Australian Investment Blog

WHAT MATTERED TODAY

The market opened well in early trade up +25pts around the open before the lack of appetite to buy into any type of strength prevailed again, and the market drifted down throughout the session, to close more of less unchanged. The market continues to chop around in a trading range, the main difference today being that stocks failed to embrace the slip in the AUD during the session today. Asian markets were higher today, ditto for US Futures while at the sector level locally, the Industrial, Energy & Materials all provided decent support while the more defensive sectors of staples and real-estate lagged.
Overall, the ASX 200 closed +1pt higher today to 6740, Dow Futures are trading up +50pts/+0.17%.

ASX 200 Chart

ASX 200 Chart – technically bearish, now points to are-test of 6600 for the ASX 200

CATCHING MY EYE;

Talk of QE: We touched on this in recent reports however talk of Quantitative Easing (QE) by the RBA hit the front page of the Fin Review today while the Australian was reporting that the Government is actively urging banks to lend more to accelerate economic growth before the end of the year. Apparently Federal Treasurer Josh Frydenberg on Friday met leaders at ANZ & NAB and asked them to ease the flow of credit, the report in the Australian said. Frydenberg also asked what the government could do to make that easier, according to the newspaper. Interesting times after responsible lending got a big run in the Royal Commission. In any case, easier credit & any meaningful quantum of QE is bullish for asset prices overall.

Lithium Stocks: All ripped higher today on the back of supply disruptions in Chile as protesters block access to some of SQM and Albermarl’s operations – obviously bullish for lithium prices and some more positive news for a sector that’s been under pressure for a while now. Pilbara (PLS) the best of them adding +10.71% to close above the recent raise price of 30c while Orocobre (ORE) added +5.63% to close at $2.44.

Orocobre (ORE) Chart

Dominoes (DMP) -0.29%: Held their AGM today and also issued a trading update with total network sales up +10.6% on the prior year, +4.14% on a same store basis which is a touch light on what we were expecting. In terms of guidance, nothing to hang ones hat on however they did say “At this time our outlook for the medium term is unchanged; we expect to open new stores at the rate of seven to nine per cent of our Group network annually and grow Group Same Store Sales at the rate of three to six per cent.”

The stock was firm in early trade, hitting a high of $51.75 however sellers came in post the AGM and the stock closed marginally lower. We took profits on DMP last week ahead of this AGM.

Dominoes (DMP) Chart

Sims Metals (SGM) -8.82%; downgraded guidance for the second time within 2 months today saying “the scrap price crash will be worse than originally anticipated.” The company noted rising inventories, particularly in the UK, will provide a significant drag on first half profits given this inventory will be sold at a loss. In the medium term, suppliers are reducing volumes to the market in the hope of a recovery in prices resulting in margins contracting for Sims. The company blamed auto sales, global growth and manufacturing and trade wars as the drivers of the markets weakness.

As a result of the issues, EBIT is now expected to fall into a loss for the first half of $20-$30m before recovering in the second half for a full year EBIT of $20-50m in FY20. This compares to market expectations which had SGM priced for a $151m full year EBIT. This guidance also relies on scrap prices stabilizing at current levels or rising from here. The company also noted that the strong balance sheet will help SGM navigate the current weakness in the market while also putting it in a stronger position when it stabilizes.

SGM did well to finish a long way from the day’s low but it would take a brave trader to step up and buy on the current move. The downgrade cycle continues, however a trade resolution could provide the tailwind Sims needs. Keep this stock on the radar for a recovery if a resolution between US / China trade is managed.

Sims Metal Management (SGM) Chart

Broker moves;

· Incitec Rated New Underperform at Jefferies; PT A$3.10

· Santos cut to Hold at Morningstar

· Centuria Capital Rated New Neutral at JPMorgan; PT A$2

· Centuria Industrial Rated New Overweight at JPMorgan; PT A$4.20

· Cleanaway Raised to Neutral at Credit Suisse; PT A$1.80

· Coles Group Cut to Underperform at Credit Suisse; PT A$13.23

· Regis Resources Raised to Hold at Canaccord; PT A$5.05

· BHP Raised to Outperform at RBC; PT A$39

OUR CALLS

No changes today

Major Movers Today

Have a great night

James, Harry & the Market Matters Team

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