A Diet for the Fed




We released our NTA yesterday for the Fat Prophets Global Contrarian Fund which is now close to being fully invested. Performance was a modest increase in NTA of 1.23% and 0.9% on a pre-tax and post-tax basis respectively. We also disclosed our TOP 10 holdings and weighing in at 7 on the list, was Indian industrial conglomerate, Reliance Industries. Reliance Industries is an Indian conglomerate headquartered in Mumbai that owns businesses across India engaged in energy, petrochemicals, textiles, natural resources, retail, and telecommunications.

Aside from being bullish on India’s economy over the next decade, Reliance recently entered the telecommunications industry and is rolling out a national mobile network, JIO which is shaping up to be a formidable competitor in rapidly growing industry. Reliance rallied 3.4% yesterday on news that the India’s mobile phone customer base rose 0.38 percent, or a net 4.4 million, in April to reach 1.17 billion (as reported by the country’s telecoms regulator on Tuesday).

Following is a table of mobile phone subscriptions in India, which is now the world’s second-biggest wireless market by number of users, as of April 30, with Reliance now in fourth place on the list.

This is a list of company mobile phone subscriptions from companies in India

Turning closer to home and the archaic media laws in Australian have meant that a collapse of a key free to air broadcaster was an accident waiting to happen. The landscape has changed immensely as I have noted a number of times, and IO go along with Communications Minister Mitch Fifield who is set to introduce the reform package to the House of Representatives today, and who said Ten’s voluntary administration was a ‘wake-up’ call. He also said “the greatest threat to the diversity of the Australian media would be an Australian media organisation that didn’t continue, that went out of business.”

Kill or be killed, and not those that have not backed reform have blood on their hands. Ironically the rest of the media stocks were up yesterday, as the cavalry looks set to finally arrive, if the politicians see sense – which is never a given.

This has to be a positive for Fairfax, and a wakeup for the authorities call across the Tasman that canned the merger. Private equity houses TPG and Hellman & Friedman are both conducting due diligence on Fairfax, and I think in the wake of Ten’s demise, it will be easier for some of the older media assets to be merged with other competitors. This may improve the appeal of Fairfax to both of the private equity firms.

This is a stock chart for Fairfax Media

Cost cutting is a necessary response to increased competition, and we are also seeing this at Telstra, with the company announcing plans to cut up to1400 jobs from ‘operations.’ This should not surprise given the company has announced previously the pursuit of $1 billion in cost savings over the next five years. Telstra is also not alone, with key rival Optus also cutting staff in recent times.

This is a stock chart

The job losses are sad, but the reality is that the digitisation of the landscape means that Telstra can afford to extract efficiencies and reduce headcount without compromising its service. The action is also necessary as the company continues to make solid progress towards filling the earnings hole posed by the NBN. The market reaction though was odd with the shares initially rising on Wednesday before ending lower – I am not sure if the market knows itself how to read the glass at the moment, but it seems to me that with Telstra’s current low valuation and fat dividend yield that an inflection point maybe approaching…

Disclosure: The Fat Prophets Contrarian Fund declares a holding in Reliance and Fairfax.

Carpe Diem!

CEO | Fat Prophets

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