Australian Investment Blog

Good Afternoon everyone

Market Data

What Mattered Today

Some weakness crept into the market today after Telstra (TLS) delivered a weak full-year result while Westpac’s (WBC) Q3 update was met with some selling. Westpac finished down -2.56% while Telstra was off -1.61% to $5.51…we had a range of +/- 55 points, a high of 5538, a low of 5483 and a close of 5508, off -35 points or -0.64%

ASX 200 Intra-Day Chart

Firstly, Telstra (TLS) delivered their full year results, and they were a touch soft. As we wrote in this morning’s note…Telstra (TLS) has just reported full-year earnings; Profit $3832m, EPS 31.6 cents, DPS 31 cents. It looks a little light on to us. Revenue missed by -2.6%, EBITDA was a -2.8% miss. Some will be disappointed with a 15.5c dividend and not 16c. EPS was a -2.4% miss.

Not a great result, however, they did launch a $1.5 billion share buy-back (only $250m on market), which should offer some support to the share price helping to offset the miss. We reiterate our negative view on the stock in the medium-term

Telstra (TLS) Daily Chart

Westpac (WBC) was also weak with non-interest income down 5% - which highlights some weakness across the broader business and expect some marginal downgrades to filter through. Regarding capital, they reported Tier 1 of 10.1% (v CBA at 10.6%) on the back of risk-weighted asset growth of 1.1% in 3Q16 – so that capital number looks fine given they accumulated more assets.

The drop in non-interest income (which is all the other stuff a bank does other than loans) was weak. Lower markets income, higher insurance claims (storm, life). This should prompt a slight downward revision to FY 17 numbers, but nothing really significant (1-2%) In terms of bad debts, the impairment charge for 3Q16 was below the quarterly average of 1H16 – so that’s OK.

So all up, a touch weak but a -2.5% drop today post a good run up is probably about right.

Westpac (WBC) Daily Chart

Here're our comments on the banks and ANZ in particular from today’s morning note…. The big change to the market's recent view is that the likelihood our local banks will need to raise capital by issuing fresh shares has diminished significantly - reducing the supply of shares to the market. The question is how many funds were holding back from buying our banks because they anticipated receiving shares in the future at a discount to their current levels?

When we look at ANZ since its panic highs back in mid-2015 the 41% correction, that most investors at the time imagined impossible, is a great example that we should all remain open-minded to market moves. We believe ANZ is now correcting the $15.39 plunge, and while that is not a bullish scenario in itself, it does have short term positive implications.

Our retracement targets for ANZ are $27.75 and $29.50 as bullish outlier, basically another 4% upside minimum. It should be remembered the banks are trading very cheaply relative to the overall market and have been so unpopular that a short squeeze is easy to comprehend.

ANZ Bank (ANZ) Daily Chart

Sectors

Source; Bloomberg


ASX 200 Movers

Reporting this week

NPAT = net profit after tax (consensus numbers)
EPS = earnings per share (consensus numbers)
DPS = dividend per share (consensus numbers)

Select Economic Data – Today & Tomorrow; Stuff that really Matters in Green




What Matters Overseas

FUTURES looking pretty good overseas….

Regards,
The Market Matters Team
Level 12 28-34 O'Connell St
Sydney NSW 2000


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