Australian Investment Blog

Good Afternoon everyone

Market Data

What Mattered Today

A busy day on the desk today with a large number of stocks reporting, some decent buying amongst the banks, and some of those themes we’ve been writing about over the past months playing out as predicted.

We saw a very tight range today of +/- 17pts. 5536 low, 5553 high and a close at 5552; up +14pts or +0.27%... It felt like a better day than that with the banks adding +25 index points. However, the broader market had pockets of weakness.

ASX 200 Intraday Chart

In terms of market themes, the most obvious today was selling of expensive stocks, even if they delivered good results offset by buying cheap ones, even if their results were on the weaker side. It seems fairly obvious that the market is positioned with a sense of extreme optimism around those market darlings – stocks like Transurban (TCL), REA Group (REA), CarSales (CAR), Seek (SEK) and the like, while extreme pessimism is priced into those unloved sectors like the banks.

The stocks that have run hard need to beat expectations by a decent margin and provide upbeat guidance. Stocks/sector that have been weak simply have to be less negative than the overly pessimistic expectations. Looking at the financials, Suncorp (SUN) reported last week – a result 4% below expectations yet the stock has run up +7.7% since Bendigo Bank (BEN) reported yesterday, and they beat expectations marginally setting up an +8.3% rally over the past two trading days.

ANZ gave a trading update this morning that was light on from an earnings perspective, although margins were flat (which was good) and importantly, they now seem likely to achieve 10% Common Equity T1 by 2017 which means no need for a capital raising. That’s the important aspect and the reason why banks rallied today, and if we see an okay result from CBA tomorrow, why they’ll probably continue to rally.

ANZ Bank (ANZ) Daily Chart

If we cast our minds back a month, the banks bottomed out on the 6th July. At the time, negativity was obviously high, and the press were running with hugely bearish stories for the sector. Here’s the bank performance since then…

Interestingly, the bank the market was most bearish on was ANZ – and that has outpaced its peers by a big margin. Bendigo (BEN) was also on the nose, and that too has outperformed.

Tomorrow we have CBA release its full year results – it’s the biggest coy on the Australia market and has struggled in recent times. Here're the expectations from Shaw and Partners + consensus numbers;

• Key Focus – We expect a good full year result, cash profit $9,608, EPS $5.55 and a 2H16 dividend of $2.22. Loan growth should be strong in the second half, APRA data suggest tracking at 4% in 2H16.
• Bad Debts – 3Q16 bad debts were $427m due to a large number of single names, we have $813m for the half, up from $564m 1H16.
• Margins – In early June we adjusted our margin assumptions for funding pressure. We make no changes to our NIM assumptions. At CBA’s trading update they said 3Q16 margins were tracking in line with 1H16. We assume CBA’s margins come under some pressure in 2017 and 2018, falling 4bps in 2017 and 2bps in 2018.
• Capital – 10.2% CET1 before risk weighting change, we believe CBA is looking to float Colonial Asset Management, which would add 40bps to CET1 if 70% was floated.

Source; Shaw and Partners

Turning to those expensive stocks in the market, we had Transurban Group (TCL) report today, and the result seemed to be a beat – albeit a small one (about 1%) yet the stock fell. Clearly, the market was looking for a bigger number – better growth – higher dividend etc. It was a great result by TCL. However, the lesson is simple; when stocks are expensive and continue to move higher, it gets harder to satisfy the market. Remember, the more expensive a stock gets, the more risk for those invested in it.

Transurban Group (TCL) Daily Chart

REA Group (REA) announced a very strong result with NPAT of $214.5m, up 16% on PCP. However, it was below market expectations of $218m with the dividend also below. This is the 3rd year in a row the stock has missed expectations – or, analysts/investors have become too positive leading into the result.

In FY14 the stock missed by 2% and was sold down -8.7% on the day, in FY 15 they missed by 2% and the stock fell almost -4%, today they missed by 2% on EBITDA and the stock was off more than -7% early before closing down -1.13%.

REA Group (REA) Daily Chart

Carsales.com (CAR) reported an FY16 NPAT of $109.3m up 6% on pcp which was a tad better than consensus of $108.4m. The stock was initially sold down before bouncing back hard…Still, not enough in the result to get us excited on such a high multiple…

Carsales.com (CAR) Daily Chart

Seek Ltd (SEK) a stock we have owned in the past fell more in sympathy than anything, yet the chart is worthwhile to highlight the above mentioned theme….

Seek Ltd (SEK) Daily Chart

…and finally, there was selling in the expensive real estate trust sector today with Stockland (SGP) indicative of the sector….

Stockland (SGP) Daily Chart

Sectors Today

Source; Bloomberg


ASX 200 Movers

Reporting next week

NPAT = net profit after tax (consensus numbers)
EPS = earnings per share (consensus numbers)
DPS = dividend per share (consensus numbers)



Select Economic Data – Today & Tomorrow; Stuff that really Matters in Green

What Matters Overseas

FUTURES are fairly muted….

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 9/08/2016. 5:00PM.

Reports and other documents published on this website and email (‘Reports’) are authored by Market Matters and the reports represent the views of Market Matters. The Market Matters Report is based on technical analysis of companies, commodities and the market in general. Technical analysis focuses on interpreting charts and other data to determine what the market sentiment about a particular financial product is, or will be. Unlike fundamental analysis, it does not involve a detailed review of the company’s financial position.

The Reports contain general, as opposed to personal, advice. That means they are prepared for multiple distributions without consideration of your investment objectives, financial situation and needs (‘Personal Circumstances’). Accordingly, any advice given is not a recommendation that a particular course of action is suitable for you and the advice is therefore not to be acted on as investment advice. You must assess whether or not any advice is appropriate for your Personal Circumstances before making any investment decisions. You can either make this assessment yourself or if you require a personal recommendation, you can seek the assistance of a financial adviser. Market Matters or its author(s) accepts no responsibility for any losses or damages resulting from decisions made from or because of information within this publication. Investing and trading in financial products are always risky, so you should do your own research before buying or selling a financial product.

The Reports are published by Market Matters in good faith based on the facts known to it at the time of their preparation and do not purport to contain all relevant information with respect to the financial products to which they relate. Although the Reports are based on information obtained from sources believed to be reliable, Market Matters does not make any representation or warranty that they are accurate, complete or up to date and Market Matters accepts no obligation to correct or update the information or opinions in the Reports.

If you rely on a Report, you do so at your own risk. Any projections are estimates only and may not be realised in the future. Except to the extent that liability under any law cannot be excluded, Market Matters disclaims liability for all loss or damage arising as a result of any opinion, advice, recommendation, representation or information expressly or impliedly published in or in relation to this report notwithstanding any error or omission including negligence.


To unsubscribe. Click Here