August 25, 2009

Mike Holmans

Investing in Australia

Mike Holmans
Phillip Hughes evades a short ball, South Africa v Australia, 2nd Test, Durban, 3rd day, March 8, 2009
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Cricket markets are notoriously volatile and have become even more so in recent times, and investors may be unsure where to put their money. The Holmans Consulting Group (HCG) is therefore pleased to offer this analysis of the Australian market's leading stocks. [Potential investors are reminded that past performance is not necessarily a guide to future returns and should take professional advice before committing any funds.]

Ponting. Hold. The dominant company's batting division is and will remain a world-class performer for the foreseeable future. The management division has posted its third loss in five reporting periods, which clearly gives cause for concern, but there are signs that it will be concentrating more on improving its own performance rather than explaining disappointing results by referring to unfavourable conditions, competitors' business practices or perceived failures of regulation.

Hughes. Short-term sell, long-term buy. Technical defects in the product line have forced a retreat from international markets for retooling. Testing of an updated range in the domestic market should be carefully watched, however, as it is anticipated that this highly innovative entity will prove one of the leading performers over the long term.

Katich. Hold. Since repositioning in the openers sector, Katich has yielded solidly reliable if unspectacular returns which should continue to satisfy the conservative investor.

Watson. Weak hold. Government has long regarded Watto's as a preferred long-term partner, and early results from entry into the openers sector are reasonably promising, but the bowling division has declined from an already weak position to the extent that it should probably be shut down.

Hussey. Sell. There is considerable loyalty to the Mr Cricket brand, and many will be hoping that the strong performance in the last couple of trading sessions signals a return to previous dividend levels. HCG is less optimistic and regards Hussey as extremely vulnerable to takeover, especially if strong domestic competitors emerge.

M Clarke. Strong buy. Long-standing predictions that Clarke will become as important a force as Ponting seem on the verge of fulfilment, and bumper returns are to be expected from this quarter. Especially fine are the products for the spin-facing niche, which for flexibility and agility rival any of those offered by the traditionally-dominant Asian producers.

North. Buy. Well-engineered batting coupled with some very handy spin-bowling accessories should ensure a prosperous medium-term and make the long-term prospects very hopeful.

Haddin. Weak hold. Those with nostalgia for former giants of the keeping industry such as Gilchrist, Healy or Marsh will continue to regard Haddin as yielding very poor dividends. On the bright side, the batting performs somewhat above lowish expectations, but the keeping is of extremely variable quality. An absence of serious competition in the field means that the stock should be retained pending developments.

Johnson. Partial sell. Investors who piled into the Mitch on the back of exceptionally strong performances in the South African market should seek to reduce their exposure. The sling-based technology is inherently unstable and prone to malfunction while offering the potential for very high returns when it operates correctly. It is worth retaining a holding as part of a diverse portfolio, but not as the main focus of investment.

Siddle. Hold/weak buy. Only a recent market entrant, Siddle has already established a reputation for reliability and should provide very steady returns. Optimists may wish to increase their holdings, but HCG sees little potential for further growth and would advise against.

Hauritz. Buy. This stock was badly underrated and deserves more attention. While not offering the earnings potential of a Warne or a MacGill, failure to include this stock can in some circumstances result in catastrophic losses.

Hilfenhaus. Weak sell. This may seem an odd recommendation given that the Hilf was the leading performer in the last reporting period, but similarly swinging trading conditions may not be encountered often enough for him to continue to lead the market.

S Clark. Sell. A loss of oomph in the main power unit has rendered this product line largely ineffective unless the targets are already on the brink of failure. It will be of very limited usefulness going forward and there is little chance of an improvement in the stock price. A more likely option would be the Lee, but it has been absent from the market for some time and future performance is therefore uncertain.

To sum up, batting stocks remain relatively buoyant. Returns may be down compared with the historic market highs of the 1995-2006 boom years, but they remain in the market's upper quartile. However, bowling stocks have fallen significantly, particularly when compared with South African equities, and considerably improved performance will be needed from them if Australian industry is to resume its world-leading position.

Our next report, to be published shortly, will be a survey of the English market.

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Posted by Andrew on (September 11, 2009, 12:18 GMT)

Hauritz should only be dragged out for huge spinning tracks, outside India (the Indian batsmen would murder him even on a Krumbler). He bowls good off-spin. That makes him a 1st class bowler - a Test bowler needs to bowl (or throw) off-spin AND well disguised doosras. How many wickets did Swann get with the ball going straight on and not picked, and at crucial times? How will Hauritz go on a flat track? (See "McGain, Bryce")

As for Watson, if he's to bowl without breaking down they need to invent a form of the game shorter than T20. If people think Hughes has technical deficiencies, what about Watson's 26 consecutive LBW dismissals?

Posted by The slinger on (September 3, 2009, 9:06 GMT)

Interesting article mike!but australia will find it hard to be world champions unless they find a good spinner.....i think brad hodge did that job wonderfully well after shane warne quit one dayers....and i guess sri lanka is also a strong contender for the no 1 spot as well...

Posted by Timbo on (September 1, 2009, 3:45 GMT)

James - Hussey's "luck" with the umpires???? You need a helluva lot of luck to survive leaving a straight one, or to be more precise, two.

Posted by Pranav Joshi on (August 28, 2009, 14:30 GMT)

Also let me add, James, that Ponting, in my opinion, was a really good captain when he had 4-5 players in the team who could rival him for cricketing greatness. That 1995-2007 team was simply terrific, too good. I am not so convinced about his captaincy when the chips are down. He often seems confused and desperate when Australia are struggling. The decline of Australia has been because of a combination of retirement of their greats coupled with South Africa and India getting better and better. India, especially, have had an ultra-slow ascent since the 80s, when they were poor, to the 90s, when they were average and depended heavily on Sachin Tendulkar, to the early 2000s when they first started being good, to the mid 2000s where they started winning consistently, to 2008-09 when they have started winning series after series without taking it into the last match. The new Australian crop might come good in time; for now, Aus have been dethroned and we'd be loath to deny it, I believe.

Posted by Pranav Joshi on (August 28, 2009, 14:19 GMT)

James..Australia are NOT, by some distance, the best team in the world. That honour does not really belong to anyone yet - SA still keep losing big tournament matches and India have shown that they are great challengers but poor champions. But it certainly cannot go to Australia. This is not because of one series loss - Australia have now lost in India and England over the past one year, apart from a narrowly averted whitewash at home against SA, and performed poorly in the World T20, besides having lost the CB series to India. And I am, personally inclined to believe that the scoreline could have been 1-1 in the Border-Gavaskar trophy had so many umpiring decisions not gone against India. In any case, the decline of the Aussies is far from temporary, because unlike the trough in a batsman's career, here the very players representing Australia have changed. Yes, Johnson is full of heart, Hilfenhaus and Siddle and Hauritz are good and may yet improve, but they are not Warne or McGrath.

Posted by Protea_fan on (August 26, 2009, 18:41 GMT)

James: Let me tell you that South Africa have performed consistently to be on top of ICC rankings and they deserve it, whereas Australia were demolished by India, beaten by SA in their own backyard and now by England. If Australia can't beat the best sides in the world then they don't deserved to be on top.Aussies are 4th and that's where they belong. Beating weaker sides like Pakistan and WI at home isn't a big deal. If Australia want to be on top then first they have to beat SA & India.

Posted by Weez on (August 26, 2009, 14:16 GMT)

James, South Africa is (nearly) the best side in the world. They did beat Australia at home and would probably have whitewashed them if it wasn't for the stupid No.1. ranking - as soon as they heard that was up for grabs they choked. They had 3 consecutive test matches in which a victory would have given them the number 1 spot and they lost every single one. Then when the last test came around and the number 1 ranking was no longer at stake they beat Australia by an innings...hopefully now that the ranking have them at the top they won't have to fear being the best anymore....and they might even stop choking

Posted by Sreeni on (August 26, 2009, 12:52 GMT)

I would think cricket is a classic case where we can employ what is called a barbell strategy to investment. Typically this would involve choosing about 80% of your portfolio to comprise treasury bills/government bonds and the rest 20% potentially to include high risk stock including start ups. Taking this into account, I would think the australian team is a fair bet and likely to yield a stable return in the long run. It would be interesting to see what the guidance on england is. I would say, they are a little like dealing/investing in securities against sub prime debt. Watch 'em crash in the return leg.

Posted by Richard Jefferies on (August 26, 2009, 12:19 GMT)

A very innovative and readable analysis, good stuff Mike. Aby...it says in the intro that past performance is no guide to the future and it's obvious that things could change. But Clark isn't going to take a bucketload of wickets. Aus are looking to the future and Clark isn't it. I still like Johnson, Siddle and Hilfy though, and I'm a Pom. Plenty of time for all three to develop and improve.

Posted by whiteline on (August 26, 2009, 11:17 GMT)

Superb - except I'm with anon - haddin is a liability of the highest order. Can't catch a cold and wears his IQ on the back of his footy jumper - adios chump!

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