ASX tests 5400
What Mattered Today
Monday morning kicked off with the results from the Italian referendum where the Italian people voted ‘no’ to making what seemed like necessary constitutional reform and that in turn saw the Italian Prime Minister Matteo Renzi resign. The polls (and even the betting agencies) got this one right and the margin was reasonably large – suggesting a good consensus. Italian and other European Futures markets were extremely weak early on before a solid recovery played out from the intra session lows – we saw a similar theme in currency markets with the Euro weakest early before a reasonable recovery.
What does all this mean and should we be concerned?
The no vote means the status quo is maintained and is supportive of the wider euro government stability, however it weakens Italy and importantly, the proposed reforms would have helped economic growth at a time when Italy and the broader region continues to struggle. Still, the weakness in the euro, particularly versus the $US should provide a tailwind for growth in the near term, just as the strength in the $US should start to work against Trump & Co. All up, todays result increases slightly the degree of uncertainty in Europe given the resignation for Renzi, but it does not spell doom. Growth remains the key and at the moment, it continues to be illusive (but prospects improving)
Elsewhere, we saw more corporate activity with a bid lobbed in for Duet Group (DUE) courtesy of a $7.3bn bid from Hong Kong billionaire Li Ka-Shing representing A$3 a share versus Fridays close of $2.35 – an interesting move given the big rally in Bond yields over the past few weeks + importantly, Li Ka-Shing is a well-respected global infrastructure investor and a bid lobbed here suggests some (pretty well regarding guys) are seeing value in these beaten down infrastructure stocks. Before the move DUE had dropped ~14% which was reasonable given the rout in some of the other names however given the stock closed today at $2.74 – there is likely some risk here that it won’t proceed.
Duet Group (DUE) Daily Chart
Domino’s (DMP) was down around 4% today and we’re starting to see a major topping pattern play out in the stock…Dominos is a stock that could really disappoint on one set of ‘less good’ numbers – don’t get me wrong, it’s a great success story - has done exceptionally well over a number of years (was doing sales of $263m in FY12 versus $930m in FY16) but trades on a massive multiple (70x). Growth has been strong however it needs to be to justify its current pricing.
Vocus was also a market success story, with exceptional growth, sublime margins and a huge runway for the future. Both stocks ran hard from 2013 to early 2016 and since then Vocus has fallen from grace…will DMP be next? DMP is a well owned stock, is loved by many which presents a clear risk.
The question is, what multiple should DMP trade on? Why should we pay such an elevated multiple? Good growth I hear, dominant market position, overseas expansion, it’s a ‘tech company’ others might suggest. I get it but the bigger it gets, the less nimble and innovative it will become and the harder it will be to grow. The tech B/S is fair but overplayed and the competitive edge it has from its delivery network is now being challenged by a group 20 somethings on push bikes delivering food from any restaurant…For just $4 someone will ride up the hill from Manly to Fairlight with my Noodles strapped to his back, and then I don’t need to eat crumby pizza!
Another Vocus – maybe!
We had a range today of +/- 60 points, a high of 5444, a low of 5384 and a close of 5403, off -43pts or -0.80%. Volume was still weak – about 20% below the 20 day average…Energy was sold early but recovered – Crude Oil down a tad in Asian trade BUT Iron Ore was up around 4% at time of writing.
ASX 200 Intra-Day Chart
ASX 200 daily chart
Sectors
ASX 200 Movers
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FUTURES lower although they’ve traded a long way off the lows from earlier this morning….
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