Defensive sectors take the index from strength to strength (RIO, OZL, CGF)
WHAT MATTERED TODAY
A solid day from an index point of view today but underneath there were some odd cross currents not often seen in a market that rallies 75+pts. We rallied early on thanks to a strong lead from US markets which traded higher on a decent start to 3rd quarter earnings season. Buying sustained throughout the session with traders selling early missing out on about half of the rally which closed just 1pt off the day’s high.
European facing stocks were some of the better performers. Clydesdale (CYB), +7.23%, in particular has caught our eye after rallying from last weeks $1.86 low to close at $2.52 today. BREXIT is the driver here – with the deadline set for the end of the month Boris appears to have stepped up the urgency and reports suggest the latest round of talks with the EU overnight were productive. Boris was optimistic that a deal could be mustered with the EU this week but he will still have to push it through parliament before all is said and done.
As we mentioned in the today’s Income Report, despite the market rallying the risk on sectors of consumer discretionary, tech and resources were sold off or underperforming, while the defensive healthcare, utilities and consumer staples were among the better performers.
Overall, the ASX 200 closed higher today, up +84pts or +1.27% to 6652, Dow Futures are trading up +258pts/+0.96%.
ASX 200 Chart
ASX 200 Chart
CATCHING MY EYE;
Rio Tinto (RIO) –0.87%; was out with their 3Q production report today which was in line with expectations with iron ore shipments flat on the JQ while copper production was up 40% it came with a lower grade quality. They did lower guidance for two of their smaller units in bauxite and alumina by 6-7% which is not a huge concern. Shares traded only slightly worse than peers.
Rio Tinto (RIO) Chart
Oz Minerals (OZL) +1.25%; also out with their quarterly today with shares outperforming peers thanks to progress at their Carrapateena project. The company expects saleable copper concentrate to be out the door next month after stockpiling ~180kt of development ore. The Prominent Hill mine saw cost guidance lowered which has been a rarity in miners in recent years. With cash on balance sheet, the new project coming online with no hiccups so far and a commodity tailwind, we like OZL.
We added OZL to the Growth Portfolio this week.
Oz Minerals (OZL) Chart
Challenger Group Financial (CGF) +4.96%; out this morning with a quarterly sales update which the market seemed to cheer, or at least the headlines were strong enough to prompt some short covering. This is a stock where shorts have been rising for a while, now 8% of the register is short sold or 2.4m shares. We initially wrote in the income note today that given this bearish positioning, the market might run this one further however digging deeper, the numbers were less impressive. While they saw increased inflows, particularly in Japan where flows were $218M in 1Q20, up from $38M in 4Q19, we wouldn’t expect this flow to continue given it largely related to a reinsurance arrangement. In Australia annuity sales were lower falling from $702M in 4Q19 to $624M in 1Q20 meaning on a net basis they saw positive flows of +2M in 1Q20, hardly inspiring. On the positive side, CGF maintained its guidance for net profit before tax for the full year of $500M to $550M with consensus currently sitting at $535m. The issue for CGF remains margin pressure, and we saw little discussion on that today.
Challenger (CGF) Chart
BROKER MOVES; the two big BNPL names were initiated on by UBS with two sells put on the stock – certainly not the market’s consensus at the moment. The analysts negativity stems from increasing regulation taking the view that customers of Zip and Afterpay are already heavily indebted and will attract further regulatory oversight which is not currently being priced in by the market. Z1P was off -3.87% today, while Afterpay was hit harder, down -7.22%.
· Zip Co. Rated New Sell at UBS; PT A$4.80
· Afterpay Touch Rated New Sell at UBS; PT A$17.25
· Nick Scali Raised to Buy at Citi; PT A$6.90
· Southern Cross Media Cut to Hold at Canaccord; PT A$1
· Southern Cross Media Cut to Neutral at Macquarie; PT A$1.05
· Perpetual Raised to Neutral at Macquarie; PT A$32
· HT&E Cut to Underperform at Macquarie; PT A$1.55
· CSL Cut to Sell at Morningstar
· Metcash Raised to Hold at Morningstar
· Arena REIT Rated New Neutral at Credit Suisse; PT A$2.65
· Alliance Aviation Raised to Outperform at Credit Suisse
· Evolution Raised to Hold at Canaccord; PT A$4.40
OUR CALLS
No changes today
Major Movers Today
Have a great night
James, Harry & the Market Matters Team
Disclosure
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