Retailers find some love in a weak market
A fairly aggressive sell off today after a couple of days of strength with the Material stocks feeling most of the pain– BHP off by -2.87%, RIO lost -3.69% while Fortescue was off -3.29% closing at $4.71. Weakness in the oil price weighed heavily on the energy stocks and we continue to have no real interest there at the moment, although Crude is coming back down to the bottom of its range around $US40/bbl.
The US Fed raised interest rates overnight, yet US bond yields dropped following a weak inflation print. The Fed is saying low inflation is transient and this will pick up shortly – however the market doesn’t believe it. Falling bond yields helped the ‘yield trade’ today – Syd Airports, Transurban, the REITs etc at the expense of the financials. Westpac the weakest of the majors dropping by -2.65% while CBA was OK down just 0.73% to close at $81.70.
On the broader market today we had an overall range of +/- 67 points, a high of 5819, a low of 5752 and a close of 5833, off -70pts or -1.21%.
ASX 200 Intra-Day Chart
ASX 200 Daily Chart
Retail stocks were interesting today following good employment data out mid-morning although there was buying around yesterday as well. Some obvious bottom fishing playing out in that area of the mkt which is worth keeping an eye on. A lot of these names have been smashed over the past few years – particularly those on big multiples that started to struggle with margin compression. Now the threat of Amazon is ‘clear and present’ but it’s also well-known and could very well be priced in. JB Hi Fi (JBH) the pin up in the sector has gone from a big premium to the market to now trade around 11 times which is about a 30% discount. Still though, we tend to think there remains a reasonable amount of risk to those earnings and we’d rather buy something that is really cheap – such as the Reject Shop (TRS).
They’ve had some big issues of late with a profit downgrade in April following some very poor merchandising decisions – and particular weakness in WA and the ACT. The market dislikes them and they do have some balance sheet pressures, but on 6.9 times value is clearly there.
The Reject Shop (TRS) Daily Chart
Another in the sector that has struggled in recent times is Super Retail Group (SUL), however it’s had a good few days, following a presentation at the Morgan Stanley Emerging Companies Conference yesterday. The stock has now rallied +10% this week from its recent lows and their take on ‘global competition’ was interesting, particularly how they position their business for it.
To give some background, below are their brands.
They reckon the key is around operating in areas of ‘high involvement’, simply referring to advice on product. If you think about JB and electrical goods, one of one advice is probably less important. They sell a lot of product to the younger demographic which typically sources information online. In terms of Super Cheap and their brands, they do provide advice for a lot of what they sell but they also provide a unique retail experience, something you don’t get online. Rebel Accelerate Stores an example of this while Supercheap will fit your product for you – something buying through Amazon won’t offer.
Clearly there is a lot playing out in the retail space in Australia, however value is value, and using the overseas experience as a guide, it’s seems now might be a good time to start picking through the rubble. We’re starting to sniff around this sector for opportunity!
Super Retail Group (SUL) Daily Chart
Just back to energy stocks for a minute and we wrote in recent notes that these stock continue to look like a short….we have no interest in both Santos and Origin at current levels and aggressive traders could short them.
Santos (STO) Daily Chart
Origin (ORG) Daily Chart
Have a great night
The Market Matters Team
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