Market up but early optimism fades (IPH, STO, FPH)
WHAT MATTERED TODAY
It was always going to be an interesting session today following the mini-breakthrough in China – US Trade negotiations on Friday, and ultimately the market has traded largely as expected. The height of optimism was early on with the market peaking up +70pts following strength in the US on Friday night, strength in US Futures this morning and a buoyant performance from Asian markets today, however as the session wore on, buyers lost steam and the market closed more than 30pts below the early highs. Energy saw most buying thanks largely to a strong performance by Santos (STO) while the Communications sector lagged, along with the other more ‘risk off’ areas of the market.
Overall, the ASX 200 closed higher today, up 35pts or +0.54% to 6642, Dow Futures are trading up +63pts/+0.24%.
ASX 200 Chart
ASX 200 Chart
CATCHING MY EYE;
Latitude IPO: News out this morning that the year’s biggest IPO was forced to re-price down below the lower end of the previously guided range. They were hoping to get it away between $2.00 - $2.25 however now it seems $1.78 is the price. We covered Latitude here confirming we wouldn’t be taking up the deal. This has been an IPO large on re-packaged spin and today they said that the price was cut to ensure a high quality register and strong secondary market support. The pricing is actually now a lot more attractive than it was at $2 representing 11-times profit and 5.8 per cent dividend yield.
Gold: Hit on the back of China – US trade improvements and we’ve seen some steep declines across the local players today, NCM hit by -4.79%, Evolution (EVN) down -4.95%, Saracen’s (SAR) off -8.33% and OceanaGold (OGC) down by -2.06%. The price of Gold dropped back below $US1500/oz and that has clearly got the market bearish the precious metal. Separately, Credit Cuisse out today with a Gold note calling Evolution their preferred large cap pick while St Barbara is first choice among the mid-caps. In the small cap area they prefer Alacer (ALQ) over Perseus.
While prices are clearly weak today, we remain fairly comfortable with EVN and NCM in the MM Growth Portfolio.
Evolution (EVN) Chart
IPH (PIH) -1.23%: We flagged Intellectual Property business IPH Ltd (IPH) in the weekend report on Sunday as an interesting technical buy after it pulled back more than 15% over recent weeks. The stock traded down to $7.81 low today before closing back up above $8 – the stock now looks bullish.
IPH Ltd (IPH) Chart
Santos (STO) +5.65%; Strong today after buying a number of Australian assets - the $US1.4b deal with ConocoPhillips will see Santos take an interest in 4 LNG projects – Darwin LNG, Bayu-Undan, Barossa and Poseidon, effective from 1st January this year as the company continues their push for further expansion which included the $2.15b Quadrant deal last year. These new acquisitions will be fully funded by cash and debt facilities already available to Santos which has done a good job of deleveraging the balance sheet in the past few years. It adds a number of low cost assets onto the balance sheet and despite Santos already being one of the lowest cost produces, the new assets will reduce their breakeven oil price by another $US4/barrel as well as increasing production by around 25%.
The Darwin LNG plant currently services the Bayu-Undan project producing around 3.7 mtpa however it is expected to run dry in 3 years. The Barossa project is expected to plug the gap while plans are in place to increase capacity at the Darwin plant by more than double. The deal is EPS accretive from day one which has been taken well by the market.
Santos (STO) chart
Fisher & Paykel (FPH) +7.02%; New Zealand’s version of ResMed shot higher today thanks to increases in guidance on the back of US approvals. Fisher & Paykel increased net income by 4% in FY20 on an operating revenue of $NZ1.19b which beat the most bullish analysts estimate. The source of the added income was the company’s sleep apnoea face mask Vitera which received clearance to commence sales into the US earlier than was previously anticipated. The upgrade was also assisted by a weaker NZD vs the USD with assumptions lowered from 64c to 63c against the greenback. Today’s move sets another all-time high for FPH which has essentially rallied near uninterrupted since 2012 lows around $1.45.
Fisher & Paykel (FPH) Chart
BROKER MOVES;
· Pushpay Raised to Buy at UBS; PT NZD3.65
· Sandfire Cut to Neutral at JPMorgan; PT A$7
· Newcrest Cut to Overweight at JPMorgan; PT A$32
· Pilbara Minerals Cut to Underweight at JPMorgan
· A2 Milk Co Raised to Hold at Bell Potter; PT A$12.35
· St Barbara Raised to Outperform at Credit Suisse; PT A$3.50
· Regis Resources Raised to Neutral at Credit Suisse; PT A$4.95
· Perseus Raised to Outperform at Credit Suisse
· Rio Tinto ADRs Raised to Buy at Jefferies; PT $57
OUR CALLS
We sold Tabcorp (TAH) and bought Oz Minerals (OZL) today.
Major Movers Today – Costa (CGC) caught the eye as did the UK exposed stocks with Janus (JHG) and CYBG (CYB) both being well bid. Appen (APX) found some buyers today after recent weakness while the Gold stocks were obviously the weakest link.
Have a great night
James, Harry & the Market Matters Team
Disclosure
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