Mike Hirst tells why Bendigo held back part of rate cut

Bendigo chief Mike Hirst says margin pressure persuaded the bank not to pass on the RBA’s rate cut in full.

Bendigo and Adelaide Bank (BEN) $10.15

Bendigo CEO Mike Hirst concedes it is “logical” that bank borrowers should expect the full benefit of official cash rate reductions, such as last week’s 25-basis-point (0.25 per cent) easing.

Extending the logic, depositors should also expect the full painful whack. But because 27 per cent of Bendigo’s at-call book pays less than 0.25 per cent, there’s no room to move.

If anything, long-term deposit rates are creeping up to attract depositors, leading to what Hirst dubs a bout of “irrational” pricing and a nasty margin squeeze.

Bendigo passed on 20 basis points of May’s official rate cut and only 10 basis points of last week’s effort. Despite that greedy-bank-grab stuff, Bendigo has still taken a hit on margins. Like any self-respecting banker, Hirst wants the profits back. But with loan and deposit pricing “more an art than a science’’, it’s a case of a careful product-by-pricing approach.

Anyway, it’s a topic Hirst is more than happy to expound on to the populist pollies should he be hauled before the PM’s banking star chamber.

Despite the margin woes, Bendigo’s full-year cash earnings crept up 1.6 per cent to $439 million, which modestly exceeded expectations. Loan arrears fell a surprising 35 per cent to $44m, which bodes well for agribusiness as well as housing.

A wild card is the degree to which depositors chase the long-term rates, which historically they have been reluctant to do.

Rates monitoring house InfoChoice quotes the best five-year deal at 3.3 per cent, compared with 2.85 per cent for a one-year rate. That’s OK for a risk-free return given negative rates prevail in some countries.

Bendigo shares yield around 6.5 per cent, fully franked and that’s where we would plonk our money. Buy.

Argo Investments (ARG) $7.51

Despite concerns about yield investors driving the price of reliable dividend-paying stocks to silly levels, the nation’s second-biggest listed investment company believes the chase has some way to go.

Unlike the biggest LIC, Australian Foundation Investment Company, Argo didn’t trim its bank holdings. Conversely, it topped up its Westpac and Commonwealth Bank stakes.

Argo chief Jason Beddow says while valuations have become “excessive in some areas”, abundant global liquidity means the “yield thematic will continue to be a dominant consideration for the remainder of the year’’.

In a notable portfolio tweak for the professed long-term investor, Argo sold its holding in Medibank Private, which only listed in late 2014. The fund also lightened up on Whitehaven Coal, OZ Minerals, Newcrest Mining and telco Amaysim.

Argo’s new investments included obscure boutique insurance house CBL, Estia Health, realtor chain McGrath and plumbing supplies group Reliance Worldwide.

Argo’s full-year earnings slid 5 per cent to $228m. The more pertinent number is Argo’s own dividend, up 1c to 30.5c and perpetuating Argo’s unbroken 70-year record of payouts.

Given that Argo is trading at a 6 per cent premium to its net tangible assets of $7.11 a share, this one’s a hold for the 4 per cent yield.

Aspermont (ASP) 1.2c

Rather than being convinced print media is dead, the publishing house is treating its specialist mags as premium offerings that complement digital subscriptions.

Given Aspermont erected a paywall around its miningnews.net title way back in 2001, the resources-oriented Aspermont has a boot firmly in both the old and new media camps. “When everyone said the internet was free, Aspermont’s growth model was based on a subs-based platform,’’ says CEO Alex Kent.

Aspermont owns the 180-year-old Mining Journal, courtesy of its 2008 takeover of British rival Mining Communications. The deal also delivered the Mines and Money conference franchise, as well as Mining Magazine (founded in 1906 by future US president Herbert Hoover). “This year we reached the crossing point where digital revenue outpaced the decline in print ads,’’ Kent says.

Still, print accounts for 18 per cent of revenue and Kent proudly points to the Mining Journal’s 64-page bumper issue.

Kent says 60 per cent of digital subscribers opt for the “premium experience” of a print issue as well. “We don’t see that medium going away anytime soon,’’ he says.

Under Kent, who started in March last year, Aspermont has focused on semantic search platforms to gather — and make sense of — data on customer behaviour. A subscriber showing signs of lapsing is administered tender loving care. “If usage patterns drop we will move to re-energise them,’’ Kent says.

Sadly for investors, Aspermont’s efforts to date has been a profitless endeavour. But there are signs of a turnaround amid a balance sheet revamp.

To reduce its $7m of debt, Aspermont has completed a $2m placement and $3m raising (at 1c apiece), with 77 per cent of investors taking up their entitlement. Aspermont also plans to convert $5m of related-party debt into equity.

Aspermont lost $2.9m of EBITDA in 2014-15, but narrowed the shortfall to $900,000 in the first half of the current year. Management forecasts a $1m-$1.4m loss for the full 2015-16 year, with profits restored for the current year.

Aspermont is an alternative play on the mining recovery, which is fast gaining traction if the perky mood at last week’s Diggers & Dealers gabfest is any guide. Spec buy.

The Australian accepts no responsibility for stock recommendations. Readers should contact a licensed financial adviser. The author does not hold shares in the stocks mentioned.