Showing posts from June, 2019

Ten Thousand Words - June 2019

Apparently , Confucius didn’t say “One Picture Worth Ten Thousand Words” after all. It was an advertisement in a 1920s trade journal for the use of images in advertisements on the sides of streetcars. Even without the credibility of Confucius behind it, we think this saying has merit. Each month we share a few charts or images we consider noteworthy. Bond yields are in focus as the RBA cuts rates and speculation that the Federal Reserve will do the same increases. We get a look at the German 10-year bond and how its decline into negative yield mirrors the same event in 2016; a convergence between the US 10-year bond yield and the market's dividend yield; while Deutsche Bank says half the US market is choosing index funds now and Goldman Sachs' number crunchers show Australia's "growth" stocks are the world's most expensive. We like the chart from AKRO investiční společnost showing how banks have improved their capital position since the financial crisis; and

Forget EPS accretion and focus on value!

We happened upon a copy of Credit Suisse's "To Buy or Not To Buy" - 26 pages on M&A - a couple of years after it was published (Feb 2017) but found it compelling - particularly in relation to EPS accretion. Three quarters of investor relations professionals surveyed by AT Kearney said stakeholders place a “strong emphasis” EPS accretion or dilution - and that EPS accretion or dilution was deemed to be, by far, the most important metric. Most announced M&A deals today are accretive to the EPS of the buying company. But EPS accretion or dilution actually provides little or no insight because value creation is based on cash flows rather than accounting measures - and the cost of capital rather than the funding source. Credit Suisse took a sample of 95 of the M&A deals, categorised them based on whether the company said it would be immediately accretive or dilutive to EPS, then reviewed the one-day abnormal return for the buyer on the day of the announceme


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