2019-12-16 13:36:161970-01-01 00:00:00
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Why

Kosec

The beauty of a financial institution in equity markets is the ability to connect with high net-worth individuals who may be relatively new to the market, as well as individuals of greater experience, who have been investing for decades.

Most importantly, KOSEC provides a general advisory service to its clients in regards to opportunities in the market, including a potential entry and exit point. KOSEC provides experienced investors an additional voice in the market; with all decisions made purely at the discretion of the investor.

Why Kosec
Why Kosec

The key to an individual investing in the market is time, or the lack thereof. Whether it be the non-stop nature of full-time employment, relaxation of retirement, or constant travel for either business or leisure, the ability to follow market movements all-day, everyday, is disrupted. The team at KOSEC have their finger on the pulse, examining movements daily, recognising opportunities that could lead to wealth creation. Hence, investors are provided the flexibility to carry-on with their daily life unconcerned about their investment knowing there is a diligent team watching over the market.

In financial markets, information is limitless. Information enables an investor to make a more informed decision about a certain stock, or the market in general. With a dedicated research team, access to numerous resources, and industry partnerships, the team at KOSEC can discuss opportunities that could ultimately drive investors to further wealth creation.

GETTING STARTED

IN SHARES

The ultimate goal of any investor in the Australian stock market is to outperform the returns achievable elsewhere. An investor can base investment opportunities on size, sector, longevity on the exchange or even potential reputability.

Why Kosec
Why Kosec

The team at KOSEC seek to bring businesses to our clients that are considered ‘fundamentally-sound’. Explored individually, indicators such as revenue, earnings, operating margins, debt-to-equity and return on equity are interrelated concepts that collectively come together in the analysis of whether a business is potentially ‘healthy’. Below we will illustrate our strategy by examining healthcare sector heavyweights CSL Limited (ASX: CSL) and Cochlear Limited (ASX: COH).

Why Kosec

IN SHARES

The ability to generate revenue is at the forefront of any business, irrespective of whether it is listed on the Australian Securities Exchange. A company’s ability to generate revenue typically indicates market demand of a product or service provided. However, purely examining single-year revenue levels is not an accurate reflection; a company must exhibit increasing revenues, and therefore product demand, over numerous years (preferably for at least three years). The close observation of these patterns enable the team at KOSEC to be more informed regarding the company’s ability to sustain revenue growth moving forward, rather than risk being somewhat misinformed due to a one-off or sporadic contract win which could potentially impact single-year readings.

Revenue ($ per share)
FY2014 FY2015 FY2016 FY2017 FY2018
Cochlear Limited 14.10 16.17 19.75 21.82 23.67
CSL Limited 11.93 15.36 17.57 19.70 23.40
Why Kosec

EARNINGS

Whilst revenue enables the team at KOSEC to gauge the demand for a product, there are other factors to consider.

The underlying earnings generated by a company provide the company two options; reinvestment into future growth or shareholder distribution (dividends). These amounts are dictated by the company’s payout ratio which can be adjusted at the Board’s discretion.

It is possible to attain negative earnings over numerous years in the process of ensuring future revenue. This is commonly seen in biotechnology companies where high research and development (R&D) expenditure is generally required initially in order to potentially increase future revenue following potential commercialisation of a product.

Earnings (cents per share)
FY2014 FY2015 FY2016 FY2017 FY2018
Cochlear Limited 164.20 254.80 330.00 389.10 421.30
CSL Limited 285.70 374.50 310.10 381.10 505.80
Why Kosec

OPERATING MARGINS

A company’s operating margin is directly affected by the above two indicators (earnings and revenue); this is measured by calculating how much revenue is spared after variable costs of production. An investor can potentially draw two conclusions from a company’s ability to increase its operating margins annually with respect to its market position and product demand; these being that the company is well-managed and has lower potential business risk. Operating margins are dependent on the sector; for example, consumer discretionary companies are often unable to attain higher margin levels as compared to companies in the information technology space. In spite of this, a ‘fundamentally-sound’ business will be able to sustain, and potentially even grow, its operating margins annually, as illustrated below through CSL Limited.

Operating Margins (%)
FY2014 FY2015 FY2016 FY2017 FY2018
Cochlear Limited 19.10 25.60 26.20 27.70 27.80
CSL Limited 33.60 34.40 27.40 27.90 33.70
Why Kosec

RETURN ON EQUITY

Basing company performance solely on nominal values found in financial statements is generally inconclusive due to size differentials. Return on equity (ROE) is a more accurate indication of a company’s ability to generate earnings as it uses the equity capital of shareholders.

The top-down investment approach utilised at KOSEC provides our clients with the most opportune businesses within the best-performing sectors in the Australian market at a given point in time. The return on equity metric is most appropriate for comparing two businesses in the same sector or industry as ROE is dependent on the asset levels of said businesses. It is important to note that asset levels vary between different industries.

Return on Equity (%)
FY2014 FY2015 FY2016 FY2017 FY2018
Cochlear Limited 28.50 41.00 42.10 41.10 39.70
CSL Limited 41.30 49.40 41.50 42.30 41.60
Why Kosec

DEBT-TO-EQUITY LEVELS

Examining a company’s debt-to-equity ratio allows an investor to determine the extent to which the respective company is reliant on the accumulation of borrowed funds. This is typically acquired by companies from lending institutions to facilitate the financing of future capital expenditure. The major hindrance a higher debt-to-equity ratio provides a listed company is the interest obligations it is required to adhere to. If this ratio is higher, it can indicate a potential risk to the sustainability of these obligations.

Though a lower debt-to-equity ratio is preferable, a high value can be justified by its utilisation. CSL Limited has historically been rather reliant on debt financing for its investment in new manufacturing facilities as well as clinical trials conducted. This potential success is exemplified in its historic share price movement, particularly over the last five years as it has been more reliant on raising capital via debt facilities.

Debt to Equity Ratio (%)
FY2014 FY2015 FY2016 FY2017 FY2018
Cochlear Limited 72.10 59.90 43.10 40.30 24.20
CSL Limited 59.80 83.00 122.40 125.60 107.50
Why Kosec

INDICATORS IN ACTION

Above, we have delved into the major criteria used by the team at KOSEC to determine which businesses on the ASX are ‘fundamentally- sound’. Throughout, CSL Limited (ASX: CSL) and Cochlear Limited (ASX: COH) are utilised as case studies. Both CSL and Cochlear positively demonstrate the aforementioned indicators. The performance of these companies and the ASX200 index over time can be seen below.

Historical Performance (%)
1 year 3 year 5 year
CSL Limited 36.22 88.57 189.69%
Cochlear Limited 9.93 98.83 207.85%
ASX200 -4.89 15.76 9.09%
Why Kosec

CASH FLOW

As the term implies, cash flow seeks to determine the cash generated by a company. Non-cash expenses such as depreciation and amortisation as well as one-time capital expenses are also taken into consideration. Examining a company’s cash flow allows one to avoid making the mistake of being guided by manipulation of financial statements that may be affiliated or associated with lone considerations of a company’s earnings. Both cash flow and other financial statement line items, in combination, holistically seek to provide an indication of the financial strength or status of a listed company.

Cash flow is particularly important for companies such as CSL and Cochlear, given its ability to guide investors on the returns generated from relatively high levels of capital expenditure. Negative cash flow is paramount for investors to consider, as heavy capital expenditure may potentially derive payoff in the future or alternatively signal potential poor investment decisions. An investor does, of course, seek to minimise their risk exposure when investing in equity markets. To ensure this, a propensity to recognise consistent historical cash flows, rather than placing reliance on uncertain future results, is beneficial. Remembering though, uncertainty can be the result of industry-wide and macroeconomic factors rather than being purely company-specific.

Debt to Equity Ratio (%)
FY2014 FY2015 FY2016 FY2017 FY2018
Cochlear Limited 195.2 329.7 323.3 452.0 448.1
CSL Limited 297.4 375.3 342.7 355.2 567.0

Note that the purpose of showcasing CSL and Cochlear is to illustrate the filtration methods utilised by the team at KOSEC, rather than imply similar returns for every opportunity brought to our clients.

The intention of this is to reinforce Markowitz’s longstanding financial theory that it is most prudent to bring opportunities with potential to outperform the market, whilst minimising the risk one is prone to. The success of this strategy has been demonstrated throughout, most prominently through the historical share price success of CSL Limited (ASX: CSL) and Cochlear Limited (ASX: COH).

KOSEC

Benefits

Why Kosec

Work with a team
of experts

KOSEC allows clients to gain access to not just one, but an entire team of experienced professionals with a passion for the stock market to disseminate our centralised General Advice throughout the year.

Why Kosec

Institutional
Research

Through our portal, website, reports and publications we bring to you the news, announcements and institutional broker calls which provide you with all the evidence you need to make robust and logical investment decisions.

Why Kosec

Corporate
Finance

Learn about select off-market transactions not found on execution-only platforms whereby you can invest ahead of the market. 

Why Kosec

Education +
Seminars

Through seminars and digital correspondence, we provide investors with the academic theory behind establishing a skill set to succeed in managing your own investments. 

Why Kosec

Investment
Community

Attend conferences, lunches and evening events so that you mix with industry experts, elite brands and like-minded investors through our unique investment society.

KOSEC Terms & Conditions

Kodari Securities Pty Ltd (CAR 399556) trading as KOSEC is regulated by the Australian Securities and Investment Commission (ASIC). KOSEC is a financial services company and any information provided by its platforms, portals, reports and documents is protected by copyright. Any unauthorised production of this information is prohibited.
KOSEC reserves the right to change or remove any information provided on our website, reports or any documents including these terms and conditions at any time without notice. The change or modification to the terms and conditions will be effective immediately upon posting an updated version on our website, necessary platforms and documents. It is recommended that you review the information provided on our website, including these terms and conditions frequently for any changes.

Disclaimer
KOSEC provides general advice only. The information provided is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. KOSEC recommends that you obtain your own independent professional advice before making any decision in relation to your particular requirements or circumstances. Please make sure you read our Financial Services Guide (FSG).

KOSEC does not guarantee any returns. Past performance of any product discussed is not indicative of future performance. (We urge that caution should be exercised in assessing past performance. All financial products are subject to market forces and unpredictable events that may adversely affect their future performance). Investing in the stock market can incur huge losses. Please also be aware that fees will incur on every transaction regardless of the performance of your investments or returns generated. Employees and or associates of KOSEC may hold one or more of the stocks, securities or investments reviewed by the company.

Your use of information from our website, reports, documents and from talking to our representatives/associates is at your risk. Under no circumstance should the investment be based solely on KOSEC information and general advice. You should seek professional financial planning advice.
KOSEC aims to maintain the accuracy of the data and information provided on this website, by using information prepared from a wide variety of sources, which KOSEC to the best of its knowledge and belief, considers accurate and does not make any representations or warranties of any kind, expressed or implied, about the completeness, accuracy, reliability, suitability or availability of the information provided.

We may at times refer to third parties, which the details of these third parties have been provided solely for you to obtain further information about other relevant products and entities in the market. KOSEC has no control over the information third parties have, or the products or services offered, and therefore make no representations regarding the accuracy or suitability of such information, products or services. You are advised to make your own enquiries in relation to third parties. Our inclusion of any third party content is not an endorsement of that content or the third party.

Fees
As a client you will be charged a yearly service fee and a set brokerage fee per transaction. Your service fee will automatically renew at the end of your agreed 12 month period at the same rate advertised at the time. Your credit card or bank account will be charged for a further year following which will again auto renew until you cancel your yearly service fee. You can cancel the auto renewal at any time in advance of the renewal date by contacting us. KOSEC is aware of the need to ensure the security of your credit card details and our payment systems are compliant with the Payment Card Industry (PCI) Data Security Standard.

Privacy
You consent to receiving email correspondence from KOSEC, as well as companies KOSEC has an association with. These emails will be sent by KOSEC and third party companies. You can opt out of receiving any category of emails at any time by contacting us. We may from time to time inform you of special offers, or even ask your opinion of the services we provide, but your involvement is optional. Should you request us to do so, we will archive your details.

Indemnity and Liability
You indemnify KOSEC from all claims or threatened claims, suits, demands, damages, costs as well as including legal costs incurred in dealing with any threatened claim, expenses made by any person or corporation against KOSEC and any other amounts which is caused by KOSEC providing information, execution and General Advice.

You hold KOSEC harmless and release it from any liability in respect of any loss, harm or damage arising from a decision made by you on the basis of information obtained through the use of our portal, reports, documents or any General Advice given and any transaction taken place.

You hold KOSEC harmless and release it from any liability in respect of any loss, harm or damage arising from delays in executing orders for the client and acknowledges KOSEC makes no guarantees about the time taken to execute an order on behalf of the client. You acknowledge that KOSEC relies on third parties in providing technology and release KOSEC from any harm, loss or damage you may suffer as a result of the failure of such information technology.

Cookies and Links
KOSEC website, and its portal uses cookies, which lets us identify your browser while you are using the site or our portal. Cookies do not identify you personally. They simply allow us to track your usage patterns. If you prefer not to receive cookies, you can configure your browser to reject them or to notify you when they are being used. The functionality of the KOSEC website may be impacted if you restrict the use of cookies.

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