Last Wednesday’s bounce-back from last Tuesday’s market freak-out–again over Greece, anew over China–is an unpleasant but necessary reminder that investors remain on hair-trigger alert to news that could destabilize a still-difficult recovery from an historic global credit/financial/economic event.

We had thus far been spared the type of triple-digit down days that so typified 2011, and the few years immediately preceding it. It’s important to note, however, that last year began with similar positive momentum before events in the Middle East and then Japan reignited fears first lit in the fall of 2008 but rather dormant during the post-Mar. 9, 2009, rally.

So-called “Black Swans” certainly heighten the sense of fear of a soon-to-come apocalypse. It’s impossible to predict when, where and in what from they’ll strike. As history reveals, however, things always pop up. In this sense it’s inexcusable not to be prepared for the unexpected and what consequences they hold for markets generally and your portfolio holdings in particular.

Greece is more slow-motion train-wreck than anomaly at this point, though the news of China did strike with at least some sort of urgency. On closer inspection, however, even the latter is in keeping with a longer-term evolution–as opposed to Greece’s devolution, if you will–for the Middle Kingdom.

We should continue to expect, for example, that economic data in the US will continue to paint a mixed but generally favorable picture, susceptible to Europe and threats from the Middle East but certainly better off than it was four years ago.

In keeping with this theme the US Dept of Labor’s Bureau of Labor Statistics (BLS) reported the addition of 227,000 jobs during February, the third straight the number of new positions was sufficient to absorb new entrants to the market. And the BLS revised the positive changes in total nonfarm payroll employment for December to 223,000 from 203,000 and January from 243,000 to 284,000.

At the same time, however, wage growth was not sufficient to outpace the rate of inflation, however subdued it may be. Average earnings rose by just 0.1 percent month over month, or 1.9 percent year over year. BLS reported a 2.9 percent year-over-year rate of inflation for February, meaning spending power in an economy where the consumer accounts for about two-thirds of gross domestic product (GDP) growth could be curbed.

It also suggests that, generally speaking, low-paying jobs are being created. Temporary jobs–which can be a positive indicator, as they become full-time jobs–rose by 45,000 larger than the 32,000 in January. Construction shed 13,000 jobs, the largest decline since January 2011, though it was up by 20,000 in January.

The basic scenario is one of two steps forward, one step back, and sometimes one and a half. And there will certainly be wild cards dealt. It’s far more important, however, from the perspective of maintaining the health of your portfolio as well as your own mental well-being, to focus on operating conditions on a business-by-business basis than the happenings.

Part of the problem with the Greece story is that every minute aspect of the process has been over-scrutinized and blown out of proportion to its relevance in the larger story–that is, an orderly restructuring of Greece’s debt, what in some quarters could be described as a “default.”

We happen to have arrived at what was a critical moment, when the terms of private-holder haircuts would be determined. And in due course, ahead of key deadlines, the necessary private-sector ascensions were obtained. Not all creditors will agree; some will hold out in order to collect “insurance” in the form of payouts from credit default swaps (CDS) established to hedge their respective Greek exposure.

What to call it when the terms of Greece’s restructuring are finally known is the subject of a lot of speculation and obfuscation as well as negotiation. Holdouts continue to look for language that will trigger payment on their default insurance contracts.

There are as many ways to slice terms in agreements as complex as these as there are lawyers engaged in the process, whether directly by actually preparing documents, for example, or remotely by criticizing from the periphery of the blogosphere. The slightest request for clarification amid multilingual discussions can be described in the most binary, deal-or-no-deal and therefore incendiary ways.

And that means the issue is ripe for controversy-hungry headline writers and financial-television show-bookers eager to gather eyeballs, whether to entertain or educate a moot question where ratings and advertising are the chief concern.

But revaluing your whole portfolio based on every step in a painstaking march toward an orderly unwinding of its existing sovereign commitments–a default, in rosier, less costly terms–at this particular moment is as senseless as it was in any other instance as well.

As for the Middle Kingdom, “7.5 percent” is just a number, in this context, actually, a principle, around which the Communist Party of China (CPC) will orient the next phase of its long-term strategy to retain power and satisfy the natural yearnings of the vast population it controls. Sustaining its economy and continuing its move up the global labor value chain will take substantial resources, still.

At any rate, the half-percentage point reduction in the 8 percent benchmark China’s leaders have maintained since 2005 is immaterial.

The next phase of the Middle Kingdom’s economic development will involve a shift toward consumption-led growth from export- and capital-expenditure driven expansion. During his speech to the perfunctory National People’s Congress Premier Wen Jiabao noted that China must aim for a “higher-quality development over a longer period of time.” He added that the government would maintain its “proactive” fiscal and “prudent” monetary policy.

As was the case with the prior 8 percent target 7.5 percent represents the floor of the Chinese government’s comfort level. The reduction has also been interpreted by some observers as a signal to local officials that the rate of growth isn’t the only focus of economic development.

Mr. Wen also said the official 4 percent inflation target established last year will remain through 2012.

US labor figures are looking a lot better, but unemployment is still above 8 percent. And the Federal Reserve is said to be prepping yet another exotic monetary trick in lieu of responsible fiscal action to ensure against another severe slowdown. The US central bank has already pledged to keep interest rates near the effective “zero bound” until 2014.

For investors seeking real income there really is no other place to turn than high-quality dividend-paying stocks, wherever they may be found. This means you must be prepared to be buffeted along a rather bumpy ride but to also buy stocks when the market overreacts or simply takes them down below value-based buy-under targets.

The Roundup

We discussed Telstra Corp Ltd’s (ASX: TLS, OTC: TTRAF, ADR: TLSYY) fiscal 2012 first-half results in a Feb. 28 AE Weekly. Since then the company has finalized its AUD11 billion agreement with the federal government over the rollout of the country’s high-speed National Broadband Network (NBN). The government’s plan to build the estimated AUD36 billion nationwide network passed its final big hurdle last month when the Australian Competition and Consumer Commission (ACCC) accepted Telstra’s “structural separation undertaking” (SSU) that will result in the eventual shut-down its fixed copper-line service.

As has been widely reported, the NBN deal will result in about AUD11 billion in post-tax, net present value payments over the term of the agreements. One of the “definitive agreements” revealed includes a provision for a payment of about AUD300 million this year. Cash due in 2012 according to terms of the Campaign and Migration Deed wasn’t included in previous company guidance.

Telstra has yet to announce a plan for disposition of the AUD11 billion. Management has widely hinted at some sort of “capital management” in the near future, based on finalization of the SSU and the NBN. Now that these events have come to pass some word on a special dividend, a dividend increase and/or a share buyback, or perhaps some combination thereof, should be forthcoming. We remain impressed by what this additional cash flow will do to fortify Telstra’s leading position in technology and infrastructure improvement.

In the meantime, Australia’s dominant telecom remains a buy under USD3.20.

In that Feb. 28 AE weekly we provided updates on recent earnings for AE Portfolio Aggressive Holdings. Here’s where the rest of the Conservative Holdings stand in the aftermath of fiscal 2012 first-half reporting season.

AGL Energy Ltd (ASX: AGK, OTC: AGLNF, ADR: AGLNY) reported underlying profit of AUD232.9 million for the six months ended Dec. 31, 3011, an increase of 3 percent on the AUD226.2 million reported for the prior corresponding period. “Underlying profit,” management’s preferred metric, is statutory net profit after tax (NPAT) adjusted for one-time items and the fair value of financial instruments.

Statutory NPAT was AUD117 million, down 51 percent year over year because of a AUD115.9 million loss booked on hedges, or derivatives contracts.

Along with its earnings announcement management revealed that it had entered into conditional agreements to acquire remaining interests in the Loy Yang A power station and an attached coal mine in Victoria. AGL will buy out Tokyo Electric Power Company, better known as Tepco (Japan: 9501, OTC: TKECF), and various investment funds for AUD448 million.

AGL already owns a one-third stake in Loy Yang, which produces 30 percent of Victoria’s power needs and is the country’s biggest carbon emitter.

The company plans to raise AUD1.5 billion through the issue of new bonds and equity to help fund the deal, which includes the assumption of AUD1.3 billion in debt. The transaction isn’t expected to have an impact on AGL’s underlying profit for fiscal 2012, but management anticipates that “the strategic benefits it provides will underpin further earnings growth in the years ahead.”

As for the remainder of the current fiscal year, AGL “anticipates further earnings growth in the second half.” Management forecast the Retail Energy business will continue to benefit from improved operating efficiencies, below-market average customer churn rates and the continued growth in electricity customer accounts in New South Wales.

In Merchant Energy, wholesale electricity costs are expected to be materially lower than in the prior year on the assumption that there is not a recurrence of the extreme weather events experienced in February 2011.

Management reiterated prior guidance for full-year fiscal 2012 underlying profit of between AUD470 million and AUD500 million.

As for fiscal 2012 first-half results, operating earnings before interest and taxation (EBIT) for the group was AUD354.6 million, an increase of 3.1 percent on the first half of fiscal 2011. Strong improvements in both Retail Energy and Merchant Energy were offset by a reduced contribution from Upstream Gas. Revenue grew 3.6 percent to AUD3.6 billion.

Operating EBIT for Retail Energy was AUD178.2 million, up 12.5 percent on the prior corresponding period, due to a AUD37  million (11 percent) increase in gross margin. The operating expenses-to-gross margin ratio continued to improve, falling to 46.8 percent from 47.9 percent.

Customer accounts increased by more than 100,000, or 3 percent, to 3.39 million. AGL’s emphasis on New South Wales bore 89,000 new customers in six months since Jun. 30, 2011. AGL also maintained its electricity and gas customer bases in all other states. Although customer churn rates remain high across the National Electricity Market, AGL’s rate is 4.7 percentage points below the industry average.

Operating EBIT for AGL’s Merchant business was AUD248.8 million, up 11.1 percent year over year. Wholesale Electricity gross margin improved by 19.1 percent to AUD178.6 million due mainly to lower hedging costs and increased capacity from AGL’s hydro assets. Gross margin for Wholesale Gas shrank by 8.3 percent to AUD58.7 million, partly a result of mild weather during the Southern Hemisphere’s winter months of July, August and September.

Eco-Markets gross margin increased to AUD33.1 million, compared with AUD13.0 million in the prior corresponding period. Active portfolio management and lower purchase costs contributed to the higher gross margin. Power Development Operating EBIT fell by 64 percent to AUD9.4 million reflecting the reduced level of development fees recognized in respect of wind-farm construction projects.

Merchant Operations operating expenses increased 2.3 percent to AUD58.4 million mainly as a result of higher depreciation charges. Business Customers operating EBIT fell by 1.8 percent to AUD43.6 million.

Upstream Gas operating EBIT decreased by 94.2 percent to AUD1 million compared with AUD17.3 million a year ago on lower fees from gas-storage services at the Silver Springs facility in Queensland and lower gas sales from AGL’s Moranbah and Camden Gas projects. Total proved plus probable gas reserves as of Dec. 31, 2011, stood at 2,176 petajoules.

Energy Investments: Operating EBIT from Energy Investments decreased to AUD12.4 million compared with AUD20.4 million in the prior corresponding period.

Loy Yang produced a loss of AUD4.9 million compared with a profit of AUD400,000 a year ago. The ActewAGL retail partnership contributed an equity share of profits of AUD17.3 million compared with AUD17.6 million.

Centrally managed expenses for the group totaled AUD85.8 million, an increase of AUD9.8 million compared to the six months ended Dec. 31, 2010, due mainly to higher hardware and software costs incurred in supporting a new billing platform for business customers and the new AGL Online portal for residential customers.

Net financing costs increased by AUD1.2 million to AUD23.3 million for the half year mainly due to higher average net debt and a higher average net interest rate. Net debt as of Dec. 31, 2011, was AUD937.5 million, an increase of AUD466.1 million from Jun. 30, 2011.

Underlying operating cash flow before tax was AUD117.1 million lower than for the prior corresponding period mainly due to a billing backlog following the introduction late in 2011 of a new billing system for AGL’s business customers. The billing delays are temporary, with normal operating cash flow expected to have been restored by the end of the financial year.

The board approved an interim dividend of AUD0.29 per share, in line with last year’s interim dividend. This works out to a payout ratio of 57.6 percent based on underlying profit per share. AGL Energy remains a buy under USD15.30 for long-term growth and income.

APA Group (ASX: APA, OTC: APAJF), Australia’s biggest transporter of natural gas, is ideally positioned to benefit from a concerted effort to switch to cleaner-burning fuels for domestic consumption. This owner-operator of pipelines, storage facilities and a wind farm pushes about half of Australia’s annual gas use through its infrastructure.

Results for the six months ended Dec. 31, 2011, underscored its relative strength, and a modest 3 percent dividend increase confirms management’s conservative approach to building wealth over time.

The company reported that earnings before interest, taxation and depreciation (EBITDA), not accounting for significant items, grew 13.9 percent to AUD289 million during the first half of fiscal 2012. EBITDA growth was driven largely by pipeline expansion and the addition of new assets, including capacity sales flowing from completion of the Young Wagga looping project, ownership of the Amadeus Gas Pipeline, which was previously leased by APA, and the Emu Downs wind farm business in Western Australia.

Operating cash flow decreased by 7.5 percent, or AUD12.7 million, to AUD157.7 million. This was due solely to the receipt of a contracted monthly payment of in excess of AUD25 million on Jan. 3, 2012, rather the due date of Dec. 31, 2011. This has impacted a number of key ratios, including operating cash flow per share, which has decreased, and the distribution payout ratio, which has increased. These negative movements are purely matters of timing in the context of APA’s day-to-day operations.

Critical for long-term distribution sustainability and growth, APA continued the expansion and further development of its energy infrastructure portfolio. Along the east coast, expansion work commenced on the Roma-to-Brisbane Pipeline, while work continued on the five-year expansion of the Moomba-to-Sydney Pipeline and capacity upgrade of the Victorian Transmission System. In line with APA’s strategy, all these efforts are underpinned by long-term contracts with highly creditworthy counterparties or relevant approvals under regulatory arrangements.

APA continued development of the next stage of the Mondarra Gas Storage Facility expansion in Western Australia with commencement of surface-facility construction, which includes pipeline interconnects and treatment plants.

APA, along with fellow Conservative Holding AGL Energy Ltd (ASX: AGK, OTC: AGLNF, ADR: AGLNY), started work on the Diamantina Power Station at Mount Isa. The 242 megawatt gas-fired power station is underpinned by long-term energy-supply agreements. It will get gas via the Carpentaria Gas Pipeline under a new long-term transport contract.

In December 2011 APA completed the sale of its Queensland Gas Network business (Allgas) into a minority-owned joint venture, GDI (EII) Pty Limited. APA retains a 20 percent equity interest in GDI and will continue to operate and manage the network under a long-term contract.

APA recently announced two further expansions of the Goldfields Gas Pipeline to supply additional capacity for new gas fired power generation in the Pilbara. These expansions are underpinned by two long-term contracts with major mining companies and will increase capacity in the pipeline by 28 percent.

APA’s effort to acquire the 79.3 percent of Hastings Diversified Utilities Fund (ASX: HDF) it doesn’t already own continues, as management remains keen on realizing the potential of connecting its assets to “one or more” of APA’s assets, completing what it sees is a “natural fit” in its effort “to provide more flexible and tailored services” for its existing customers.

In mid-December APA offered AUD0.50 in cash and 0.326 of its shares for each of the shares of Hastings it doesn’t own. That put Hastings’ overall market value at approximately AUD1.06 billion, but the AUD2 per share quoted by APA is disputed by Hastings. The target claims that, taking account of interim distributions by both companies, the per-share value put on Hastings by APA is closer to AUD1.92. APA’s offer, which includes other conditions the target’s management has found objectionable, is open to Hastings shareholders until Mar. 31, 2012, unless extended or withdrawn.

APA entered into AUD1.9 billion of new two-, three-, four- and five-year debt facilities during the period. These facilities were used to refinance debt and support APA’s growth projects going forward.

The board of directors declared an interim distribution of AUD0.17 per share, an increase of 3 percent on the previous corresponding period. The distribution payout ratio for the six months ended Dec. 31, 2011, was 69.2 percent of operating cash flows. APA Group, a solid asset-growth story, is a buy under USD5.

Australia & New Zealand Banking Group Ltd (ASX: ANZ, OTC: ANEWF, ADR: ANZBY) announced that is has received a license to conduct retail business in the yuan in China, making it the first Australian bank to earn such approval. ANZ said in statement the new license would allow its subsidiary, ANZ China, which has 20 percent stakes in China’s Shanghai Rural Commercial Bank and Bank of Tianjin, to provide customers with local currency deposits, mortgages, “bancassurance” (or insurance) and wealth management products and services.

This is a significant step in ANZ’s effort to compete with HSBC Holdings Plc (London: HSBA, NYSE: HBC) and Standard Chartered Plc (London: STAN, OTC: SCBFF) as a regional lender in Asia. The Australia-based bank, which in 2011obtained a license to operate in India, wants to generate 25 percent to 30 percent of earnings from Asia by 2017.

As for results for the three months ended Dec. 31, 2011, ANZ reported a 4.1 percent increase in underlying profit, though management cautioned that credit growth was unlikely to return to pre-Great Financial Crisis levels anytime soon. Unaudited underlying net profit after tax (NPAT) adjusted for non-core items was AUD1.48 billion, up from AUD1.4 billion a year ago.

ANZ Bank reported that mortgage lending rose 2.4 percent sequentially, 1.5 times system growth, while deposits gained 3.6 percent, or 1.3 times system growth. Net interest margin, the difference between what it pays to borrow and what it receives to lend, narrowed about 1 basis point from the prior corresponding period; this figure, however, doesn’t include ANZ’s global markets business. At the bank’s Australian business, the net interest margin narrowed 9 basis points “due to higher funding and deposit growth.”

Management noted that its term wholesale funding program for 2012 is “in line with 2011” at around AUD20 billion, and ANZ is ahead of schedule with about AUD9 billion raised year to date. The bank’s Tier 1 capital ratio was 11 percent as of Dec. 31. 2011.

In a statement accompanying the earnings release ANZ CEO Mike Smith noted, “There will not be a return to the level of credit growth that banks experienced pre-crisis for the foreseeable future, particularly in our major domestic markets in Australia and in New Zealand, as consumers reduce their gearing and businesses pace investments.” “Gearing” is another word for borrowing. Here you can see Mr. Smith’s motivation for expanding into non-Australasian markets.

ANZ’s developing foothold outside its home markets is one reason why investors have turned buying eyes its way so far in 2012, giving it a Big Four-best 6.8 percent price-only increase. Westpac Banking Corp (ASX: WBC, NYSE: WBK) is up 3.5 percent, National Australia Bank Ltd (ASX: NAB, OTC: NAUBF, ADR: NABZY) is up 0.9 percent and Commonwealth Bank of Australia (ASX: CBA, OTC: CBAUF, ADR: CMWAY) is down 2.32 percent, though it’s paid a dividend so posts a total return of 0.4 percent.

Since AE’s Sept. 26, 2011, inception ANZ has generated a total return of 21.1 percent in local terms, besting NAB (15.3 percent), Commonwealth Bank (12.7 percent) and Westpac (11.9 percent) as well as the S&P/Australian Securities Exchange 200 Index (11.4 percent).

In US dollar terms ANZ is up 31.9 percent since late September, besting the 19.1 percent total return posted by the S&P 500.

Australia & New Zealand Banking Group–our favorite among the Big Four because of its broader Asia exposure–is a buy under USD22.

Cardno Ltd (ASX: CDD, OTC: COLDF) completed the acquisition of Louisiana-based environmental services firm ATC Associates (ATC) last week for AUD112 million. ATC is a 1,600-person consulting firm with 69 offices in 39 states. It specializes in environmental management, industrial hygiene and occupational health, geotechnical engineering, construction materials testing and inspection, and environmental health and safety training.

Cardno Managing Director Andrew Buckley said the new Cardno ATC will further strengthen Cardno’s exposure to the US environmental and natural resources management market and is highly complementary to Cardno’s existing businesses in the US. The acquisition was funded through an AUD45 million private placement combined with a 1-for-9 renounceable rights issue to existing shareholders, which will raise an additional AUD67 million.

Numbers for the six months ended Dec. 31, 2011, were in line with market expectations and at the top end of guidance the company provided back in January. Cardno reported company-record net profit after tax (NPAT) of AUD36.1 million, 14 percent higher than the prior corresponding period and better than management guidance. Strong performance for Cardno’s US operations, improving conditions in Australia and contributions from recent acquisitions drove the improvement.

Revenue for the first half of fiscal 2012 was up 2.1 percent to AUD445.5 million, while basic earnings per share (EPS) rose 5.6 percent to AUD0.3274. Earnings before interest, taxation, depreciation and amortization (EBITDA) were up 12.3 percent to AUD65.5 million. Operating cash flow was up 18.7 percent from the prior corresponding period to AUD47.3 million. Cardno reported a debt-to-equity ratio of 42.5 percent and cash on hand of AUD80.4 million as of Dec. 31, 2011. The board approved and management declared an interim dividend of AUD0.18 per share, up from AUD0.17 from a year ago.

In early February global mining giant and AE Aggressive Holding Rio Tinto Ltd (ASX: RIO, NYSE: RIO) awarded Cardno a AUD22 million contract to provide design services for a major electrical infrastructure replacement project in the Pilbara region of Western Australia.

Fast-growing Cardno, which yields more than 5 percent at current levels, is a buy under USD6.

CSL Ltd (ASX: CSL, OTC: CMXHF, ADR: CMXHY), the global plasma products and vaccine-maker, reported that fiscal 2012 first-half net profit after tax (NPAT) declined 3.4 percent because of pressures of a high Australian dollar. But management also lifted its full-year profit-growth guidance to 13 percent from 10 percent because of “vigorous” demand for its products.

Rising use of plasma-derived products, which raise antibody levels, and royalties earned from treatments such as Merck & Co’s (NYSE: MRK) Gardasil cervical-cancer vaccine helped mitigate the impact of a stronger Australian dollar, which is cutting the value of overseas sales.

CSL is the world’s second-largest plasma maker, behind Baxter International (NYSE: BAX). Its plasma products, which are used to treat bleeding disorders, infections and autoimmune diseases, account for about 85 percent of its earnings.

NPAT for the six months ended Dec. 31, 2011, fell to AUD483 million from AUD500.2 million in the prior corresponding period, in line with expectations. CSL said the result was affected by an unfavorable foreign exchange impact of AUD95 million. On a constant currency basis net profit grew 16 percent.

Revenue for the first half rose to AUD2.31 billion from AUD2.17 billion a year ago. Fees from licensing of intellectual property totaled AUD80 million, up 60 percent.

The Australian dollar strengthened by 6.3 percent against the US dollar over the past 12 months, hurting CSL’s bottom line. The company will put in place “natural hedges” such as generating more expenses from its US operations to offset further such impact. North America was CSL’s biggest market, accounting for 42 percent of revenue, followed by Europe with 32 percent and Australia with 10 percent.

The company announced it will begin reporting results in US dollars from the financial year 2013, which will better reflect the dominance of that currency of the company’s worldwide sales and is in line with global industry practice. The company made a provision of about EUR11 million in the first half in case of delays or defaults in payments by southern European customers.

In a statement released along with the numbers CSL CEO Brian McNamee said, “We now anticipate profit will grow approximately 13 percent, using fiscal 2011 exchange rates, to around AUD1.06 billion, despite continuing economic pressures in Europe and the US and the return of a competitor to the market.” CSL will pay an interim dividend of AUD0.36 per share, up 2.9 percent from the previous year. CSL is a buy under USD32.

Envestra Ltd (ASX: ENV, OTC: EVSRF), one of Australia’s biggest natural gas distributors, announced a dividend of AUD0.029 per share along with its results for the first half of fiscal 2012. The dividend to be paid on Apr. 27, 2012, to shareholders of record as of Mar. 26, 2012, brings Envestra’s payout for 2011-12 to AUD0.058 from AUD0.055, an increase of 5.5 percent from the prior corresponding period. Management also boosted its full-year net profit after tax (NPAT) guidance to around AUD70 million from a previous estimate of AUD60 million.

Envestra posted a 16 percent increase in net profit after (NPAT) to AUD40.7 million for the first half of fiscal 2012, as revenue grew 8 percent to AUD243.9 million.

According to management, “The profit increase reflects increased tariffs applying from July 1, 2011 as a result of the South Australian and Queensland regulatory reviews.” Revenue was negatively affected by lower gas volumes due to the warmer weather in the winter and spring months of 2011 Down Under. Gas distributed fell from 64.5 petajoules to 60.8 petajoules overall, while deliveries to domestic and small industrial and commercial customers declined by 10 percent.

Based on the South Australia and Queensland rate decisions, capital expenditure increased 40 percent to AUD82 million, as Envestra replaced 145 kilometers of  gas mains and laid 127 kilometers of new ones. The company connected 14,500 new consumers to its distribution networks in the six months to Dec. 31, 2011, reflecting strong ongoing demand in new housing subdivisions as well as the success of the company’s marketing program.

New connections in Victoria were up by 7 percent, which will add about AUD4 million to revenue per year.

Net borrowing costs increased 3 percent as the company made new borrowings at higher interest rates to fund the CAPEX program. An uptick in inflation drove an increase in costs for the company’s capital-indexed bonds. Total operating costs were up 10 percent, due mainly to higher marketing expenses, System Use Gas and leak maintenance costs.

Total dividends paid during the first half were AUD42.5 million, up from AUD38.1 million. Cash flow available for distribution was AUD120.7 million, good for a cash-flow coverage ratio of 2.8 times. Note that Envestra’s assets typically generate more revenue and cash flow in the first half of the company’s fiscal year because of the higher weighting of cooler weather in those six months.

Recent favorable outcomes from regulatory encounters at the federal level as well as in South Australia and Queensland and the consequent potential for the bringing forward for rate increases are good signs for Envestra. But the company derives about 50 percent of its overall business from Victoria, so an upcoming rate reset there will be more telling. The volatility of gas demand is another, ever-present concern. But solid Envestra is a buy under USD0.75.

M2 Telecommunications Group Ltd (ASX: MTU, OTC: MTCZF) posted a 45 percent increase in fiscal 2012 first-half net profit after tax (NPAT) to AUD16.7 million from AUD 11.5 million. Underlying profit, which includes the add-back of a non-cash cost, was AUD 18.9 million, up 44 percent from AUD 13.1 million a year earlier.

Revenue declined 14 percent to AUD 185.1 million from AUD 215.7 million a year ago period. Underlying revenue, which excludes non-margin generating revenue associated with M2’s EDirect business, rose 8 percent from AUD 171.5 million. Earnings before interest, taxation, depreciation and amortization (EBITDA) were up 37 percent to AUD 27.6 million.

The company reiterated guidance initially issued in August 2011 for full-year fiscal 2012 EBITDA of AUD58 million to AUD62 million and NPAT of AUD30 million to AUD34 million on revenue of AUD380 million to 420 million.

The board approved and management announced an interim dividend of AUD0.09 per share, up 29 percent from the prior corresponding period. M2 Telecommunications is a buy under USD3.

Transurban Group (ASX: TCL, OTC: TRAUF), as discussed in a February Sector Spotlight, posted net profit for the six months to Dec. 31, 2011, of AUD93.2 million, up 25 percent from AUD74.7 million at the same point in 2010 despite disruptions at four of six key assets. Proportional earnings (representing Transurban’s shares in co-owned projects) before interest, tax, depreciation and amortization (EBITDA) grew 7.5 percent to AUD390 million.

Toll revenue, meanwhile, rose 6.5 percent to AUD385.6 million. Free cash for the period was AUD184.2 million, down 2 percent from AUD188.1 million a year ago; this shortfall had to do with investments in maintenance as well as timing issues. Transurban will see a seasonal rebound in cash flow over the course of the second half of the fiscal year.

“Disruptions” during the period included the resurfacing of the CityLink, a system of toll roads in Melbourne that accounts for 49 percent of toll revenue. CityLink delivered 7.5 percent EBITDA growth despite the extensive work undertaken to improve the road during the period; this is “once a decade” work ensures the viability of the road as a cash-generating assets. Traffic on the system actually grew by 2.3 percent.

Transurban also made what management describes as a “value accretive investment in Hills M2,” a new project serving the Northwestern Sydney corridor that’s now 50 percent complete.

Management also announced an 11.5 percent distribution increase at the time it released fiscal 2012 first-half earnings. Transurban is on course to pay more than 100 percent of free cash flow in fiscal 2012, when it will distribute “at least” AUD0.29 per share to security holders. But that’s after accounting for maintenance capital costs. The company has been able to put AUD4.5 billion to work over the past three years, and still has capacity to pursue new projects, in addition to maintaining its existing assets.

Transurban was able to refinance AUD520 million of non-recourse project debt for its 75 percent owned M1 Eastern Distributor, a four-mile motorway that links Sydney’s central business district with Sydney International Airport. It also negotiated a new AUD375 million syndicated bank facility to refinance AUD375 million of August 2012 debt.

Transurban has no maturities until April 2013. Its senior debt ratings have recently been affirmed at A-, Baa1 and A- (stable) by Standard & Poor’s, Moody’s and Fitch. The early refinance of the M1 debt will also result in interest-cost savings.

Major developments during the six months to Dec. 31, 2011, include reaching an agreement with the government of New South Wales through Interlink Roads Pty Ltd, of which Transurban is 50 percent owner, for a major upgrade of the M5 South Western Motorway, a 16-mile toll road in southwestern Sydney. Transurban also reached an in-principle, non-binding agreement with the Commonwealth of Virginia for work on the Interstate 95 HOV/HOT Lanes Project in the Washington, DC, metro area.

Management noted during its discussion of results that its USD2 billion Capital Beltway project passed the 80 percent complete mark and is now less than a year away from opening. Among the two most recent additions to the AE Portfolio, Conservative Holding Transurban Group is a buy under USD6.