Telstra upgrade sparks some buying (TLS, WES)
WHAT MATTERED TODAY
Another day where the market bounced from session lows – closed near enough the highs with some obvious rotation out of the resource stocks towards the dark side - the banks doing okay with ANZ & CBA +0.4%, NAB +0.11% while WBC finished lower by -0.60% versus BHP -2.48%. Brace yourself – Telstra (TLS) was upgraded today by UBS and rallied +2.87% to close at $2.87 – the biggest daily gain for over a year from what I can see. I discuss todays trade – TLS, WES and the Lithium space in a brief recording here
Overall, the ASX 200 lost -4 points today, although that was +16pts from the daily low and just 6 points from the high.
ASX 200 Chart
ASX 200 Chart – Aussie market looks like it ‘wants’ to go higher in the short
CATCHING OUR EYE
Weekly Moves – Stocks & Sectors;
The defensive sectors did best this week while money is now starting to come out of the recently hot resource / energy names. The failed bid for Santos not helping.
Sector moves over the week
In terms of stocks, Aristocrat (ALL) a clear standout on an earnings upgrade while Vicinity (VCX) – the property co we hold in the Income Portfolio did well.
Stock moves over the week
Broker Moves; Telstra saw some love from UBS today, who upped their price target to $3 and threw a buy on the stock. The report sighted the optionality Telstra has with wireless broadband and 5G networks, and noted that a lot of downside appears to be priced in, particularly with risk to the dividend – I couldn’t have said it better myself. They have a strategy day on the 20th of June that will outline the next steps the big telco will take including how it plans to spend the $3b strategic war chest they have to tackle the changes in the market.
UBS theorizes the capital will be used to buy spectrum and begin work on 5G capability, while also pushing into wireless broadband to steal customers back from the NBN – a double benefit for TLS, more customers and likely lower NBN wholesale costs as user numbers decline. Telstra got as high as $2.92 / +4.66% today before settling at $2.87 / +2.87%, it will be interesting to see if the buying follows through and we see a reasonable (ongoing) bounce.
Telstra (TLS) Chart
Elsewhere…
· Aristocrat (ALL AU): Upgraded to Outperform at Credit Suisse; PT A$35; Downgraded to Sell at Morningstar
· LendLease (LLC AU): Downgraded to Hold at Shaw and Partners; PT A$18.71
· Reliance Worldwide (RWC AU): Raised to Add at Morgans Financial; PT A$5.46
· Webster (WBA AU): Webster Downgraded to Hold at Bell Potter; PT A$1.80
Wesfarmers (WES) $45.52 / +0.91%; announced the sale of their UK Bunnings arm Homebase today to private equity group Hilco Capital, bringing an end to what has been a costly exercise. The deal struck seems to favour Wesfarmers significantly, taking a huge $2b worth of lease obligations along with a seemingly endless capital drain off the books, whilst also entitling them to 20% for the proceeds when Hilco inevitably sell the business. The sale is another decisive action from the new CEO Rob Scott, who has only held the job since late last year, who has moved to divest Coles & the coal business in a less is more approach. The sale itself shows good capital management, cutting off a business that was haemorrhaging money, and although it will likely go cash flow positive eventually, it will take a lot of investment to get it there first – Hilco’s problem now.
Wesfarmers (WES) Chart
OUR CALLS
No changes to the MM Portfolios today
Have a great night
James / Harry & the Market Matters Team
Disclosure
Market Matters may hold stocks mentioned in this report. Subscribers can view a full list of holdings on the website by clicking here. Positions are updated each Friday, or after the session when positions are traded.
Disclaimer
All figures contained from sources believed to be accurate. Market Matters does not make any representation of warranty as to the accuracy of the figures and disclaims any liability resulting from any inaccuracy. Prices as at 25/05/2018. 4.36PM
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