LUK's 4Q Gains on Tax Benefits - Analyst Blog

Leucadia National Corporation (LUK - Analyst Report) reported its financial results for the fourth quarter and the fiscal year 2010 on February 25, 2011. In the fourth quarter, the company generated a net income (from continuing operations) of $6.77 per share, up compared with a net loss of 34 cents per share in the year-ago quarter.

In the fiscal year 2010, net income from continuing operations was $1,891.4 million or $7.66 per share, up compared with $533.7 million or $2.18 per share in the previous year. The improvement can be attributed to significant revenue growth and tax benefits, offset partially by higher expenses in the year.

Revenue

In the fourth quarter 2010, revenue jumped significantly year over year to $585.6 million from $192.8 million in the year-ago comparable quarter. Revenue in the fiscal year 2010 was $1,320.0 million, up compared with $575.2 million in the previous year. The improvement was attributed to strong performances across all segments.

In the fiscal year 2010, revenue from the Manufacturing segment was $260 million, up 15.7% year over year and accounted for 19.7% of total revenue. Oil and Gas Drilling segment accounted for 8.8% of revenue and totaled $116.6 million.

Revenue generated from Gaming Entertainment operationswas roughly 8.7% of total revenue, and increased 10.8% to $114.8 million, while revenue of $17.1 million from Domestic Real Estate segment accounted for 1.3% of total revenue.

Revenue from Medical Product Development segment slipped to $0.1 million from $5.1 million in the year 2009. Proceeds from Other operations were $67.1 million, up from $51.8 million in 2009 and accounted for about 5.1% of total revenue, while corporate segment revenue of $744.3 million accounted for 56.4% of revenue.

Margins

Expenses in the fiscal year 2010 increased 16.5% year over year to $951.0 million from $816.4 million in the year 2009. In relation to revenue, expenses dipped to 72% from 142% in the earlier year.

Balance Sheet

Exiting the fourth quarter, Leucadia’s cash and cash equivalents went up 36.5% sequentially to $441.3 million, while its long-term debt dipped by 3.7% to $1,548.5 million compared with $1,608.4 million in the previous quarter.

Cash Flow

Cash flow from operating activities was a net inflow of $431.3 million in 2010 compared with a net outflow of $133.4 million in the previous year. Spending on property, equipment and leasehold improvements increased in the year to $44.3 million compared with $23.6 million in the previous year.

In the fiscal year 2010, the company paid dividends totaling $61.0 million and issued common shares worth $11.3 million.

Leucadia is engaged in manufacturing, telecommunications, oil and gas drilling services, property management and services, gaming entertainment, real estate activities, medical product development operations and various other investment activities in the United States. We currently maintain our Neutral recommendation on Leucadia.

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Forex – AUD/USD Up On Economic Data

Forex Pros – The Australian Dollar was higher against the U.S. Dollar on Tuesday after the release of Australian data on Retail Sales.

AUD/USD was trading at 1.0189, up 0.03% at time of writing.

The pair was likely to find support at 1.0003, Thursday’s low, and resistance at 1.0202, today’s high.

Earlier in the day, official data showed that Retail sales in Australia rose more-than-expected to a seasonally adjusted 0.40% last month from 0.20% in the preceding month.

Analysts had expected Australian retail sales to rise 0.30% last month.

Meanwhile, the Australian Dollar was down against the Euro and up against the Japanese Yen, with EUR/AUD gaining 0.04% to hit 1.3561 and AUD/JPY rising 0.23% to hit 83.49.

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Higher commodity exports for Australia--study

Sales from Australia's commodity exports are seen growing to $255 billion in the next 12 months to be driven by growing world demand, a report of the Bureau of Agricultural & Resource Economics & Sciences (ABARES) said today.

Australia, still world's largest commodity exporter especially of steel grade coal, wool and other iron ore materials, is seen advancing 14 percent in the next fiscal year beginning 30 June 2011.

However, the Canberra-based statistics and research government agency, has adjusted its estimates of commodity earnings for the current fiscal year by 4.5 percent to A$220.6 billion from $211.1 billion announced in December.

The continuing global demand to fill up requirements for energy and food from Brazil to China are seen to give top Australian exports more boost in the near term, the research bureau said.

In a related Bloomberg report, Paul Morris, deputy executive director at the bureau, was quoted: "On the minerals and energy side we are seeing very good prices for iron ore, coal, oil,

Top Australian mining companies BHP Billiton and Rio Tinto have announced that higher output may be needed to fulfil the export demand from importers China and Brazil, among others.

The ABARES also noted that agriculture exports of the county have been estimated to grow A$32.5 billion in the next fiscal year. The tight supply situation globally, on the other hand, lessened the impact of the typhoons that damaged local crops in Queensland. The government agency ABARES, estimated that export sales of agricultural commodities would be higher by another A$1 billion to A$31.2 billion.

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Chunghwa Delivers Impressive 4Q - Analyst Blog

Chunghwa Telecom Co. Ltd. (CHT - Analyst Report) declared impressive financial results for the fourth quarter of 2010 with net income increasing 1.6% year over year. This was primarily attributable to massive reduction in income tax rate from 25% in the year-ago quarter to just 17%. Chunghwa is now more confident regarding fiscal 2011 and projected yearly total revenue to rise by approximately 1.94%.

Quarterly, GAAP net income was approximately $354.8 million, up 1.6% year over year.  Net earnings per ADR were 38 cents, up 1.6% year over year. Total revenue, in the fourth quarter of 2010, was approximately $1,727.5 million, up 2.4% year over year. This encouraging performance was the combined result of higher broadband access revenue and continuously growing revenue from both mobile value-added services (VAS) and Internet services.

Quarterly operating income was $433.3 million, down 0.3% year over year. Operating margin was 25.1% compared with 25.7% in the year-ago quarter. Fourth-quarter 2010 EBITDA was $708.2 million, down 3% year over year. Quarterly EBITDA margin came in at 41% compared with 43.3% in the prior-year quarter.

During fiscal 2010, Chunghwa generated around $2,791.5 million cash from operation, up 9.5% year over year. Capital expenditure during fiscal 2010 was around $808.5 million, down 3.8% year over year.  

At the end of fiscal 2010, Chunghwa had approximately $3,000 million of cash & marketable securities and around $112.7 million of outstanding debt on its balance sheet compared with $2,341.2 million of cash & marketable securities and $33.5 million of outstanding debt at the end of fiscal 2009.

Segment wise Revenue

Mobile Communications segment accounted for $740 million of the total fourth-quarter 2010 revenue, up 2.3% year over year. Internet segment accounted for $203.6 million, up 4.3% year over year. Domestic Fixed-line Communications segment generated $615 million, up 0.6% year over year. International Fixed-line Communications segment accounted for $130.4 million, up 6.1% year over year. Non-telecom Business segment generated the remaining $38.6 million, up 10% year over year.

In fiscal 2010, Broadband access (including ADSL and FTTX) revenue was around $670.6 million, up 2.1% year over year. In the same year, mobile-VAS revenue was $364.6 million, up 30.8% year over year.

Subscriber Statistics as of December 31, 2010

Total Broadband subscriber base was 4.4 million. Out of this, FTTx subscriber base was 2.06 million, which accounted for 46.7% of total broadband subscriber base. HiNet subscriber base was 3.59 million. Mobile subscriber base was 9.68 million, up 4.4% year over year. Out of this 3G wireless subscriber base was 5.43 million, comprising an impressive 56.1% of total mobile subscriber base. International /Domestic Fixed-line subscriber base was 12.31 million.

Recommendation

Chunghwa competes in a tough environment with Taiwan Mobile Company and Far EasTone Telecommunications Co. Ltd. We expect fierce competition going forward as the Chinese giant China Mobile Ltd. (CHL - Snapshot Report) has purchased a significant stake in Far EasTone Telecommunications.

We, therefore, maintain our long-term Underperform recommendation on Chunghwa. Currently, it holds a short-term Zacks #3 Rank (Hold) on the stock. We believe this was mainly attributable to the company’s solid fourth-quarter 2010 financial results.

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Watch for iPad 2 Surprise from Apple Wednesday

Is Apple Releasing IPad 2 Early?

On one hand, we have reports from the media, creating doubt about the ability of Apple to launch the iPad 2 on a short-term release date. Meanwhile, the other hand is indicating that users could have the new Tablet following the press event next Wednesday.

Now without being too cynical about people in the “know”; according to “people familiar” with the matter, Apple is getting ready for at least one version of the iPad 2 to be in transit to retail outlets during the press briefing next week.

The reports provide words of wisdom with the warning that until Apple release a statement confirming this issue, nothing is definite! However, it was emphasized that these same people have previously provided consistent, accurate information regarding future Apple plans. This forecast is in direct contradiction to reports during the past weeks, intimating that Apple for various reasons would be unable to ship the iPad 2 for an unspecified time.

Within one year, the IPad has developed from a presumed “niche product” to an asset with the potential of generating 20% of the Apple business, on a quarter-to-quarter basis. Therefore, creating a situation, which could be described as a “Teaser”, with a new iPad 2 could be considered counter-productive. If the new device were unable to be shipped for over four weeks, the sales of existing models would decline drastically, resulting in a major financial loss to the company.

The viewed position expects Apple to present the iPad 2 in three variations. Adding to this will be models targeted at AT&T and a wide range for the European 3G providers. Indications are that a CDMA version, applicable to Verizon and selected Far East providers is also under scrutiny.

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Invites Have Gone Out for iPad 2 Release Event in San Fransisco

Invitations finally went out to reporters on Wednesday to come to the Yerba Buena Center for the Arts in San Francisco to witness the iPad 2 Release. This is the same place that apple introduced the original iPad to the world. The invites have an iCal like image with the number 2 on the front with the unmistakeable image of an iPad showing from a peeled up corner. The tagline for the event is ‘Come see what 2011 will be the year of.’ Brave words, as ever from apple, as they prepare to face a very different tablet market than they did a year ago.

A year ago apple were very much out on their own in the tablet market and since then all the other manufacturers have played catch up, and catch up they have. The iPad 2 will enter a market that now has literally dozens of significant players many of which pose a significant challenge to the iPad 2. With the iPad 2 Release, apple will have to compete in form, function and price in order to stay ahead of the competition.

The rumour mill believes that the new iPad 2 with be thinner, lighter, faster and have a front facing camera for video chat. It is also likely that a chip will be added to allow use of the iPad 2 on CDMA networks such as used by Verizon, the new player in the iPhone market.

One thing that is not known is who will make the keynote presentation and the iPad 2 Release event. The master of understatement and leader of apple, Steve Jobs would normally be odds on favourite to front the event but he is again on medical leave so this is very unlikely. More likely front men are COO time Cook or the head of marketing Phil Schiller.

At least all the question about the new device will be answered at this iPad 2 Release event.

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Stock Markets Remain Mixed – Stay Alert

We are starting the week with the same issues, higher oil prices, inflation, lack luster growth in the economy, jobs and the spend-o-holics in Washington. As we discussed, the Friday bounce was just that, a bounce. There is no indication in either direction that is overly convincing. The catalyst will be investor sentiment or belief. It is easy to buy into the rhetoric of Wall Street and believe everything is okay. There are two key issues facing this market in the foreseeable future, higher interest rates and inflation. By the way both are rally killers.

With the global turmoil heating up the focus has shifted from food inflation to higher oil prices due to production disruption. Some soothing words from Saudi Arabia that they will make up the supply shortage from Libya sent oil back near $98 a barrel. Nice to know that Saudi Arabia is willing to sell us more oil at $98 which two weeks ago they were selling for $82. The recent distraction has taken the focus off agriculture prices hitting record highs. It has also lessened the pressure on interest rates which were inching towards the 5% level on the 30 year Treasury bond. They receded 27 basis point last week to 4.51%.

Economic data last week was mixed, but one report was lost in the Mideast strife, inventories fell. One of the definitions of inflation is too much money, chasing too few goods. I am not saying we are at that level, but the inflation picture continues be painted and when it is finished it will be too late to stop the impact with anything other than raising interest rates. I refer you to the two rally killers mentioned above (inflation and higher interest rares).

I am not trying to be Debbie Downer, but we do have to take note of the risks relative to the market and, more importantly, our money. Thus, as we have done over the last week, we will maintain higher levels of cash, take what the market gives in the short term and keep our eyes open to the developing risks. “Bull Markets” don’t die easy. It takes investors time to come to the conclusion they should sell and protect principle. We continue to believe the buy the dip theory Wall Street so eloquently proliferates will keep the bull running for now.

If last week’s selling turns to buying, take the gains and then get out of the way. The chart below shows the progression of the current trend from the 2009 low. We have essentially completed the first two stages of the rally. There is likely to be a third based on the current data and events. The height and length of the final stage will be determined by the breadth and depth of the current pullback. It could go through the end of the year or it may end in the summer. Time will tell, but as an investor we have to be prepared to understand the events versus blindly following the herd.

It is important to manage risk every day and as a trend matures it is vital to understand the developing events that will ultimately bring the trend to an end. Those events are in play, it is just how long it will take them to mature. Thus, take what the market gives, but keep your stops in place and manage the risk.

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