Shorts should be pursued to the end of the earth says Gerry! (HVN, RHC, OSH, A2M)
A bullish start to trade, some softness over lunch while the tail wagged into the close to see the index higher again. The energy stocks saw the best of it (excluding Oil Search) while Harvey Norman & Nick Scali tried to ignite the retailers however the bigger index weights lagged which kept a lid on the sector. A range today of +/- 43 points, a high of 5952, a low of 5909 and a close of 5937, up 28pts or +0.49%.
ASX 200 Intra-Day Chart
ASX 200 Daily Chart
Harvey Norman (HVN) – the stock was strong today as we mentioned in the Income Report out mid afternoon, however to reiterate, ASIC has cleared HVN of any wrong doing in terms of financial reporting and in particular whether franchise stores should be consolidated by HVN. ASIC said in its letter to Harvey Norman that it did not intend to make further inquiries with the retailer in relation to the matters raised, in effect clearing its treatment of franchise loans and operations within Harvey Norman’s accounts.
The investigation has gone on for the last 18 months and has been a decent overhang on the stock. Gerry in typical fashion used the platform to hammer short sellers saying they should be pursued to the end of the earth…not sure that helps the stock price however shorts have been building and now represent 10% of available shares – or about 110m shares sold short. To give some context here, the stock did 16m shares today which was about 4x the daily average. HVN closed up + 5.56% to $3.99. This stock could really get going given it trades on just 10x. We own HVN in the Income Portfolio
Harvey Norman (HVN) Daily Chart
A2 Milk (A2M) - Colonial are the biggest holders of A2 Milk and yesterday they announced a reduction in their holding by around 7m shares which has obviously spooked the mkt and the stock has dropped as a result. Clearly a company that has done exceptionally well, and in hindsight we wish we were there, however the recent move highlights how susceptible the stock has become for some decent set-backs along the way. The trend remains exceptionally strong and weakness today was bought with the stock down to a low of $6.70 (~14%) only to finish down -6.04% at $7.16.
A2 Milk (A2M) Daily Chart
Ramsay Healthcare (RHC) – I was asked about RHC today on Sky Business when I did a quick cross at 1pm from the office. In the studio was Henry from Marcus Today and Chris from RBS – both were keen on RHC however to us, the chart looks horrible, it’s an over owned stock which is understandable given its impressive track record but unfortunately we can’t invest now and get the returns generated in the past! Growth is becoming harder, regulatory risk overseas around pricing has risen and so to has the sovereign risk in their Australian operations as the Government looks to balance its books. Simply, it’s priced because of its strong track record however for us, it gets harder from here and a pullback below $60 (~10%) is our preferred scenario.
Ramsay Healthcare (RHC) Daily Chart
Have a great night
The Market Matters Team
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