Founder Evidente. Top rated quantitative analyst, Evidente

Sam Ferraro

Founder Evidente. Top rated quantitative analyst

Evidente

Evidente is an independent financial education firm that delivers innovative financial advice to wholesale investors, including active long only funds, hedge funds, pension funds, and sovereign wealth funds, in Australia and globally.  Drawing on academic research in asset pricing, behavioural finance and portfolio construction, Evidente provides wholesale investors with commercial solutions to stock selection and asset allocation decisions across equities and other asset classes.

<ul><li>In this report, we identify financial forensics as an indispensable part of the short-seller's tool-kit.  Specifically, we examine the role that a deterioration in earnings quality has played in the demise and poor performance of two high profile Australian small caps that were once market darlings: electronic retailer, Dick Smith Holdings and law firm, Slater &amp; Gordon.</li><li>Now that over three quarters of the ASX200 companies have reported their 2016 full year results, Evidente has undertaken a comprehensive analysis of company annual accounts and identified three companies that have reported a high non-cash component of earnings and a substantial deterioration in earnings quality in the past year: A2M, BAP and BLK. </li><li>In the second instalment of Financial Forensic, Evidente will use its cash based accruals measure to develop a more robust and clean estimate of cash based operating profitability.</li></ul>

In this report, we identify financial forensics as an indispensable part of the short-seller's tool-kit.  Specifically, we examine the role that a deterioration in earnings quality has played in the demise and poor performance of two high profile Australian small caps that were once market darlings: electronic retailer, Dick Smith Holdings and law firm, Slater &amp; Gordon.Now that over three quarters of the ASX200 companies have reported their 2016 full year results, Evidente has undertaken a comprehensive analysis of company annual accounts and identified three companies that have reported a high non-cash component of earnings and a substantial deterioration in earnings quality in the past year: A2M, BAP and BLK. In the second instalment of Financial Forensic, Evidente will use its cash based accruals measure to develop a more robust and clean estimate of cash based operating profitability.

Macroeconomics

<ul><li>Interbank Cash Rate Futures point to a 65% probability that the RBA will cut the Overnight Cash Rate (OCR) by 25 basis points to 1.5% on Tuesday.  Real rates have effectively lifted in the first half of CY2016, with the 25 basis point cut to the OCR in May only partially offsetting the 50 basis point decline in underlying inflation.</li><li>Consequently, Evidente believes that the central bank should deliver another rate cut this week of 25 basis points.  With the Governor’s ten year term about to end in September, surely Mr Stevens will not want to leave a legacy of have tolerated a 50 basis point undershoot on the RBA’s inflation target?</li><li>Since its launch a month ago, the key macro principle guiding Evidente’s model portfolio has been the prospect that interest rates will remain low for an extended period due to the shortfall in aggregate demand.  As a result, the portfolio retains a strong defensive bias, with an overall beta of less than 0.85.  Over the past month, the portfolio delivered alpha of 1.2%, reflecting stock selection within the small cyclical budget, including overweights in MND (+41%), BSL (+32%), MYR (+19%) and PMV (+14%). </li></ul>

Interbank Cash Rate Futures point to a 65% probability that the RBA will cut the Overnight Cash Rate (OCR) by 25 basis points to 1.5% on Tuesday.  Real rates have effectively lifted in the first half of CY2016, with the 25 basis point cut to the OCR in May only partially offsetting the 50 basis point decline in underlying inflation.Consequently, Evidente believes that the central bank should deliver another rate cut this week of 25 basis points.  With the Governor’s ten year term about to end in September, surely Mr Stevens will not want to leave a legacy of have tolerated a 50 basis point undershoot on the RBA’s inflation target?Since its launch a month ago, the key macro principle guiding Evidente’s model portfolio has been the prospect that interest rates will remain low for an extended period due to the shortfall in aggregate demand.  As a result, the portfolio retains a strong defensive bias, with an overall beta of less than 0.85.  Over the past month, the portfolio delivered alpha of 1.2%, reflecting stock selection within the small cyclical budget, including overweights in MND (+41%), BSL (+32%), MYR (+19%) and PMV (+14%). 

Retain Defensive Bias as the Reluctant Rate Cutter Likely to Deliver More Stimulus

Founder and CEO, Europacifica Consulting

Naomi Fink

Founder and CEO

Europacifica Consulting

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/009/868/original/Chart2.Australia.Risk_.Pref_.png?1467594254" class="editor-image img-responsive" data-smartkarma-image-id="9868"><figcaption class="figcaption">Australians risk-averse? Not today, mate (Source: Europacifica)</figcaption></figure> Speculation that Australia will lose its <a href="http://www.afr.com/news/politics/election/election-2016-the-trafficjam-political-culture-threatening-aaa-credit-rating-20160703-gpxil9" target="_blank">AAA rating</a> due to political deadlock at the polls has probably been enhanced by <a href="http://www.telegraph.co.uk/business/2016/06/27/george-osborne-to-speak-in-attempt-to-calm-markets-following-bre/" target="_blank">the final downgrade</a> to the UK's own rating, motivated by the recent EU referendum.  Medium-term, the "lucky country" might very well escape the fate of capital flight, given there are many more controversial events (such as US elections) that affect Australia little. Whenever appetite for risk revives…

Australians risk-averse? Not today, mate (Source: Europacifica) Speculation that Australia will lose its AAA rating due to political deadlock at the polls has probably been enhanced by the final downgrade to the UK's own rating, motivated by the recent EU referendum.  Medium-term, the "lucky country" might very well escape the fate of capital flight, given there are many more controversial events (such as US elections) that affect Australia little. Whenever appetite for risk revives…

Global Head of Research, Smartkarma

Mark Artherton

Global Head of Research

Ecstrat

Ecstrat is a consultancy advising on asset allocation between global equity markets, with a focus on the intersection of governments, geopolitics, governance and markets.
 
Over the past few years and more especially since the Great Financial Crisis (GFC), investors have become more focused on short-term market movements and real-time returns and have consequently neglected the analysis of the underlying structural themes that underpin longer term performance.
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More specifically we believe that the evolution of governance-based relationships between investors, controlling shareholders, labour and the state is one of the primary determinants of both relative and absolute performance between individual equity markets.
 
We will endeavour to provide investors with some of the context surrounding governance-related issues which encompass many different disciplines including history, economics and political science, as well as the financial metrics which are the most obvious manifestation of the structural characteristics of each market.
 
We will pay particular attention to the shifts and potential inflection points for governance in individual markets as these are often the best lead indicators for both economic and market performance.

<div class="content-highlight">The failure to use or the aggressive implementation of asset write downs in emerging markets and Asia will have far reaching implications for investors.</div> We live in a world where investors are uncertain about asset values both in financial and non-financial companies.  Whilst a lot is written about the nature of bad debts at banks, little has been comprehensively written about the balance sheets of non-financial companies.We see the following evidence in our analysis: <ul><li><div class="content-highlight">The failure of some…</div></li></ul>

The failure to use or the aggressive implementation of asset write downs in emerging markets and Asia will have far reaching implications for investors. We live in a world where investors are uncertain about asset values both in financial and non-financial companies.  Whilst a lot is written about the nature of bad debts at banks, little has been comprehensively written about the balance sheets of non-financial companies.We see the following evidence in our analysis: The failure of some…

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Event-Driven

A few hours ago, <a href="https://www.smartkarma.com/entities/5" target="_blank" data-smartkarma-citation="entities:5">Broadspectrum</a> released its <a href="http://tse.live.irmau.com/irm/showdownloaddoc.aspx?SiteId=254&amp;AnnounceGuid=60ccaa34-68fe-4c0c-89dc-d6a9333e17be" target="_blank">Target's Statement</a> regarding <a href="https://www.smartkarma.com/entities/21031" target="_blank" data-smartkarma-citation="entities:21031">Ferrovial</a>'s unsolicited Offer to acquire 50.1% of the shares at A$1.35/share.This is as expected.  The chairman's letter and the board unanimously recommends shareholders REJECT, for lots of reasons. Some are valid. Some are not. The main reasons explained in the Chairman's Letter are as follows: <ol><li>Ferrovial's Offer "Significantly undervalues your Broadspectrum shares" as the Independent Expert came up with a fair value range…</li></ol>

A few hours ago, Broadspectrum released its Target's Statement regarding Ferrovial's unsolicited Offer to acquire 50.1% of the shares at A$1.35/share.This is as expected.  The chairman's letter and the board unanimously recommends shareholders REJECT, for lots of reasons. Some are valid. Some are not. The main reasons explained in the Chairman's Letter are as follows: Ferrovial's Offer "Significantly undervalues your Broadspectrum shares" as the Independent Expert came up with a fair value range…

Broadspectrum Peaks Head Out from Behind Mattress. Shoots. Ducks Again.

Australia

Spotless Group Holdings Ltd offers cleaning services. The company offers catering, maintenance, security, laundry and linen, waste management, environmental services, and cleaning.

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Spotless Group Holdings (SPO AU)

Financial Forensic - Part I

In this report, we identify financial forensics as an indispensable part of the short-seller's tool-kit. Specifically, we examine the role that a...

Sam Ferraro

Retain Defensive Bias as the Reluctant Rate Cutter Likely to Deliver More Stimulus

Interbank Cash Rate Futures point to a 65% probability that the RBA will cut the Overnight Cash Rate (OCR) by 25 basis points to 1.5% on...

Sam Ferraro

Australia a Risk Haven? Not Today, Mate

Speculation that Australia will lose its AAA rating due to political deadlock at the polls has probably been enhanced by the final downgrade to...

Naomi Fink

Beware Impairments in EM and Asia

The failure to use or the aggressive implementation of asset write downs in emerging markets and Asia will have far reaching implications for...

Mark Artherton

Broadspectrum Peaks Head Out from Behind Mattress. Shoots. Ducks Again.

A few hours ago, Broadspectrum released its Target's Statement regarding Ferrovial's unsolicited Offer to acquire 50.1% of the shares at...

Travis Lundy

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