Australian Investment Blog

WHAT MATTERED TODAY

Another attempt above 6300 today and another fail by the ASX200 as sellers took hold of the early strength and sold the index off to end the week. Still, it’s been a positive 5 days for the market with the index edging up just shy of 1% thanks largely to a decent move back into the beaten down financial stocks – a theme we’ve been positioned towards for some time now. Reporting obviously dominated the news flow and as expected, it’s been a mixed bag. Misses have been dealt with harshly - James Hardie (JHX) as example today.

Overall, the index closed down -0.31% or 19 points today to 6278 – up 44 points / 0.7% on the week

We are regularly featured in the media and on various market related news services. This week I appeared various times on Sky Business – click here to view – and we also have contributed to www.livewiremarkets.com.au posting recent analysis on both the Rio Tinto (RIO) and Suncorp (SUN) results which can be viewed here

ASX 200 Chart

ASX 200 Chart

CATCHING OUR EYE

Weekly Moves – Stocks & Sectors;. Reporting season has clearly dominated the news flow this week with CBA and Suncorp (SUN) helping to support a strong run in the financial sector.

Sectors over the past Week

At a stock level, Magellan was the pick of the reports booking a very strong profit number and a rejig of their dividend policy. On the flipside, Eclipx (ECX) was a major disappointment after downgrading guidance – they are a September year end.

Stock moves over the week

Broker calls; AGL universally downgraded while our friends at Shaw and Partners upgraded Folkestone to a buy on valuation grounds.

· Mirvac Group Downgraded to Neutral at Citi; PT A$2.47

· Flight Centre Downgraded to Sell at Citi; PT A$59

· AGL Energy Downgraded to Hold at Deutsche Bank; PT A$22.25

· AGL Energy Cut to Underweight at Morgan Stanley; PT A$19.44

· Bluescope Downgraded to Hold at Deutsche Bank; PT A$17

· Magellan Financial Cut to Neutral at Credit Suisse; PT A$29

· Beach Energy Downgraded to Underperform at Macquarie; PT A$1.90

· Vital Healthcare Cut to Underperform at Macquarie; PT NZ$2.08

· Nine Entertainment Downgraded to Sell at Morningstar

· Orora Upgraded to Hold at Morningstar

· Sims Metal Downgraded to Neutral at JPMorgan; PT A$17

· Folkestone Upgraded to Buy at Shaw and Partners; PT A$2.89

REA Group (REA) $85.30 / +3.63%; This morning REA reported their full year results and they were broadly inline with expectations, however the stock has rallied +3% on the session. It seemed like a recent sell off in the stock was pre-empting a weaker set of numbers and probably a more somber outlook than the one they delivered.

The outlook was interesting from REA and although they don’t give specific numbers in terms of earnings, they gave some commentary about the softness in the local housing market which they believe will persist which will reduce overall listing volumes however price increases that came into effect from July and longer sale times will more than offset the reduction in volumes. As it stands, the market is looking for FY19 EBITDA of $550m up around 20% on the year. Clearly, expectations remains very high for REA Group! A great business with such dominance in its market place will help it push through price rises for its products / services, however market expectations are high and the external environment seems to be getting tougher from here.

REA Group (REA) Chart

James Hardie (JHX) $21.70 / -6.55%; Building material supplier James Hardie was the worst performer in the ASX 200 today following a weak first quarter update, missing expectations and showing signs there is a lot of work required to hit FY19 targets. Despite some impressive growth as EBIT for the quarter reached $US 107.1M, it was -12.5% below analysts’ expectations of $US 122.5M. Also key to the release was guidance, with the company looking for operating profit between $US 300 and 340M. While consensus falls within the range at $US 331m, the guidance relies on a number of factors outside of the companies control – “housing conditions in the United States continue to improve in line with our assumed forecast of new construction starts, input prices remain consistent and an average USD/AUD exchange rate that is at, or near current levels for the remainder of the year. “

Management cautions that although US housing activity has been improving, market conditions remain somewhat uncertain and some input costs remain volatile. The update is a weak one relative to where market expectations were and probably more importantly, the rich valuation the stock currently trades on. We can’t stress enough that highly valued stocks where the market has built in optimism, present a risk in this current environment – JHX is simply another example of this.

James Hardie (JHX) Chart

OUR CALLS

No changes the portfolios today.

Have a great night

James / Harry & the Market Matters Team

Disclosure

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