Market Matters Afternoon Report Monday 25th July 2016

Afternoon Report 25/07/2016

Market Matters Afternoon Report Monday 25th July 2016

Good Afternoon everyone

Market Data

What Mattered Today

Another reasonably strong session for the market today with the index pushing up through 5500. Volume was low however some interesting individual stock moves kept us on our toes. We saw a range of +/-50pts. 5498 low, 5548 high and a close at 5533; up +35pts or +0.64%.

Woolies (WOW) was the standout up +8.24% (adding nearly 8 index points) following an operational update which detailed a number of initiatives to turn around the business – more on that below however suffice to say, the market liked it and bid shares up strongly; the biggest one-day rally in the stock since 1997.

There’s around 100m shares short sold in Woolies, or about 7% of issued capital. 13.5m shares traded today v normal volume of around 3.5m. It seems the turnaround is gaining traction with the market, or at the very least, prompting short-covering.

Two main take outs from today’s announcement;

1. FY16 earnings from continuing operations of $2,550-$2,570m (vs market consensus of $2,505m) – so that was well above market expectations and constitutes an upgrade and…

2. More write-downs worth $959m ($766m post-tax). The write-downs are from various areas of the business, with $155m pre-tax coming from operating model changes like changing jobs functions, IT changes and the like, General Merchandise impairments of $460m (BIG W $309m & EziBuy $151m) while they also said they’ll close some loss-making supermarkets and will reduce new store rollout from 90 over the next 3 years to 45, with capital being allocated to renewing existing stores – all up accounting for $344m of the total write down.

So, in simple terms, they’ve taken some medicine on BIG W and Ezibuy – both of which are struggling, however importantly, they have moved to address to weak performance from their existing supermarket division, by focussing more on current store performance rather than expanding into new areas – which we think the market likes. Sort of sounds like the Iron Ore miners at the low of the cycle and we saw how hard they ran thereafter!!!

We’ve written favourably about Woolies numerous times in the morning and afternoon reports, looking for an obvious entry into the stock. Unfortunately, we were too picky on price, wanting to buy a new low sub $20. Seems a long way away now…

Health stocks were strong today, CSL which is in the Market Matters portfolio added +1.55% to close at $120.86, Ramsay Healthcare (RHC) put on +1.67% and Primary Healthcare (PRY) ticked up +2.99% to close at $4.13. Interestingly, the strong break by PRY over $4.05 is bullish with short term momentum clearly on the upside for PRY.

Elsewhere, Golds were under pressure lead by Newcrest (NCM) which fell -2.62% to $23.42 while Regis Resources (RRL) was off -4.27% to close at $3.59. Clearly money coming out of safe havens as the market rallies…We covered our view on Golds in the Weekend Report on Sunday.

…and finally, the dogs of the past few years continue to cop a bid – today we had Monadelphous (MND) up another 2.92%. Since the break of $8 this stock has looked technically strong.

Sectors

Source; Bloomberg

ASX 200 Movers

Select Economic Data; Stuff that really Matters in Green

Aussie inflation (CPI) on Wednesday the main talking point locally given it’s bearing on interest rate policy. As of today, the market is pricing a 70% chance for a cut at the August meeting .

What Matters Overseas

FUTURES muted overseas…..

All figures contained from sources believed to be accurate. Market Matters does not make any representation of warranty as to the accuracy of the figures and disclaims any liability resulting from any inaccuracy. Prices as at 25/07/2016. 5:00PM.

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