Australian Investment Blog

Good Afternoon everyone

Market Data



What Mattered Today

Another struggle today for the Aussie market where we saw some early optimism – largely in the resource stocks get the index up to 4984 (+40pts) at the highs. Unfortunately we tracked lower into the close ending up +18pts….Volume again was low and a lack of any meaningful conviction was obvious – just $3.61b done, which is woeful!

That sort of trend is typical of a weak market, especially when it comes on the back of a positive night overseas.



It’s unnatural, uncomfortable and we’re certainly not normally bears on the market, however as we’ve written recently, there seems to be a heightened level of risk at the moment. At times where that is the case, we prefer to have a higher cash allocation. We obviously risk missing any potential upside that may play out, however experience tells us that having flexibility, liquidity and the ability to BUY distressed markets (when others are selling) will yield us better return over time.


Source; Bloomberg

Stocks & Sectors Today

The collapse of Arrium (ARI) – the former OneSteel, after two days of heated debate with creditors is clearly big news. Arrium owes $2.8b to banks and bond holders. In recent days the Arrium board had put forward an alternative recapitalisation structure proposed by Blackstone’s vulture fund – GSO Capital, however the banks were unkeen, given it involved them taking a 55% haircut on their exposures.

Ultimately, all parties failed to reach agreement and early this morning, the company was put into voluntary administration.

UBS, the bank that ran the ill-fated $754m capital raising in late 2014 at 48c – only one month after Arrium released a strong profit number and paid a 3c dividend will have some very P/O clients today…and rightly so.

Blame will also be squared at the board – and in particular previous Chairman of 14 years Peter Smedley who oversaw the belated expansion into Iron Ore, their tilt into mining consumables at the top of the boom and importantly, rejected numerous take over offers from Hong Kong-Korea alliance.

A complete debacle, a sad end and a lesson to all about debt – gearing at the top of the cycle – and the risks of an overcommitted balance sheet…

As a best guess, it seems banks have around $200m exposure each, with talk of about a 45% haircut or $90m charge for each of our majors.

Bank of QLD (BOQ) reported 1H16 result today with cash earnings of $179m – margins of 1.97%, EPS of 48cps and a dividend of 38cents. The result was about 4% below expectations due to lower fee income and weaker loan growth. Interestingly, bad debts were flat – which is good, margins were flat – which is good in this environment while they also increased their mortgage rates – from 3.99% to 4.11% - which is still low comparatively but will help margins going forward.

Hugely volatile move today with the stock trading in an 82c range or 7% range. It closed down -1.21% to $11.45

We don’t have Bank of QLD (BOQ) in the Market Matters Portfolio



Regis Resources (RRL) took a bath today – ending down -3.8% or 9c to $2.28. Goldmans downgraded their target price to $1.90 and have a Sell/Cautious call on the stock. They’re negative – have been for some time. Consensus target price sits at $2.25
Citi the most optimistic with a buy and $2.74 price target….We’ll review tomorrow and advise given weakness today and our 50/50 view on GOLD at current levels

We have Regis Resources (RRL) in the Market Matters Portfolio



ASX 200 Movers



Regards,
The Market Matters Team
Level 12 28-34 O'Connell St
Sydney NSW 2000



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 7/4/2016 4:30pm
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