Banks shares set to rise as investors dive in before dividend payouts

Macquarie says attractive valuations and historical outperformance in the lead up to ex-dividend dates could drive banks’ share prices higher. The big four banks performance pre- and post- dividend date. Photo: Macquarie Wealth Management
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The sharemarket valuations of the big banks are looking attractive after the recent sell-off and the usual buying that occurs before their dividend payouts could drive their share prices higher, Macquarie says.

The S&P/ASX 200 banks index tumbled to its lowest point since July 2013 at the end of a dismal third quarter for the sharemarket. The index has fallen 20 per cent since the market rout began in April, fuelled by volatility on macro concerns and industry-specific capital raising requirements directed by the n Prudential Regulatory Authority.

“With the sell-off that began in April the banks are currently trading at valuations not seen in years,” Macquarie Wealth Management wrote in a research note.

“While the market is primarily being driven by macro concerns at the moment, we view the upcoming dividends as a catalyst to drive outperformance as the dividends focus the market on the attractive valuations these companies are currently trading at.”

Westpac Banking Corporation, National  Bank, ANZ Banking Group and Bank of Queensland are all going ex-dividend in November and Macquarie said the buying in the run up could push their share price valuations back to more normal levels relative to the market. Commonwealth Bank of went ex-dividend in August.

Higher-yielding stocks, including the big banks and real estate investment trusts, tended to outperform the market in the lead-up to their ex-dividend trading dates, Macquarie said, because investors priced in the dividend before the ex-dividend date.

On average, the banks outperformed the market by 2 to 4 per cent in the weeks leading up to their ex-dividend date and then underperformed after that date, Macquarie said.  Run-up shifting earlier

“We also observe the run-up has been shifting earlier for the banks, with the peak often occurring well before the ex-date, with the banks then selling off in the final weeks just before their ex-date.”

The banks index fell to a low of 7620.8 on September 29, the day the sharemarket shed 4 per cent to plummet to less than  5000 for the first time in two years, but since then it has risen more than 5 per cent.

“The recent sell-off in the banks presents substantial opportunity,” Macquarie said.

ANZ was the most heavily sold-off stock in  August, and at the end of the third quarter was trading at a multiple of 10.2 times forward earnings, with a yield of 9.7 per cent. The last time it was trading this cheaply was in January 2013.

“We believe the upcoming dividend will act as a catalyst for investors to trade on the attractive valuations and as a result we expect ANZ to outperform in the lead-up to its ex-date,” Macquarie said.

Westpac was trading at a forward price-earnings ratio of 11.6 times earnings, with an earnings yield of 8.6 per cent. The last time Westpac traded at its September 30 price was in July 2013.

“With the dividend around the corner, our view is the market will become increasingly aware of these attractive valuations and we will see the run-up commence late and supported by a valuation tailwind,” Macquarie said.

National Bank’s valuation is at its cheapest since October 2014. It is trading at a forward price-earnings ratio of 11 times, with an earnings yield of 8.8 per cent. Macquarie also expects this attractive valuation to lead NAB to outperform the market in the lead-up to its dividend.

Solar and wind power just passed another big turning point

As more renewables are installed, coal and natural gas plants are used less, making them less cost-effective. Photo: Nicolas WalkerWind power is now the cheapest electricity to produce in both Germany and the UK, even without government subsidies. It’s the first time that threshold has been crossed by a G7 economy. But that’s less interesting than what just happened in the world’s largest economy, according to a Bloomberg analysis. To appreciate what’s going on in the US, you need to understand the capacity factor. That’s the percentage of a power plant’s maximum potential that’s actually achieved over time. Consider a solar project. The sun doesn’t shine at night and, even during the day, varies in brightness with the weather and the seasons. So a project that can crank out 100 megawatt hours of electricity during the sunniest part of the day might produce just 20 per cent of that when averaged out over a year. That gives it a 20 per cent capacity factor. One of the major strengths of fossil fuel power plants is that they can command very high and predictable capacity factors. The average US natural gas plant, for example, might produce about 70 per cent of its potential (falling short of 100 per cent because of seasonal demand and maintenance). But that’s what’s changing, and it’s a big deal. For the first time, widespread adoption of renewables is effectively lowering the capacity factor for fossil fuels. That’s because once a solar or wind project is built, the marginal cost of the electricity it produces is pretty much zero-free electricity – while coal and gas plants require more fuel for every new watt produced. If you’re a power company with a choice, you choose the free stuff every time. It’s a self-reinforcing cycle. As more renewables are installed, coal and natural gas plants are used less. As coal and gas are used less, the cost of using them to generate electricity goes up. As the cost of coal and gas power rises, more renewables will be installed. The virtuous cycle has begun
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Wind and solar have long made up a small fraction of US electricity – about 5 per cent in 2014. But production has been rising at an exponential rate, and those two energy sources are now big enough to influence when coal and natural gas plants are kept running, according to Bloomberg New Energy Finance (BNEF). There are two reasons this shift in capacity factors is important. First, it’s yet another sign of the rising disruptive force of renewable energy in power markets. It’s impossible to brush aside renewables in the US in the same way it might have been just a few years ago.  “Renewables are really becoming cost-competitive, and they’re competing more directly with fossil fuels,” said BNEF analyst Luke Mills. “We’re seeing the utilisation rate of fossil fuels wear away.” Second, the shift illustrates a serious new risk for power companies planning to invest in coal or natural-gas plants. Historically, a high capacity factor has been a fixed input in the cost calculation. But now anyone contemplating a billion-dollar power plant with an anticipated lifespan of decades must consider the possibility that as time goes on, the plant will be used less than when its doors first open. Capacity Factors Take a Sharp Turn

Most of the decline in capacity factors is due to expensive “base-load plants that are being turned on less because of renewables,” according to BNEF analyst Jacqueline Lilinshtein. Plants designed to come online only during the highest demand of the year, known as peaker plants, play a smaller role. In either case, the end result is that coal-fired and gas-fired electricity is becoming more expensive and the profits less predictable. The opposite is true of wind and solar, as well as new battery systems that can be paired with renewables to replace some peaker plants. Wind power, including US subsidies, became the cheapest electricity in the US for the first time last year, according to BNEF. Solar power is a bit further behind, but the costs are dropping rapidly, especially those associated with financing a new project. The economic advantages of wind and solar over fossil fuels go beyond price. Still, it’s remarkable that in every major region of the world, the lifetime cost of new coal and gas projects are rising considerably in the second half of 2015, according to BNEF. And in every major region the cost of renewables continues to fall. Bloomberg

Chinese $36.6m offer for Armour Energy too little, expert says

Armour chairman Nick Mather has told shareholders the Landbridge offer is inadequate. Photo: Robert ShakespeareThe battle for control of shale junior Armour Energy has heated up after a $36.6 million takeover offer by China-owned WestSide Corporation was deemed inadequate.
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The judgment by the expert hired by Armour to assess the offer lends weight to the shale explorer’s advice that shareholders rebuff the hostile bid

Armour’s shares are worth  22¢ to 37¢, according to BDO Corporate Finance. The mid-point of the valuation range is more than double WestSide’s cash offer of 12¢ a share, which itself was almost double the 6.8¢ at which Armour’s shares were trading before the bid.

Armour directors unanimously told shareholders to reject the “inadequate, unsolicited and opportunistic” offer and said WestSide, which is part of privately owned Landbridge Group, “wants to extract value at your expense”.

Shares in Armour, which is being advised by Morgans, rose 4.2 per cent to 12.5¢.

Shareholders, including Armour directors controlling 29.51 per cent of the stock, don’t intend to accept the offer as of Wednesday, the Brisbane-based company said.

Armour is asking shareholders to instead support a proposed $US130 million ($182 million) exploration venture with American Energy Partners, the company of US shale pioneer Aubrey McClendon, that would have AEP buy 75 per cent of the n player’s vast acreage in the McArthur Basin in the Northern Territory and western Queensland.

The investment would be Mr McClendon’s first outside North America in what some regard as a vote of confidence in the potential of Armour’s exploration acreage, despite the dive in oil prices that has caused other foreign investors to abandon shale exploration in .

Nicholas Mather, executive chairman of Armour who leads DGR Global, its biggest shareholder, said the offer from the Chinese group “is inadequate and does not reflect fair value for Armour shares”. He said it offers no value for the proposed value of Origin Energy’s idled oil and gas production assets on the Roma Shelf in Queensland.

Mr Mather said the AEP farm-out deal “values Armour substantially higher, on a non-control basis”, noting that a proposed equity placement to AEP at 20¢ a share suggests a $60.9 million valuation.

WestSide, which is being advised by JB North & Co, has yet to respond.

Wednesday, October 7

Compelling drama: The Principal.FREE TO AIR
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Caught on Dashcam, Seven, 7.30pm 

There’s voyeurism then there’s dashcam videos, a long-time internet favourite, particularly the Russian variety (they’ve been using dashcams for years, reportedly because insurance frauds are so rife there), which make up the bulk of this program. That’s right: brief videos from people’s in-car dashboard cameras (although there’s also a lot of mobile phone footage here) augmented by some truly awful ‘‘zany’’  voiceovers.  Caught on Dashcam should win an award for the least expensive series ever produced, if nothing else.

The Principal, SBS, 8.30pm 

SBS’s first original drama in years was created by producer Ian Collie (Rake), writers Rachael Turk and Kristen Dunphy (East West 101) and is directed by Kriv Stenders (Red Dog) – and its cast (Alex Dimitriades, Aden Young, Mirrah Foulkes among them) is equally impressive. Dimitriades is Matt Bashir, the new principal of the notoriously rough (fictional) Boxdale Boys’ High School in Sydney’s west, an ethnically diverse school where the staff are burnt out and cynical and the students not much better. But Bashir is determined to turn the place around, instantly ruffling feathers with his inspirational platitudes and determination to instil self-respect among the worst students. This is no Heartbreak High though; The Principal is a hybrid school/crime drama set in a post-9/11 high school, where multiculturalism and radicalisation are bigger concerns than peer pressure or schoolground bullying. Newcomers Rahel Romahn as troubled student Tarek Ahmad and Tyler De Nawi as his brother Karim are standouts among the young cast in this compelling new drama.

Celebrity Apprentice  Nine, 8.40pm 

It’s bad enough that the ‘‘celebrity’’ spin-off of The Apprentice bears little resemblance to the original’s premise, but the producers of this n series haven’t even concerned themselves much with the ‘‘celebrity’’ part – the line-up is, frankly, bizarre and even those who have only reality TV experience to draw on (which is most of them) seem unable to even conduct  faux-arguments very well. Unless the producers poke these ‘‘celebs’’ into some proper in-fighting soon, there’s so little reason to tune in, it’s actually embarrassing.Kylie Northover


The Hobbit: The Battle of the Five Armies  (2014) Premiere Movies (pay TV), 8.30pm

The Battle of the Five Armies, one of the climactic events in J.R.R. Tolkien’s The Hobbit, is essentially a background event, a big picture clash seen from a distance as the individual protagonists are caught up in the Middle Earth clash for the vast treasure of the felled dragon Smaug. It took three pages in the book, but it lasts a good part of this 144-minute film, the final instalment of Peter Jackson’s dreary trilogy where the economy and insight of his previous Lord of the Rings series is replaced by excess and indulgence. While it’s nice that Orlando Bloom got paid work, bringing back his elven character Legolas was just one of many sloppy inventions that marked Jackson’s preference for his own legacy over the source material, and the perpetual usage of digital effects turns the picture into a dull fantasy that lacks the physicality and endeavour of Jackson’s initial Tolkien adaptations. One of the elements added by the filmmaker, foreshadowing his Lord of the Rings films, was the return of the Dark Lord Sauron, but by the end of this ham-fisted, repetitive blockbuster the only threatening force looming over these films is Peter Jackson himself, battering his own legacy.

Pineapple Express (2008) Ten, 10pm

In a stoner comedy you have to believe  the leads know how to get high and do everything associated with the fuzzed-out state: that is talk rubbish, hatch grand plans, flip out without warning, and get a bad case of the munchies. In that regard Seth Rogen, as amiable process server Dale Denton, and James Franco, as his slacker dealer Saul Silver, have all the bases covered in David Gordon Green’s Pineapple Express – fleeing to the woods at one point they even play leapfrog together. The film itself, one of many co-written by Rogen in the long period when no one would pay him to act, is actually more of an ’80s action adventure, albeit with a ludicrously warped sensibility. It has various criminal gangs, plus Rosie Perez as a corrupt cop, goons borrowed from the era of The Last Boy Scout and a massed battle for the finale. But it never surrenders to these impulses, remaining an improbable adventure between the mismatched Saul and Dale, with Danny McBride’s Red – one of his stream of overly confident American misfits – as their travelling companion. When the bullets stop flying they get breakfast together and laugh about their journey, bud(dies) forever.Craig Mathieson

Most isolated places in the world: Top 10 places to feel complete isolation

Torres del Paine mountains, Patagonia, Chile Photo: iStock Torres del Paine mountains, Patagonia, Chile Photo: iStock
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Torres del Paine mountains, Patagonia, Chile Photo: iStock

Atacama Desert: The Atacama is the ultimate expression of the phrase “high and dry” – a desert 4000 metres above sea level, where only a couple of millimetres of rain falls every year. It’s also almost completely uninhabited, a place in northern Chile where you can see for mile after mile in the thin, dry air – but you still can’t see anything of note. There’s a beautiful stillness to the Atacama that will never be shattered. Photo: iStock

Torres del Paine mountains, Patagonia, Chile Photo: iStock

There’s getting away from it all, and there’s getting away from it all.

For some people, just leaving their home city is enough of a break. Maybe relaxing on a beach with a few other people will do it. Or climbing a mountain and breathing in some clean air. It recharges the batteries. It makes you feel alive.

However, if you really want to get away from it all – if you want to experience total and utter isolation, the feeling that you’re the only person left on the entire planet – then you need to visit these places. Mongolian steppe

Ulan Baator is pretty horrible. The Mongolian capital is polluted and cramped, and not a lot of fun. However, drive just a few hours in any direction and suddenly you’re in the most perfect, complete wilderness you’ve ever seen. The Mongolian steppe is a seemingly never-ending series of rolling plains, of treeless valleys and hillsides dotted with just the occasional white blob of a ger. The silence is eerie. Especially compared to UB. Antarctica

When the nearest gathering of human civilisation is an entire ocean away; when the nearest point of interest is just a notional spot somewhere over the snowy hills that marks the end of the Earth; when your only friends are penguins and seals – then you know you’ve achieved isolation. Antarctica is the perfect place to be if you’ve grown weary of the worries of the world. The Red Centre

ns don’t have to go far to be in the middle of nowhere. Out in the centre of this great land lies a fairly big patch of absolutely nothing. When you’re wandering the Red Centre you could very easily imagine that the rest of the world has ceased to exist. And when it gets dark, and all those stars come out, you’ll become obsessed with worlds much further away. Lake Uyuni

During the day, this huge salt pan in central Bolivia is isolated. It’s an endless stretch of bright white merging with a shimmering horizon that dips and swirls and fools you into thinking you know where you’re going. But even still, during the daytime you’ll see other people, other tourists, other 4WDs. At night it’s another story. Camp out on the lake, and all those other people disappear. It’s just you and the howl of the wind. It’s a little scary. And very cold. The Yukon

You’re not completely isolated in northern Canada. You’re not the only one around. That is, if you count the bears, the blacks and the grizzlies, the coyotes, the cougars, the beavers and even the hares. If it’s humans you’re thinking about, however, there aren’t any. You can be helicoptered in to some of the most beautiful, remote places on Earth in the Yukon. French Polynesia

While islands like Bora Bora and Moorea have been well and truly colonised, there are still places to get away from it all in French Polynesia. Try the Tuamotus, an hour-long flight from Tahiti. This group of atolls and islands is paradise of the classic kind, palm-tree-lined beaches stuck in the middle of the Pacific, where barely another soul has walked. It’s another world, and it’s a serious adventure even getting there.  Patagonia

Silence. That’s what you notice most in Patagonia. When you’re out on the steppe, hiking rugged mountains, passing rivers, looking down over glaciers, the sound you hear is silence. There’s no one else and nothing else around in the south of Argentina and Chile. If you’re trying to get away from it all, then this is where you want to be. Franklin-Gordon Wild Rivers National Park

Do a rafting expedition in this patch of south-west Tasmanian wilderness and you’ll come to know isolation. This is world heritage-listed beauty we’re talking about, a place strictly controlled for preservation, where you’ll come to realise that your rafting party makes up just about the only human presence for miles and miles around. Purros, Namibia

Purros, officially, is a town, but it doesn’t look like any town you’ve ever seen before. It’s more just a collection of a few shacks and a dusty campground, a place that takes days to reach by 4WD from the nearest thing you could refer to as civilisation. This is the home of the Himba tribespeople, although only a small number of them exist. It’s also as far from anything you know as you’re likely to have ever been. Atacama Desert

The Atacama is the ultimate expression of the phrase “high and dry” – a desert 4000 metres above sea level, where only a couple of millimetres of rain falls every year. It’s also almost completely uninhabited, a place in northern Chile where you can see for mile after mile in the thin, dry air – but you still can’t see anything of note. There’s a beautiful stillness to the Atacama that will never be shattered.

Where would you go to feel cut off from the rest of the world? Where’s the most isolated place you’ve been?

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See also: 12 signs that say you’re a real traveller See also: The 15 coolest Airbnb rentals