Saturday, February 06, 2010

International Financial Standards Reporting (IFSR)

In Canada, the Ontario Securities Commission has publicly stated that reporting issuers are not well prepared for changes to IFRS. IFRS is International Financial Standards Reporting which is due to kick in 2011. Yikes that's next year. Here's a few things that they say about MD&A.

"the purpose of this Notice is to summarize the results of the review of 106 reporting issuers and to provide additional guidance for issuers in their Management Discussion & Analysis (MD&A) filings. The review found, among other things:

40% of issuers made no mention of an IFRS changeover plan in their MD&A disclosure 60% of issuers discussed a changeover plan, with only half providing disclosure beyond a generic reference to the transition Only half of the issuers that discussed their IFRS transition in their 2008 MD&A also provided investors with quarterly progress updates in 2009 interim MD&A documents"

Most management teams seem to be asleep on this one.

Friday, February 05, 2010

Dun & Bradstreet Dividend Bribe Backfires

Dun & Bradstreet (DNB) issued Q4 results and disappointed investors in a down market. The shares sold off quickly. Management did increase the dividend by one cent per share. Given the strategy of dividend signals this should be a sign that things are getting better. Everyone has looked through the increase as just another bribe attempt and is running for the hills.

Management needs to examine their communications strategy. North American is not doing well. Other areas are not that great either. But they continuously attempt to frame their results by saying “results are as expected.” Investors want to know what you guys are doing about the poor results. If you constantly expect poor results, than it’s time for some broad and deep changes.

Oh just to re-iterate, investors lose long term confidence in managements that attempt to bribe through dividend increases when results are off.

Sun Life -- Super Bowl Conversion

Sun Life Financial (SLF) is hoping for a great Super Bowl weekend as the game will be played in the Sun Life Stadium. Of course the hope for stadium naming rights is that the media mentions your name over and over again and creates awareness. The Pro Bowl will be played next week and the echo effect should be substantial.

But how do you measure all this?

Will clients want to buy life insurance policies because they heard the name from a sports commentator’s mouth? Will the wealth management division secure more assets to manage? Difficult to determine. The PR gambit if effective will have more resonance at the lower end of the sophistication curve. The smarter the money the less impact this should have. The less sophisticated financial consumer buys a higher margin product but requires higher acquisition costs, such as the naming of sports venues.

The reality is the naming rights are not measureable. Google (GOOG) exists in large part because they can link advertisers and consumers in a contextual pattern. Naming rights exist because stadium developers are financially shrewd.

In about two weeks the hoopla will be yesterday’s news. The Olympics will dominate sports news and the marketing guys at Sun Life will be onto the next thing. This will be all forgiven/forgotten if the dividend stays true (currently 4.75% yield) and Sun Life does not get caught up in some financial product problem like sub-prime mortgages.

Thursday, February 04, 2010

MasterCard De-leveraging Consumers?

MasterCard (MA) reported improved profits. Growth outside the USA seems to be driving their train. The US consumer seems to be de-leveraging. This brings up some interesting questions about geographical mix.

If MasterCard is expanding into new markets presumably they are incurring incremental costs. Also presumably the existing traditional markets are able to leverage existing infrastructure. But traditional market revenues are declining percentage wise.

They also have cut back on marketing costs and some will say they are ceding defeat. Are we seeing the loss of operating leverages?

MasterCard does report revenue geographically but does not report costs in the same manner. For a financial stock this is rather telling. Most other companies can and do tell investors how much bottom-line money they have made from what location.

Why can’t investors hear this from MasterCard?

Maybe then we can also get a handle of incomes taxes and where they are being paid.

Wednesday, February 03, 2010

AOL Where is The Pony?

AOL (AOL) announced Q4 results and closed the books on 2009. Declining revenues, declining subscribers. Tim Armstrong, Chairman and Chief Executive Officer said “We have a clearly defined strategy, and we enter 2010 incredibly focused on day-to-day execution.”

There may be a pony in here somewhere.

AOL is clearly a busted play. The strategy should be we are trying to fix it. Being focused on day to day operations is inadequate. Day to day operations are not working out. Morningstar profiles AOL with 50% of subscriber revenue coming from dial-up.

Something big and drastic needs to come into play. AOL presents with positive cash flow and no significant debt. So will they be able to sell the capital markets on a compelling story, raise capital and buy/invest into something?

AOL subscribers pay monthly. Yet the receivables stand at approximately $462 million which is equal to the quarters revenues for advertising. Your customers think it’s OK to drag their payments. AOL accrued expenses and other liabilities are approximately equal to your cost of revenues. You need to lean on someone to stay balanced. Which of course means you are not balanced.

The pony seems to be in a distant pasture blissfully unaware ....

Tuesday, February 02, 2010

Cummins Capex Program Needs Detail

Cummins (CMI) reported record Q4 results to cap off a turbulent 2009. They say 2010 will be like 2009. But growth is expected in China, India and Brazil. Mature markets such as North America and Europe are not expected to grow. They source a lot of cash which in today’s environment looks good. They have not increased their dividend which to me is a “tell”. They are planning to increase 2010 Capex by 30% to fund long term projects. So says the earnings release. Maybe they will elaborate in the conference call but a general explanation in the earnings release would not have hurt.

The company is hoarding cash and is caught in a classic financial conflict. Reward investors now with dividends and stock buy backs or spend significantly and reward investors later with significant results. Maybe if they explained the Capex program with some degree of certainty investors could reach informed decisions.

Connect the Dots. Venezuela - China - Li Ka Shing- Husky Energy

Husky Energy (TSE:HSE) will be interesting to watch of what is not spoken of. They have significant midstream operations encompassing the upgrading of heavy crude oil into premium synthetic crude oil. In Canada that means the Oil Sands. They are substantially controlled by Hutchinson Whampoa and Li Ka Shing with all the obvious and not so obvious connections to the Chinese Political Elite. The Venezuelan Energy & Oil Minister Rafael Ramirez is in Beijing according to the Wall St Journal and meeting with Cnooc, (China National Offshore Oil Corporation ) China National Petroleum Corp. and China Petrochemical Corp., or Sinopec Group as well as meeting officials with state economic planner, the National Development and Reform Commission, and China Development Bank.

Other than a huge demand and large bank account the Chinese need to bring heavy oil expertise to the table.

Monday, February 01, 2010

Church & Dwight Confused Dividend Signal

Church & Dwight (CHD) the Arm & Hammer guys declared a dividend and announced that they would report to investors on how they did it nine days from now. They also touted their horn and reminded the market that this is the 436th consecutive dividend. The stock yields less than one percent so there are not too many investors living off this income stream.

Last time they did this on Oct 30, 2009 the stock popped a bit and trading was way over the daily average. This time the stock has dropped on an up market trend and volume seems way under the daily average. Although end of month January volume spiked.

Have they overused the dividend signal? Consecutive dividends are nice but management needs to explain how they earned the dividend. Dessert first is a short term communications strategy that some investors will see through.

The conference call is scheduled for 12:30ET on Feb 9, 2010. The dividend is declared for holders of record and the close of business for Feb 10, 2010. So if there is bad news or something not to the markets liking you have 1.5 trading sessions to make decisions knowing that the valuation will carry a declared dividend until March 1, 2010. A three week hang time.

Hmmm. Hmmm again.