Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 29 October 2014 at 11:24 GMT

Is Japan's Tepco coming back from the tsunami abyss?

Head of Equity Strategy / Saxo Bank
  • Japanese utility Tepco's shares jump 16% on strong Q2 results
  • Tepco has been in doldrums after earthquake and tsunami of March 2011
  • Still premature to ascertain long-term prospects for Tepco

By Peter Garnry

Our conviction buy list portfolio on Asia Pacific equities was up 2.3% slightly underperforming MSCI Asia Pacific up 2.9% the past week.

The biggest gainer was Tokyo Electric Power Company, the now famous Japanese utility company that owned the nuclear plant Fukushima Daiichi that was hit by the March 2011 earthquake and following tsunami.

Tepco's shares rose 15.9% following better than expected Q2 results announced on October 27.

 Japan's March 2011 earthquake left infrastructure and lives devastated along much of the northeastern coast, and significantly impacted Tepco's share price. Photo: Thinkstock


However, management says that the situation is still very uncertain and is not able to make a fiscal year forecast yet as it all depends on nuclear power plant restarts.

Despite improving conditions, the company's credit situation is still very fragile with net debt to 12-month EBITDA at 7.2x which is considerably above a sustainable level for an utility company.

So while things have improved for Tepco, it is still not certain that the company will remain sustainable.

Asia Pacific equities top picks performance
Below is the updated conviction buy list on Asia Pacific equities. Toyo Seikan Group remains our quant models absolute top pick. The Japanese manufacturer of metal, glass and plastic packaging is trading at a price-to-book ratio of 0.4x despite being profitable and with positive expectations for operating profit and revenue over the next two years.
Asia Pacific equities top picks
 -- Edited by Martin O'Rourke
Peter Garnry is head of equity strategy at Saxo Bank
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Conviction Buy List - Asia Pacific


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