NBNco fails to play ball – Telstra drops below $3.60 (TLS, RHC, HSO, QBE)
A choppy session played out in on the Aussie mkt today with the index ticking in and out of positive territory before closing marginally higher – Telstra took 9.36 index points from the 200 today after trading ex-dividend (more on that below) while we saw another day of BIG stock moves from companies that reported earnings. Overall, the Supermarkets did best, Wesfarmers the standout adding +1.35% to close at $42.05 while the Telcos provided most drag on the back of Telstra (TLS) – a range of +/- 36 points, a high of 5691, a low of 5654 and a close of 5669, up 0.7pts or flat.
ASX 200 Intra-Day Chart
ASX 200 Daily Chart
Telstra (TLS) – went ex-dividend today for 15.5cps fully franked which is worth 22cps. The stock dropped by 24cps so was marginally weaker overall. A debacle by the exchange this morning saw a trading halt established, news released, the exchange said to disregard it, but the stock stayed halted anyway – a bit of a debacle by the exchange which sent TLS down to a low of $3.51 in early trade only to see a strong recovery to close at $3.60. We own Telstra in the MM Growth Portfolio from a pre-dividend BUY price of $3.85 and today we increased our exposure by another 2.5% below $3.60. This stock dropped today on the dividend however also a negative knee jerk reaction to news that nbnco has failed to approve a plan by TLS to monetise the nbn receipts through securitisation.
Without getting too bogged down in detail, as part of the telco’s capital allocation strategy review it commenced in November last year they included a potential plan to monetise a portion of locked-in recurring NBN receipts. The plan involved selling off the intrinsic value of the future payments before they are made and buying it back at a later date - effectively bringing forward the $5bn payments…That proposal was subject to a number of approvals, and nbnco has proven a sticking point.
That said, this does not have a large financial impact on TLS and the reaction this morning seems overdone.
Telstra Daily Chart
Elsewhere, Ramsay Healthcare was soft – down by -5.26% after their results failed to ignite the mkt. On face value the result was strong with Australia's largest private hospital operator meeting its full-year guidance, posting core net profit growth of 12.7% to $542.7 million. That said, revenue was basically flat at $8.7 billion highlighting the current issues facing the sector around top line growth. Furthermore, in Feb the company upgraded guidance for core earnings to grow by 12-14%, up from 10-12% previously stated, however today they guided for 8-10% which was clearly a downside surprise – and the stock felt the pain as a result. We own Healthscope – buying into weakness last week – and clearly this is also struggling however in our view the market has already re-rated it.
Ramsay Healthcare Daily Chart
QBE Insurance (QBE) - Clearly a stock that has been under immense pressure of late – a few obvious reasons around earnings disappointment, a drop in US bond yields, weakness in the $US and finally Cyclone Harvey. The first mentioned issues will work themselves out in time, however in terms of the hurricane in the States, QBE has total large event cover (cats) of $2,050m, this includes an aggregate cover they buy for $900m, which they have started doing in the last three years to lower risk. Harvey is estimated to be large but there has been a lot worse in history. Could QBE be at risk if another large event between now and end of year. It’s possible but looks unlikely. In 2015 they had large event losses of $2,350, only time in 13 years over $2,050m! All up, this is unlikely to cost QBE money and the stock bounced from its daily low today – one to watch for tomorrow.
Chart sourced from Shaw and Partners
QBE Insurance (QBE) Daily Chart
Please note – performance is excluding the dividend amount if the stock has traded ex-dividend today
Have a great night
The Market Matters Team
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