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| | | 12/26/2014 By Thomas Scarlett 
The travel/tourism business is highly sensitive to economic conditions; it's a lot easier to postpone a fancy vacation than it is to put off necessary purchases of clothing, education or even real estate. But the very strong GDP numbers that were released earlier this week, coupled with the rapid decline of gasoline and jet fuel prices, mean that 2015 should be the best year for travel and tourism in a long while. One company that is poised to prosper is Hilton Worldwide (NYSE: HLT). Hilton is a very old and very new company simultaneously. Conrad Hilton, of course, started his first hotel way back in 1919, and the company's brands -- which include Embassy Suites, Doubletree, Hampton Inn and others -- feature almost 4,000 hotels with more than 650,000 rooms in about 90 countries.
But Hilton was a privately held company for many years, and only re-emerged as a publicly traded firm last year. The lack of a long trail of data -- private companies don't have to reveal their inner workings the way publicly traded corporations do -- may have caused some investors to take a wait-and-see attitude. But the company's very strong brands, coupled with its solid growth prospects, certainly make it a stock worth watching.
Despite its venerable name, Hilton is actually growing faster than many of its competitors. It currently has the largest supply of rooms under construction in each of the three major regions for hotel accommodations: the Americas, Europe, and Asia/Pacific.
For the nine months ended September 30, Hilton's earnings per share figure was 52 cents compared to 42 cents for the comparable period of 2013. Adjusted earnings before taxes increased 14 percent to $1.840 billion for the nine months ended September 30, 2014, compared to$1,607 million for the nine months ended September 30, 2013. Net income attributable to Hilton stockholders during the same period was $515 million, up from $389 million.
The outlook for 2015 is for considerable acceleration of growth, as the company puts its newfound capital to work. The number of managed and franchised rooms is expected to expand by 5.5-6.5 percent on a net basis.
Hilton Worldwide opened 53 hotels with over 9,600 rooms in the most recent quarter, including seven hotels in China with nearly 2,500 rooms, and achieved net unit growth of over 6,500 rooms. During 2013-14, Hilton opened 227 hotels with nearly 34,000 rooms, or 6 percent of managed and franchised rooms, in 24 countries. Of the new rooms added, 35 percent of new rooms were conversions from the company's affiliated brands.
While maintaining its dominance in the traditional hotel business, the firm has been branching out into other kinds of hospitality, such as timeshares. Timeshare revenues increased 11 percent to $300 million in the fourth quarter of 2014 compared to the same period in 2013, led by a $29 million increase in timeshare sales revenue, as a result of an $11 million increase in revenue from sales commissions earned from the sale of timeshare units developed by third parties.
Hilton's long-term presence in Europe and Asia gives it an advantage in tailoring specific travel and entertainment packages to these very specific markets. Following a survey by Japan's Ministry of Health, Labor and Welfare last year that revealed Japanese employees in the country have only consumed 47.1% of their annual leave entitlement Hilton Worldwide's portfolio of hotels in Japan created short stay packages to encourage Japanese consumers to spend quality time with their family and friends. These packages comprise one- or two-night hotel stays with unique experiences that are tailored for varied interests and preferences.
The stock's price-earnings ratio is now over 45, which is a bit higher than we would like, but the company has a strong history of earnings growth that shows no sign of stopping. Its market cap is now almost $26 billion. The share price is no higher than it was in mid-August, before the most recent positive earnings report and latest news about expansion opportunities. Hilton Worldwide is a buy up to 32. Tom Scarlett is an investment analyst at Personal Finance and its parent web site Investing Daily. | | |
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| | | 12/24/2014 By Robert Rapier 
2014 was not your ordinary year. There was a top energy story that stood head and shoulders above all the rest, but no clear runner-up. Here are my choices for the top five energy stories of 2014, followed by about 20 more that could have easily been on the list. 1. Crude oil prices collapse On July 30, West Texas Intermediate (WTI) closed at $104.29 per barrel (bbl). The next day it suffered a sharp decline below $100/bbl. As the year comes to an end, WTI has reached $55/bbl. The last time oil was this cheap was during the global financial crisis six years ago. In fact, from the end of 2008 until mid-2014 energy stocks experienced a long bull market. Many oil producers saw their share price double and triple as oil found a home around $100/bbl. High oil prices put the brakes on the world's oil-dependent economies. But as oil consumption fell in developed countries, the increase in demand from developing countries more than offset these declines, pushing global consumption higher. Eventually the U.S. shale oil revolution put enough oil on the market that supply growth started to outstrip the rate of increase in demand. Once the market recognized that Saudi Arabia would not cut its output to accommodate the shale producers, panic selling ensued. The nearly 50% decline in the price of WTI and Brent crudes is a sea change with far-reaching consequences. 2. Coldest winter in years drives energy prices higher We could have put any number of stories in the second spot, and the rest of the top five is pretty interchangeable. There were stories that were directly a result of the oil price crash (e.g., gasoline prices below $2/gallon in parts of the country; oil companies slashing capital budgets for next year) and stories that helped exacerbate the price decline (e.g., OPEC failing to cut production to prop up declining oil prices). I could have come up with a top five that was entirely related to the oil price crash. But I chose last winter's series of polar vortices because it caused U.S. natural gas inventories to be drawn down to their lowest levels in more than a decade. The overall winter draw on natural gas was also the largest in history, causing price spikes not only for natural gas but propane and heating oil as well. Natural gas inventories ended the winter withdrawal season about 50% below normal for that time of year, but a mild summer and record natural gas production allowed inventories to return nearly to normal for the 2014-2015 withdrawal season. 3. World sets new energy consumption records While major inroads continue to be made with renewables, the world still runs very much on fossil fuels. The release of the 2014 BP Statistical Review showed new consumption records for oil, natural gas and coal. These three fossil fuels were responsible for nearly 87% of the world's primary energy consumption. Fossil fuel consumption continued to decline in the European Union, while U.S. consumption rose for the first time in several years. Every developing region of the world increased its fossil fuel consumption. 4. Continuing boom in U.S. crude oil and natural gas production The fracking boom rolled on, with US oil production growing at the fastest pace in the country's history and reaching the highest levels in nearly 30 years. North Dakota became the fifth state in the nation to see its oil production climb above the 1 million barrel per day mark. U.S. natural gas production continued to set new all-time highs thanks to the prolific Marcellus Shale, where output topped 15 billion cubic feet per day (Bcf/d). 5. EPA phasing out coal-fired power This is a trend with big ramifications for U.S. electricity producers. In June the U.S. Environmental Protection Agency (EPA) released the Clean Power Plan proposal, which for the first time mandates carbon emission cuts from legacy power plants. The new regulations would require such plants to cut emissions by up to to 30% by 2030 from 2005 levels. Many coal plants will be unable to meet these new restrictions, and previous rules have imposed even more stringent limits on new coal-fired projects. The bottom line is that coal-fired power will continue to decline in the U.S. and could be phased out completely as a result of the new emission requirements. And don't forget In no particular order, here are the other important energy headlines of 2014: -
The combination of a corruption scandal, the subsequent announcement that the company would delay earnings announcements by a month, the reelection of Dilma Rousseff as the country's president, and plummeting oil prices sent the price of Brazilian oil giant Petrobras (NYSE: PBR) down nearly 50% for the year, to a level that hasn't been seen in a decade -
A federal judge concluded that a multibillion-dollar judgment against Chevron (NYSE: CVX) over pollution in Ecuador was securedthrough bribery, fraud, obstruction of justice, witness tampering and other crimes. This article originally appeared in the The Energy Letter column. Never miss an issue. Sign up to receive The Energy Letter by email. | | |
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| | | 12/24/2014 By Ari Charney 
Australian telecom Giant Telstra Corp. Ltd., one of Australian Edge's original eight "income wonders from down under," gave a prime example this week that there's more to the Australian investment story than just resources.
The country's other major attraction as an investment destination is, of course, its proximity to fast-growing Asian markets. And Australia's stock market is a far safer and easier way to gain exposure to these markets than investing directly in Asian emerging market equities.
On Tuesday, Telstra (ASX: TLS, OTC: TTRAF, ADR: TLSYY) announced it would acquire Asian telecom Pacnet Limited, a provider of connectivity, managed services and data-center services to carriers, multinational corporations and governments in the Asia-Pacific region.
The company says the acquisition includes interests in Pacnet's China joint venture, PBS, which is licensed to operate a domestic Internet Protocol Virtual Private Network and provide data-center services in most major provinces in China.
The $697 million acquisition, which includes about $400 million in gross debt, is subject to regulatory and Pacnet financier approvals and is expected to close by mid-2015.
Telstra, which is often described as the Verizon and AT&T of Australia, already dominates the domestic market in fixed-wire and wireless communications. And it also has a significant role in building and maintaining the country's National Broadband Network (NBN), for which it will be paid $11 billion over a 30-year period.
Now, as evidenced by this latest deal, the $58.5 billion firm is increasingly looking for investment opportunities overseas to boost long-term growth and expand its Global Enterprise Services business. And the dependable cash flows it generates from its enormous share of the Australian market should provide earnings stability while it looks for new growth in other markets.
Of course, Telstra already has a substantial presence in Asia, with 1,400 staff in the region, as well as its 57% stake in Autohome, a Chinese online marketplace for cars that has a market capitalization of around $4.1 billion.
But Asia still offers significant opportunities for future growth. And management has a three-pronged strategy for further expansion in the region:
1) Telstra intends to become a leading provider of enterprise services to multinational corporations and other large firms operating in Asia.
2) The telecom will leverage its existing network to create other opportunities for connectivity in the region.
3) Longer term, Telstra will build upon its investments in areas such as software and invest in similar areas in Asia.
As for its latest deal with Pacnet, upon consummation the combined entity will become a leader in Asia's service provider market, while nearly doubling Telstra's Global Enterprise Services business in the region.
Singapore-based Pacnet has 800 staff across 24 cities and 11 countries and regions from Australia into Southeast Asia, north Asia, as well as the U.S. and the U.K., with strategically located assets in a number of these areas.
In 2013, the firm generated $472 million in revenue and $111 million in EBITDA (earnings before interest, taxation, depreciation and amortization). Telstra's management believes it can find nearly $53 million in synergies, thanks to overlapping infrastructure, and it expects the acquisition to be accretive to earnings per share within two years.
Reuters notes that Telstra will be acquiring Pacnet for significantly less than the $1 billion price analysts had expected the company to fetch.
The news service says that according to reports in the Australian media Pacnet's owners, Ashmore Investment Management Ltd., Spinnaker Capital Ltd. and Clearwater Capital Partners, had been trying to cash out of their investment in the company for several years.
Although analysts agreed that Telstra got a good deal on Pacnet in terms of price, they're not nearly as ebullient as management on the company itself or how it meshes with Telstra's growth strategy.
For one, Pacnet will be a bit of a turnaround play for Telstra, since revenue has been declining and the firm has also posted operating losses over the past two years.
During management's Q&A following the announcement of the acquisition, Deutsche Bank analyst James Wang wondered why Telstra didn't simply rent particular assets instead of acquiring the company as a whole.
And Credit Suisse analyst Fraser McLeish told The Sydney Morning Herald, "I'm not sure it adds a lot to Telstra from a network perspective. Telstra has already got a pretty strong network infrastructure in the region, but it does add customers, revenues and scale to Telstra global."
"Their Asian expansion strategy has been a range of organic where they can, joint ventures where possible and acquisitions. I think the issue is just finding acquisitions that fit. There's a limited amount of things available, but I do think this broadly fits within that Asian strategy," McLeish observed.
Over the trailing 12-month period, shares of Telstra have generated a total return of 19.4%, and currently trade near their highest level since 2001. The stock's net yield is almost 5%, while dividend growth has averaged 1.8% annually over the past three years. This article originally appeared in the Down Under Digest column. Never miss an issue. Sign up to receive Down Under Digest by email. | | |
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