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CSR Limited (CSR) received a warm review of its full-year result released yesterday, with a range of broking houses being bullish on the diversified industrial. Colonial Sugar Refinery, or CSR as it became to be known, ironically received its biggest boost from what it has always done, making sugar, with strengthening sugar prices seeing its Sucrogen business EBIT climb 62% from the prior year.

Citi rated CSR a hold, presenting one of the more cautious outlooks of the brokers, despite saying CSR ‘looks compelling’. Its 12-month price target of $1.80 represents just a 5.8% return on investment by this time next year. Roughly the same capital growth as if an investor invested in risk-free government bonds and stayed in bed.

However CSR bumped its interim dividend from 1.5c to 6c, bringing its total annual dividend to 8.5c, for a further yield of 5%.

Deutsche Bank was more optimistic, suggesting CSR would be at $2.48 per share this time next year.

The consistent expectation of price to earnings across many brokers remained at around a modest 11x for FY11.

At the open Thursday, CSR shares rose 2c to $1.72.

The effects of fraud charges against Goldman Sachs on Friday have reverberated across the globe, including the Aussie market which was down 1.4% by Monday afternoon.

Speculation this could be the start of another bear market have already surfaced as investors consume a number of negative factors including the EU debt crisis, falling commodity and forex markets, China’s efforts to slow growth and now the current problems with the aviation industry.

Equity markets have also reached 18-month highs in the past week prompting investors to consider booking their gains.

The lawsuit filed against Goldman Sachs and employee Fabrice Tourre by the US Securities Exchange Commission (“SEC”) alleges the bank made materially misleading statements and omissions in connection with a synthetic collateralised debt obligation based on sub-prime residential mortgage-backed securities. 

It has been reported that investors, including Dutch bank ABN Amro, lost over US$ 1 billion on the product as a major hedge fund client of Goldman’s made a profit of a similar amount.

Goldman has since rejected the claims made against the company.

“The SEC’s charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation,” Goldman Sachs said in a statement released Friday.

Goldman bond salesman Fabrice Tourre is the only executive charged in the civil case, while John Paulson’s name has been dragged through the mud as it was his hedge fund that benefited from the deal by assisting to package the CDO and betting against it.

Mr Paulson and the hedge fund have not been charged as there was found to be no basis for doing so.

The SEC alleged Mr Tourre was principally responsible for the package and knew of Mr Paulson's undisclosed short interest and its role in the collateral selection process.

The SEC also said Tourre also misled ACA Management LLC into believing that Paulson invested approximately US$200 million in the equity of the CDO and, accordingly, that Paulson's interests in the collateral section process were aligned with ACA's when in reality Paulson's interests were sharply conflicting.

The announcement sent Goldman Sachs shares tumbling close to 13% Friday and saw the S&P/ASX futures down 48 points prior to the open of trade today.

The move raises the question as to whether or not this is only the start of things to come for US financial institutions.

Fears are already growing that tighter regulation could mark the end of the post-GFC rally and result in a large sell-off on global equity markets.

The US government vowed to crack down on the banks activities, particularly in relation to derivatives, and make sure they became more transparent.

If the accusations and scrutiny from the regulators, governments and media was not enough, Goldman will also need to defend itself to a public which has been out for blood on Wall Street ever since the sub-prime crisis came to a fore.

This has followed the companies ability to post strong results over the past 15-months after receiving benefits from government rescue packages and as a result hand out handsome bonuses to management and employees.

The possible outcomes are varied. Some are already questioning the merits of the case, while there is a strong chance Goldman Sachs could win a court battle, or afford any fine.

With the market already on a knife’s edge of a so-called correction it does appear the financial sector could lead the way south in the near term. 

Goldman Sachs, which is set to release its first quarter earnings for 2010 tomorrow, reported fourth quarter net revenues of US$9.62 billion and net earnings of US$4.95 billion.

The company also said that net revenues were US$45.17 billion – just 2% lower than 2007’s record highs, while net earnings came in at US$13.39 billion.

Goldman Sachs this year has set aside US$16.2 billion, or 38% of revenue to pay its more than 32,000 staff members. This comes to just a tick under half a million each, on average, and a 57% jump on last year’s average salary.  

Despite a flat market for six months we’ve had plenty of opportunities to make money.  So what’s our “edge”?

Our “edge” may be considered the use of price as the chosen analysis tool or that I follow the natural long term trend of the market and only buy stocks. Or possibly the simple four entry and two exit rules or perhaps it is the consistency of employing the methodical approach to analysis or that strict  money management rules are employed.

It could be one or a combination of all of them to help move those odds nicely in my favour that this will happen rather than that to create that small edge that may be the difference between success and failure. The trading edge is the consistent employment of 4 price signals to take advantage of the natural long term up trend of the stock market. The money making edge is the employment of 2 simple money management rules to exact the best result.

Then consistency, discipline, and focus unravel the mystery of finding a psychological “edge”.

We need all the help we can get to become consistently profitable. So what has this approach unearthed for us recently?

What are some of the stocks we have bought in March?

RHC OST MAH TPM IIN AGO and RIV.

What gains have they made so far?

Over 16% absolute or better than 200% annualised

ILU was added last week and is already up 7.3% or annualised at 244% as at yesterday’s close. Breakouts and Trends are what I track and as the majority of trades are less than a year I annualise all returns as they compound during the year! In fact our current 40 selections as at today are showing a whopping annualised return of 44%. I could sell pack up and go home and be happy with that result for the year, but I won’t, because I love the challenge will strive to improve it as the year goes on.

So how do we do it? Stock specific analysis is the first clue with simplicity and consistency the next two clues.

Welcome to Stockradar’s totally independent contribution to Egoli’s Off the Chart column designed to give you a special insight into the workings of the stock market and Stockradars common sense, weekly, long only strategy that educates and helps hundreds of clients generate consistent above market returns.  

Stock entries, exits, stop losses, education, trade plans, analysis, portfolios, real live trading examples, and our commentary is challenging, rightfully cynical, but also honest and it’s all there in a simple easy to read and understand format.

Today I look at the Iinet (IIN) example, what triggered it, and why, as it rallies 12% from our entry point and offers a 181% annualised return so far.

Stock specific analysis provides the starting point to my approach and this is followed closely by simplicity of rules and consistency of actions so now I want to take you through an example of the Stockradar trading process.

1.      STOCK SPECIFIC                   IINET
2.      SIMPLICITY = Automated rule based criteria based on demand and supply
3.      CONSISTENCY of

a.      Analysis
b.     Trade Management
c.      Taking each qualified signal from a basket of  stocks

We all have varying views on entries, time frames, instruments etc but to get back to the real basics of Dow theory price analysis and the simple demand and supply equation we use a logical flow of evidence that builds a tangible case for entry and I analyse price because that’s what we trade – not the fundamentals. In the end nothing matters as far as what instrument is traded be it shares, commodities, FX, options, CFD’s or EFT’s we all still have to find a way of qualifying, entering, managing, and profiting from our trading.

For most the simplest and most basic “cut to the chase” route is working out whether a stock is in demand or not and this is depicted by the fundamentals of price analysis – a chart. A rising price on rising volume simply means the stock is in demand so I buy it on that basis. When that changes I sell on that basis and that is how Stockradar works.

Instrument of choice – Shares.
Time frame of choice – Weekly.
Trade type – Long Only
Analysis type – Demand and Supply equation
Demand and supply evaluation – Price chart

Why a price chart?

It offers an easy to read graphical display of demand and supply.

It is a complete reflection of ALL buying and selling actions.

It thus becomes the perfect source of information to determine the demand / supply balance.

On the IIN chart we can see the smaller ups and downs of demand and supply within the bigger picture of a demand dominated stock and it is those smaller waves of breakouts and trends I trade and make profits from.

Of the three trades you can see we began with one sharp profit, a small loss, and now one big profit that is growing each day and now we have “got one” the key here is to manage this trade to its optimum conclusion to eke out the best result and as such money management must now take control of this trade which means a profit will be made because my stop loss is now higher than me entry. Now it is just a matter of just how much I can make.

The entry is based on a simple price based equation of when demand overtakes supply and as price analysis is NOT a perfect science we defer to what is, and what we can make a perfect and a very real science, and that is rigid and strict money management.

To generate consistent profits on the stock market consistent actions are required and that entails taking all signals (both buy and sell) generated from a defined and manageable basket of stocks to make it work. Just as a casino repetitively plays its 2% “edge” to make its pots of money. The process becomes automatic, simple, and stress free. Once the entry criterion is set those boxes are all ticked until entry, (support, price and volume rise, trigger point is set, entry executed) and once the trade is entered all those boxes are ticked (money management rules – lifting your stop loss) until the exit is triggered.

Consistency means to me that I WILL trade every breakout and thus I MUST get on to any big trend that develops from my portfolio of stocks as we have with IIN TPM and others and as mentioned in the opening statements as the market has moved strongly over the last month suddenly my annualised returns are hitting the 40% mark – now to manage them all to that optimum conclusion and that can only be done by managing the money risk and exposure via money management rules that reflect and respond to that. Money management rules also enforce me to take losses but provided I limit them to a small set amount that is totally acceptable to a trader. What is not is to let them get big! There is the killer just like IIN is becoming a winner. It’s OK to let profits grow but not losses.

And as to where the stock market is headed, I have no idea and I have absolutely no need to know because my approach only cares where specific stocks go. If I want to trade the indices I analyse and trade the SPI or EFT’s. It is a nice logical and comfortable way to analyse stocks from top down but unfortunately the market is not logical or always comfortable and in our often one stock dominated industry groups it makes completely no sense. Just look at TLS and IIN or TPM! 

There are many market misnomers such as this that lead us to ruin or missed opportunities as we blindly accept them. So be smart, individual, approach things simply using common sense, take control of your own trading, and you’ll reap the benefits.

“As a weekly long only equity trader my foremost rule is to protect and preserve while profiting from the uptrend cycle of the stock market and this WILL happen if I follow the rules and that’s why I don’t fear losses.”

– Richard Lie

Rialto Energy Limited (RIA) has acquired a 65% interest in a West African under-appraised oil and gas block. The junior oil and gas explorer has also accessed a block off the Ghana coast along with Tap Oil Limited (TAP) and Challenger Minerals Inc.

The group said the CI-202 block off the coast of Cote d’Ivoire was situated next to the giant Jubilee field, which holds around 1.8 billion barrels of oil, discovered in 2007 by Tullow Oil and Kosmos Energy, and the subsequent Tweneboa and Odum discoveries, which hold over 350 million barrels of out.

The company said the proximity and new geological insight obtained from the discoveries in Ghana has significantly re-rated the potential size of the existing discoveries within CI-202 and the exploration potential of the Block.

The group explained that CI-202 was located within the Ivorian Basin, which encompasses offshore eastern Cote d’Ivoire and offshore western Ghana. CI-202 covers an area of 675 km2 and is located 30km to the southeast of Abidjan, the primary commercial centre of Cote D’Ivoire, extending from the coastline to water depths of almost 1000 meters.

Current estimates from initial appraisals are for a minimum of 40 million barrels of oil.

Rialto recently signed a joint venture agreement with Challenger Minerals Inc (CMI), a wholly owned subsidiary of US listed Transocean, whereby the parties are actively evaluating international growth opportunities.

The group has also been awarded an interest in the Accra Petroleum Agreement offshore Ghana, with its JV partner Challenger Minerals.

Managing director Brett Woods commented that the Accra Petroleum Agreement encompasses an attractive block located in the emerging West African transform margin where recent discoveries, particularly at Jubilee, have made the area an extremely important oil and gas province.

“Rialto looks forward to bringing its regional knowledge and skills into the venture and to participating in the contemplated work programme,” he said.

Tap Oil, which will hold 36% Accra Petroleum Agreement, has rallied 14% over the last month. Rialto has jumped more than 100% following the release of the announcements.

Tap Oil CEO Peter Stickland said he was please to have now received formal notification of the award of this exciting block.

“The significant potential of the Offshore Accra Contract Area makes it a compelling opportunity that enhances our existing portfolio of activities,” he said.

“Over the next 12 months Tap remains focussed on delivering the opportunities it has developed in Australia and South East Asia, while Offshore Accra represents an early entry opportunity for longer term growth with drilling likely in 2011/12.”

The company said it would undertake a capital raising to fund the acquisition of the CI-202 block at a maximum of a 20% discount to the five day VWAP and would provide working capital for its ongoing work programmes.

Rialto Energy Limited (RIA) has acquired a 65% interest in a West African under-appraised oil and gas block. The junior oil and gas explorer has also accessed a block off the Ghana coast along with Tap Oil Limited (TAP) and Challenger Minerals Inc.

The group said the CI-202 block off the coast of Cote d’Ivoire was situated next to the giant Jubilee field, which holds around 1.8 billion barrels of oil, discovered in 2007 by Tullow Oil and Kosmos Energy, and the subsequent Tweneboa and Odum discoveries, which hold over 350 million barrels of out.

The company said the proximity and new geological insight obtained from the discoveries in Ghana has significantly re-rated the potential size of the existing discoveries within CI-202 and the exploration potential of the Block.

The group explained that CI-202 was located within the Ivorian Basin, which encompasses offshore eastern Cote d’Ivoire and offshore western Ghana. CI-202 covers an area of 675 km2 and is located 30km to the southeast of Abidjan, the primary commercial centre of Cote D’Ivoire, extending from the coastline to water depths of almost 1000 meters.

Current estimates from initial appraisals are for a minimum of 40 million barrels of oil.

Rialto recently signed a joint venture agreement with Challenger Minerals Inc (CMI), a wholly owned subsidiary of US listed Transocean, whereby the parties are actively evaluating international growth opportunities.

The group has also been awarded an interest in the Accra Petroleum Agreement offshore Ghana, with its JV partner Challenger Minerals.

Managing director Brett Woods commented that the Accra Petroleum Agreement encompasses an attractive block located in the emerging West African transform margin where recent discoveries, particularly at Jubilee, have made the area an extremely important oil and gas province.

“Rialto looks forward to bringing its regional knowledge and skills into the venture and to participating in the contemplated work programme,” he said.

Tap Oil, which will hold 36% Accra Petroleum Agreement, has rallied 14% over the last month. Rialto has jumped more than 100% following the release of the announcements.

Tap Oil CEO Peter Stickland said he was please to have now received formal notification of the award of this exciting block.

“The significant potential of the Offshore Accra Contract Area makes it a compelling opportunity that enhances our existing portfolio of activities,” he said.

“Over the next 12 months Tap remains focussed on delivering the opportunities it has developed in Australia and South East Asia, while Offshore Accra represents an early entry opportunity for longer term growth with drilling likely in 2011/12.”

The company said it would undertake a capital raising to fund the acquisition of the CI-202 block at a maximum of a 20% discount to the five day VWAP and would provide working capital for its ongoing work programmes.

In an encouraging sign for investors it became increasingly likely in recent days that London-based Chi-X is set to halt ASX’s monopoly as the sole operator of the Australian stock exchange.

In the most recent development indicating investors will be able to trade shares on a separate platforms, the Federal Government gave its seal of approval for an operating licence to the Nomura Holdings owned Chi-X.

Chi-X Australia is a wholly owned subsidiary of European share-trading platform provider Chi-X Global Inc.

While further regulatory approvals remain it has become increasingly likely Australia will have the benefit of competing platforms, meaning expected increases in trading volumes, smaller spread between bid and offer prices and a reduction in trading costs.

Investors will be able to trade securities on either exchange, with competition allowing them to choose the platform with the lowest costs.

While talk of additional trading platforms in Australia has circled the market for some time it was last year's decision by the government to replace self-regulation that allowed ASX to supervise the Australia’s stock exchange with the handing over of real-time trading on licensed markets to the Australian Securities and Investments Commission.

This in turn paved the way for rival exchanges to apply for operation on the Australian Securities Exchange, with ASIC scheduled to takeover as market supervisor by September this year.

In the wake of the government’s announcement a number of brokerages have noted the potential impact on ASX's future earnings.

The Stockbrokers Association of Australia has welcomed the Federal Government’s decision.

Goldman Sachs said its view on what constitutes a reasonable P/E multiple remains unchanged, however went on to say ASX’s stock would be negatively impacted by the perception of marginal traders once Chi-X is in operation. This was enough to give Goldman Sachs reason to downgrade its 12-month target price on ASX by 7.1%.

ASX had witnessed weakness in its share price in the lead up to and also preceding the announcement. Trading at around $36.70 on March 18, the stock closed at $33.87 on Tuesday, April 6, a drop of 7.7%. 

It is expected that Chi-X will target institutional shareholders and unlike its operations in Europe and Singapore, which operate through so-called dark pools of liquidity, Chi-X plans to display the identity of investors in Australia.

Dark pools are seen to provide liquidity that is not displayed on order books and is useful for those wishing to move significant numbers of shares without revealing themselves to the open market.

AXE and Liquidnet have also applied for licences to operate wholesale share markets in Australia.

Macarthur Coal Limited (MCC) entered a trading halt again Tuesday morning ahead of an updated announcement on the proposed takeover by US coal mining giant Peabody Resources. Just last week Macarthur spurned a $3.3 billion takeover offer from Peabody and said it would forge ahead with a vote on April 12 on its plan for Macarthur to take over Gloucester Coal and issue Macarthur shares to Gloucester’s largest shareholder, Singaporean-based Noble Group.

Peabody, in turn, has said that its offer is ‘clearly superior’ and urged the Macarthur not to go ahead with the April 12 vote.

Meanwhile, complicating matters, Noble Group, which owns 87% of Gloucester Coal said it would offer $12.60 for the remaining 13% it doesn’t own.
 
The news comes amid reports that the plays seen in the Macarthur Coal saga will be played out by other Aussie miners as mergers and acquisitions ramp up in 2010.

Certainly, the mergers and acquisition rumours have firmly hit Riversdale and Whitehaven share price since the Peabody offer for Macarthur Coal. Their share prices had risen by another 6.2% and 4.7% by late-morning Tuesday, extending strong gains from last week.

The two coal miners are listed in the top three mining stocks as potential takeover targets, according to a Citigroup report publish on 25 March.

Coming in top place was Medusa Mining, which has proven to be less popular with investors in recent days. Its shares have fallen 2c this morning.

In other mergers and acquisition news, just last week Lihir Gold rejected Newcrest Mining’s $9.2 billion bid for the company, drawing fire from some analysts who said the deal was fair value for the miner and should have been put to shareholders.

According to a recent Ernst & Young report the surge in growth in China and India would continue to underpin the recovery into the long term for Australia’s mining sector.

The report said that this would drive mergers and acquisitions in 2010, albeit on smaller scale than pre GFC mega-mergers.

”Many mining and metals companies that are preoccupied with debt reduction are looking to organize growth and strategic bolt-on acquisitions before valuations become too expensive,” Ernst and Young said in its report.

According to the report Australia was the number one country for acquisitions in 2009, while China was the number one buyer.

The report, however also expressed a cautionary note, saying that sovereign and legal risk could cloud the M&A space.

Credit Suisse has downgraded Santos (UNDERPERFORM, price target $15.40) following the company’s agreement to sell Evans Shoal. The downgrade reflects a lower than expected price for the sale and STO’s recent share price strength.

STO sold its 40% interest in Evans Shoal for up to $200 million. Credit Suisse estimated the net present value of the deal at around $150 million, substantially below the broker’s valuation of Evans Shoal of around $250 million.

Credit Suisse said the stock’s performance hinges on delivery on LNG over the next year, particularly GLNG and PNG-LNG expansion.

Beyond the Evans Shoal sale, Credit Suisse downgraded Santos following the recent share price strength. STO shares have rallied 12.8% since 1 March.

On Friday, Santos shares closed at $14.77.

Acrux Limited (ACR) said the deal with US-based top-10 global pharmaceutical company Eli Lilly announced last week was the beginning of a new era as it forecast a maiden profit of $44 million to $48 million for FY10.

The Australian drug delivery company said, in a presentation to Shaw Stockbroking, that entering the agreement with Eli Lilly for the potential commercialisation of Acrux’s experimental underarm testosterone solution AXIRON was the largest deal made by any Australian company in the biotechnology sector.

In exchange for these rights, Acrux is eligible for US$335 million, including an upfront payment of US$50 million, plus US$3 million on the transfer of manufacturing assets and US$87 million subject to issuance of marketing authorisation by the US Food and Drug Administration (“FDA”).

The company said it also eligible for $195 million in potential commercialisation milestones, as well as royalty payments on future global sales if AXIRON is successfully commercialised.

Acrux said the drug application is currently under regulatory review by the FDA for the treatment of testosterone deficiency (hypogonadism) in men.

With a distribution in 143 countries Acrux believes Lilly is the ideal partner, having already established leadership in men’s health through its erectile dysfunction therapy Cialis.

Cialis sales reportedly grew to $1.6 billion in 2009 to be placed in the top three in the market behind Viagra.

AXIRON also has the advantage of being the only product in the world delivered through the armpit.

Acrux CEO, Richard Treagus, said the company received a number of offers in its search for a global licensing partner and was confident in what Lilly had to offer.

“Something a lot of pharmaceutical companies want to do is sign a deal with one of these big gorillas,” Mr Treagus said.

“The company is established in men’s health, which stands us in good stead.”

Cialis’ track record, which included a 20% growth in sales numbers at the same time Viagra flat lined, was another factor.

“Right from the start the aim was not to run second or third in market,” Mr Treagus said in relation to Lilly’s objectives.

“It was to go right to the top.“

Another encouraging point for Acrux was the fact Lilly has a tendency to look at the product’s potential and whether it can be modified for other uses.

Given that the royalties include the perpetuity of anything developed from AXIRON and the technology used by Acrux, this could also have significant benefits for the company.

The company said 80% of the products market in the US, while Lilly also covers strong growth opportunities in Latin America and China.

“A lot more men are going to their general practitioner and getting tested,” Mr Treagus said mentioning that the population is ageing, while the test is also cheap and reliable.

“They (patients) are also getting comprehensively reimbursed.”

Acrux expects the outcome of the FDA review in 1QFY11 and the product launch in 2HFY11.

“For us it was an incredible return of investment,” chief financial officer Jon Pilcher said referring to the fact the company invested very little in AXIRON when compared to the potential return.

“This deal has completely transformed our financial position.”

Acrux forecast a significant reduction in costs in FY11 and when questioned on the risks surrounding the FDA decision Mr Treagus was clear.

“There is always a residual risk with the FDA,” he said.

“I think we’ve been diligent and we believe our product is certainly better than the market leader.”

Subject to FDA approval Acrux expects to pay it first dividend in 2011, which would be exempt from tax, while the company joined the ASX/300 last Friday in what has been a historical week for Acrux.