Market Matters Afternoon Report Wednesday 29th June 2016

Afternoon Report 29/06/2016

Market Matters Afternoon Report Wednesday 29th June 2016

Good Afternoon everyone

Market Data

What Mattered Today

A reasonable session today given we had almost 60 stocks go ex-dividend – mostly in the property /infrastructure space. A range of +/-37pts. 5119 low, 5156 high and a close at 5142; up +39pts or +0.77%...

Obviously, the buoyancy comes after a pretty solid session overseas with speculation of some form of central bank support/liquidity following the UK referendum. It does seem a likely outcome, particularly given comments from a range of central banks globally, however we think of more importance is the realisation by markets that the BREXIT is highly unlikely to be a major systemic event – it’s unlikely to have big financial ramifications to global markets (ex the UK), and importantly, we’re not seeing signs of any meaningful nervousness in credit markets. As these fears ease, then stocks should look to rebound further as we discussed in this morning’s note.

Here’s the updated table showing UK exposures and their bounce from post BREXIT lows…

The other important consideration in all of this, and it was covered by Hamish Douglas from Magellan today, is whether or not the BREXIT will actually happen.

"We think there's a 25 percent probability the UK actually doesn't exit the European Union. That may seem extraordinary but there's a lot of water to go under this bridge. It is not a binding referendum and at the end of the day they've been asked a very simplistic question," Mr Douglass said on a video posted to Magellan's website on Wednesday. Scotland and Ireland may launch constitutional challenges, he argued, with respect to Article 50. "They may well put up a case to say 'well, if you push a Brexit decision to exit the EU, we are going to put up simultaneous referendums to leave the UK'. That could well trigger back in Westminster saying this exactly wasn't the question we asked the people, to leave, which could trigger another referendum. If the question is 'do you want to leave and have the UK broken up'... probably a very different question to what they thought they were voting on." (AFR)

Turning to stock news, Vocus Communications (VOC), a Telco we’ve traded in the past, went into a trading halt announcing plans to buy Nextgen Networks for $807 million – and raise capital to do it. Nextgen has about 17,000km worth of fibre cable which will get plugged into the existing VOC network, with the proposed deal expected to be high-single digit EPS accretive in FY2017 – before synergies.

A very good growth company however this cap raising could bring the stock back to earth, and may present a buying opportunity at the right level.

The raising will be in the form of a 1-for-8.9 renounceable entitlement offer with retail shareholders offered $452 million v institutions offered a $200 million share placement. They’ve priced it at $7.55 – which is an 11% discount to the ex-rights price of $8.52. One we’ll be watching.

We had a host of stocks trade ex-dividend today – many of the REITs + infrastructures plays all paid distributions…here’s a list

Sectors Today

Source; Bloomberg

ASX 200 Movers

What Matters Overseas

US GDP last night came in a bit better than expected last night – printing +1.1% annually + we continued to see indications that the US economy has regained some momentum in the second quarter. That, along will murmurs of central bank intervention got some buyers back into the fray. We have FOMC member Powell speak tonight in the states

….FUTURES pointing to a higher open overseas

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

All figures contained from sources believed to be accurate. Market Matters does not make any representation of warranty as to the accuracy of the figures and disclaims any liability resulting from any inaccuracy. Prices as at 29/06/2016. 5:00AM.

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