Market Matters Afternoon Report Wednesday 5th October 2016
Good Afternoon everyone
What Mattered Today
All about global interest rates today and those stocks that are exposed to them had mixed fortunes. QBE topped the leader board and you’ve got to think this is the canary in the global interest rate coal mine….QBE is a dog of a business, yet it’s massively leveraged to higher global interest rates. It rallied +3.4% to close at $9.74 today as money flowed in, probably funded by selling of interest rate sensitive infrastructure stocks like Sydney Airports (SYD) -1.92% and Transurban (TCL) -3.23%.
Banks were firmer collectively, Bendigo (BEN) the best of them adding +1.83% while Bank of QLD (BOQ) report tomorrow – more on that below. BHP ended down 5c while RIO was softer by 50c.
QBE Insurance (QBE) Daily Chart
We had a range today of +/- 39 points, a high of 5478, a low of 5439 and a close of 5452, off -31pts or -0.57%. Volume was still weak courtesy of school holidays but it helps with the traffic coming into the city from Manly!!
ASX 200 Intra-Day Chart
ASX 200 daily chart
Golds were hit hard today as expected with the GOLD price falling off its perch overnight – dropping $40 to settle at $1272, before recovering around 0.5% in Asian trade today with FUTURES trading higher ($1276). We’re looking for an entry point into a gold stock as per today’s morning note however we’re being patient for now. Of the mid/larger cap stocks, Regis Resources (RRL) has performed strongest into the recent decline. Long’s seem strong in RRL – or at least they’re stronger than some of the other gold plays. Relative strength into the weakness is a positive…
We hold Independence Group (IGO) in the portfolio and given its got some GOLD exposure, it was down today in line with the rest of the sector but still up on our BUY price. They did announce a small acquisition this morning buying Winward Resources (WIN) for $20.5m which is small for IGO in financial terms however it is a vote of confidence in the Nova Nickel project – which IGO start producing from in December.
This move shows a desire to increase their Nickel exposure which is sensible given existing infrastructure in the region. We don’t know a lot about WIN’s asset, but in broad terms, it looks like a reasonable play. Mark Creasy who is WIN’s major shareholder is well known as a very good prospector.
Independence Group (IGO) Daily Chart
Mantra (MTR) ticked higher today and the selling pressure in that seems to be abating somewhat. We’ve bought into weakness recently, a stock that was off 45% from the high set in Dec 15 so it’s fairly normal that we see a few false starts before it gains traction. The stock put on +2.76% today to close at $3.35 on reasonable volume.
Mantra (MTR) Daily Chart
Bank of QLD (BOQ) reports full year numbers tomorrow and the stock has been reasonable leading into the result. It’ll be an interesting read through for our position in Bendigo Bank (BEN) given regionals typically face similar headwinds. The market sits at cash earnings of $368m for FY 16 and $392m for FY17. A full year dividend of 76cps and CET 1 capital of 8.8%.
It seems BOQ have increased rates in recent times (Tks BOQ!) to relieve some of their margin pressure but that’s reduced volume (loan growth). Net Interest Margin (NIM) will print 1.96% according to factset consensus. For those that look at core profit, consensus here is $601m.
Bendigo (BEN) has outpaced BOQ in recent months, trading up from a low of $8.00 in March – hitting a high today of $11.18 a run of nearly 40% plus the dividend. +2.2% on the session today is a good move. For our position, we need to hold for another 10 days to pick up the franking (45 day holding rule).
As we wrote this morning…. We stick with our relatively unpopular view that banks are the place to be at least for the short term.
Bendigo Bank (BEN) Daily Chart
Top 20 Shorts
Blackmores (BKL) and Bellamy’s (BAL) continue to attract strong short interest. Seems a lot are still very sceptical of their current valuation given risks towards their Chinese growth strategies. A number of well-known brokers are still pushing Bellamy’s fairly hard, yet it seems to be falling on deaf ears…the stock is soft and further downside looks likely. Shorts are certainly backing that view…
Bellamy’s (BAL) Daily Chart – looks weak technically
Sectors
ASX 200 Movers
Select Economic Data - Stuff that really Matters in Green
**Chinese Bank holiday for the rest of the week**
What Matters Overseas
FUTURES mixed….
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 5/10/2016. 5:00PM.
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