative to international peer telecommunication companies. The defensive, stable nature of Telstra’s earnings stream, combined with its pure domestic earnings focus, is considered a very attractive investment featured in

the context of a deteriorating domestic economic environment, continued turmoil in Asia and a global non-inflationary environment. Taking into account that Telstra share prices have doubled in the last 6 months, being one of the two largest profit making companies in Australia (the other being National Australia Bank), I believe my prediction of Telstra shares quadrupling over the next 5 years is very minimal. National Australia Bank- 4464 shares @ $22.40 each = $99993.60, yield 4.6% (fully franked) In a special report, “The Emerging Global Player”, it recommends NAB as a strong long term outperformer. One broker I spoke to says NAB holds the most robust positioning of Australian banks to respond to global changes in the provision of financial services. Its recent alliance

with BancOne in the United states signals that NAB is emerging as a global player. NAB’s current price is based on the Australian market. But as it becomes more global, I expect it to be re-rated towards global pricing multiples. Over the past decade NAB has successfully expanded overseas. It has targeted regional retail banking in countries with cultures and regulatory environments similar to Australia’s. Offshore businesses now represent 50% of NAB’s asset base and contribute 46% of profit. The recent weakness of the Australian Dollar has demonstrated one positive impact of the diversification. NAB’s two latest acquisitions (country investment management in Australia and Homeside in the United States) have given NAB a broadening of it’s scope. They reflect the move

wider financial services, now one of the driving stratergies of most banks and insurers. All of the above have shown the impressive performance of NAB and I believe NAB will continue to pull desirable figures. NAB is one of the two largest profit making companies in Australia (the other being Telstra) and with future expansion and with the experience it is now receiving from overseas, I expect the price of $22.40 to double. Australian Gas Light Company- 4587 shares @ $10.90 each = $49998.30, yield 3.4% (fully franked) AGL’s share price has fallen from $11.78 since the release in may by the Australian Consumer and Competition Commission and the Victorian Office of the Regulator general of draft decisions on access arrangements for natural gas transmission pipelines and

distribution networks in Victoria from 2001. The report concludes that the current rate of return for Australian gas and electricity utilities is too high. The environment of low interest rates and inflation suggests that future real pre-tax rates of return, currently regulated at 10.9%, should be lowered to 7%. Although they have no immediate impact on AGL’s gas distribution business in New South Wales, or the electricity distribution in Victoria, the rulings do provide a guide as to how tariffs are likely to be determined under the National Access Code. Despite not taking effect for some time, and the NSW regulator using different pricing formulae, the reports implications have had their effect on market valuations of utilities. I believe that AGL’s successful