Bendigo leads banks into the red
A weaker than expected session today with the banks coming under renewed pressure accounting for -21pts of the markets decline before some tentative buying crept in late. Still, it wasn’t enough particularly when the majority of the material stocks were also weak + we also had a couple of stocks specific headwinds. A change in accounting practices saw Retail food Group (RFG) clobbered by -11.3% and UBS were the first cab off the rank downgrading the stock by -18% to $4.63 – the stock dropped -11.3% while Bendigo Bank (BEN) also felt some pain on another accounting change with the stock down by -4.38% to close at $10.70 – more on that below.
On the broader market today, the IT sector led the way while most weakness was felt in the Financials which lost -1.47% - an overall range of +/- 44 points, a high of 5781, a low of 5737 and a close of 5754, off -33pts or -0.57%.
ASX 200 Intra-Day Chart
ASX 200 Daily Chart
It was an interesting move in Bendigo Bank (BEN) today with a change in accounting of their HomeSafe product. This is a product ‘sort of’ like a reverse mortgage but with a different structure. It’s not a loan against equity but a deferred sale of an agreed proportion of the home, and therefore releases cash to the owner. For years BEN have been booking gains from revaluations however they are now moving to exclude unrealised gains from cash earnings – which is sensible, however it does have an earnings impact of around 8% in FY17, dropping to mid-single digits in the outer years. We don’t own BEN however today the stock dropped by -4.44% to close $10.70 and would start to look interesting on a move closer to $10 as analysts revise earnings lower. If it does continue to slide, we’d think it’s an overreaction as very little has actually changed with the underlying business. We do not own BEN.
Bendigo Bank (BEN) Daily Chart
QBE had some reasonable news out today with the March Global Insurance Premium rate index out for 1Q17 showing rates still falling but decreases are moderating. This is the trend we’ve discussed on numerous occasions and is clearly one of the reasons we like the stock (environment getting ‘less bad’). While the revenue environment remains challenging, they’re doing a good job on costs and claims and we’re seeing reasonable signs in the macro factors that support their earnings. The stock closed down by -0.85% to $12.90. We own QBE.
QBE Insurance (QBE) Daily Chart
We haven’t included this table in lately however we do keep a handle on it, and look at the movers in terms of shorts. Much written / discussed about retailers with the looming ‘Goliath’ in Amazon soon to arrive. JB Hi Fi is a highly short sold stock with more than 10% of shares held short, and shorts increased by another +1.50% on the week.
Still, analysts are still very much mixed in terms of the impact of Amazon + it should also be noted that retail sales have been pretty dire in recent periods. Macquarie, UBS and APP still clearly flying to flag on JB however we have little appetite for this stock at the moment, nor many others in the sector. All too hard! We do not own JBH.
JB Hi–Fi Daily Chart (JBH)
Rates day tomorrow and another non-event it would seem with the futures market pricing just a 5% chance of a cut, which seems a bit rich to us. The RBA will keep rates on hold and that is likely to be the trend out to the end of 2018 if economists are correct!
Aussie Dollar – will tank if RBA does a surprise cut!!
Have a great night
The Market Matters Team
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