ANZ reports, RBA holds fire and Woolies trumps Coles…
An interesting day on a few fronts with a number of major corporate updates, another month of inactivity by the RBA on interest rates and a weaker than expected Manufacturing print from China which saw resource stocks give back early gains. All in all, the market was softer however the range was reasonable and late buying saw the index run up around 30pts from the daily lows. We had a range today of +/- 37 points, a high of 5956, a low of 5919 and a close of 5950, off -6pts or -0.10%.
ASX 200 Intra-Day Chart
ASX 200 Daily Chart
ANZ; A messy result from ANZ this morning however it was always going to be with the divestment of a number of their Asian operations and some one-offs making the result hard to decipher initially. Stripping out all the noise, EPS was a tad soft, missing expectations by about 3% while the dividend was inline (80cps) and capital was ahead with CET 1 at 10.1% - which is sector leading and a beat.
The earnings were also supported partially by a lower bad debt change (which is a boost) however a low quality one while net interest margins were 2% - down 6bps and below market expectations.
All up, a slightly weaker result than the market was positioned for + the share price had run hard leading into it, hence profit taking today saw the stock down 2.12% to close at $32.25. A few questions filtering through around our stance post the results and nothing has really changed. We own ANZ, we want the dividend and we don’t think weakness will be too severe, we also decreased sector exposure by selling CBA on Friday, and have decent cash at 29% - all up we’re happy with the positioning around the stock at this juncture.
ANZ Bank (ANZ) Daily Chart
Woolies (WOW); The 3rd straight quarter of like for like (LFL) sales growth in the Supermarkets division was a good result from Woolies today and builds on the recent strong quarters(1Q17 +0.7%, 2Q17 +3.1% and now 3Q17 +4.5% Easter adjusted). A lot of noise around weakness in Big W, some swings and roundabouts in terms of the Liquor division, however most attention should squarely be put on the food business (62% of group earnings) and the pace it is growing sales relative to Coles.
Coles reported +0.7% LFL sales growth last week and it’s fairly clear that Woolies has gained the upper hand. No doubt a good result and above market expectations however the low hanging fruit is the easiest to pick. As they describe it, they’ve invested heavily in the customer which simply means they’ve lowered prices and are now cheaper than Cole. Obviously this gives them a top line benefit however it’s offset by lower margins. They had to do something to defend market share, particularly given increasing competition locally (and from new entrants), however it will get tougher from here.
Like for Like Sales Growth – Coles versus Woolies
In terms of price action today, the good result was clearly expected and investors were positioned for it. We’re neutral at best on Woolies at this juncture
Woolworth (WOW) Daily Chart
The RBA & Interest Rates; No change to rates which was expected however we saw some slight weakness in the Aussie Dollar afterwards on more dovish commentary. As it stands, the market is effectively pricing ‘no change’ to rates for the next 12 months with some softness in the labour market offset by strength in the housing market – or at least that is what they say. What actually seems to be happening is that the RBA has recognised that rate hikes / cuts in official terms is a blunt object and is not suitable to current conditions. Instead, a more targeted approach (from the banks themselves following APRA pressure) targeting specific areas of lending like investor loans. A smart approach really!
Aussie Dollar Intra Day Chart
Elsewhere, a couple of charts that caught our attention today where Suncorp (SUN) and Macquarie (MQG). The Insurance sector is our most concentrated (bullish) bet in the MM Portfolio right now and Suncorp in particularly looks very bullish here. Suncorp remains our largest holding accounting for 12% of the portfolio.
Suncorp (SUN) Daily Chart
Macquarie on the other hand looks bearish from a short term perspective today, pushing to new highs before reversing sharply. MQG reports on Friday.
Macquarie (MQG) Daily Chart
Have a great night,
The Market Matters Team
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