Australian Investment Blog

WHAT MATTERED TODAY

The bulls were out and about this morning with the market peaking around midday at 6186 / +76pts with the previous high of the range being 6198 but alas, the optimism failed, the banks rolled off their highs, ditto for the miners and a bunch of other sectors and by the close, the market had limped just +28pts higher. There’s no doubting the magnetic pull of the 6000 area and while today was a positive one, the close was disappointing. Looking around the market though, it was risk on – the re-opening / vaccine trade did well, Webjet (WEB) +5.56%, Flight Centre (FLT) +5.98%, Qantas (QAN) +3.76% however one area that caught my eye was property, particularly the retail malls as we’re seeing ‘less dire’ outcomes in terms of rent collections during the pandemic. GPT rallied +4.68% after reporting yesterday, Scentre Group (SCG) was strong today up +4.79% - this is an interesting area and we wrote about it a few weeks ago – click here – GPT is back to the $4.00 level we mentioned, its now on our radar for income.

Asian markets were strong today – most up more than 1.5% while US Futures edged higher during our session, even as global virus numbers top 20m

Overall, the ASX 200 added +28pts / +0.47% to close at 6138. Dow Futures are trading up +121pts / +0.44%

In terms of reporting today, we saw CGF, FBU, SCP, which we covered this morning – (click here). A big day tomorrow with CBA, CPU, CSL, DOW, MFG, TCL

LOCAL REPORTING CALENDAR: CLICK HERE **Please note, data sourced from Bloomberg, not all ASX companies are on this list and dates can vary**

ASX 200 Chart

ASX 200 Chart

CATCHING MY EYE

Fletcher Building (FBU) +1.24%: Missed in terms of FY20 EBIT coming in at $310m v $324m expected / 4.5% miss however they talked about cost reduction with the cost base down $300m in FY21 – mkt liked that. No guidance however the market is currently at $347m for EBIT which implies growth of +12% for the year – a big ask MM thinks!

Challenger Group Financial (CGF) -7.6%: pre-tax profit for FY20 in line with downbeat expectations, $507m v $508m expected however guidance for FY21 the issue. They say we should expect pre-tax profit of $390-$440m and the market was currently at $445m which equates to a 7% downgrade at the midpoint. Stock down 7% today which is about right if we assume no P/E rerate which understandable – its only on ~10x. Margin pressure remains, and we have no interest in CGF.

Silverlake Resource (SLR) -6.35%: Typical of weakness in gold today as the precious metal dropped back below $US2000/oz. Saracens (SAR) down -4.87%. Newcrest (NCM) -2.79% as hot money came out of the sector. We’re likely buyers of further declines as the weak longs pull stumps

Sydney Airports (SYD) Halt: Trading halt today as they raise $2bn in fresh equity at a 15.4% discount to the market. The raise was widely tipped and is being underwritten by UBS with a price of $4.56 – the stock has been as low at $4.37 in March. We own in the MM Income Portfolio and will cover in tomorrow’s income note – we’ll take up the raise.

Mesoblast (MSB) -31.01%: The biotech announced that the FDA was scrutinising the companies RYONCIL development which looks to treat graft vs host disease in younger patients of bone marrow transplants. The treatment was touted as a gamechanger of which there is no alternative, but the FDA are questioning the effectiveness based on two previous trials. The drug is already in use in other countries, but it looks set for further scrutiny and delays by the FDA. The hearing is set for August 13 and could mean Mesoblast will be forced into another round of trials – a coin toss.

Mesoblast (MSB) Chart

James Hardie (JHX) +6.83%: one of the top performers today, James Hardie impressed the market with a “better than feared” first quarter, along with supportive outlook statements despite the headwind’s construction is seeing. While sales slipped just 5%, first quarter profit was down nearly 90% on last year to just $US9.4m. The company expects a recovery to kick in from the 2^nd quarter helped by continued ability to gain market share. Key to the market’s positive take on the result was guidance which came in at $US330-390m which would mean just a 6.5% fall on FY19 at worst. Some certainty around earnings where others are backing away from any forward looking statements was refreshing.

James Hardie (JHX) Chart

Ive Group (IGL) -21.88%: The hits keep coming for IVE Group with Coles scaling back the use of weekly catalogues. This is an obvious negative to IGL and when viewed against high leverage and an uncertain operating environment it’s a hard one to stomach. Coles today said that from September 2020 they will cease distribution of weekly catalogues - these catalogues are distributed to 7m households weekly. While they’ll increase in store magazines the hit to IGL is around ~$35-$40m which is ~5-6% of current revenues. They report on 25^th August and will provide an update on the full impact then. A slight positive is the company saying that it moved quickly and sees the company in a position to mitigate revenue declines, however that’s a bit of a stretch. Overall, the announcement light on detail, particularly given this contract underpinned further capital expenditure on new assets plus this contract helped to underpin the investment thesis for buying Salmat. We’ll hold in the MM Income Portfolio for the result – we’ve felt a heap of pain already and the position is less meaningful in terms of portfolio performance from here.

Ive Group (IGL) Chart

BROKER MOVES:

· Charter Hall Long WALE Cut to Hold at Ord Minnett; PT A$4.73

· Domain Holdings Cut to Sell at Morningstar

· Breville Cut to Neutral at Credit Suisse; PT A$26.81

OUR CALLS

No changes today

Major Movers Today

Have a great night

James, Harry & the Market Matters Team

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