Australian Investment Blog

WHAT MATTERED TODAY

The Australian market pushed up through 6300 for a period this morning – just 3pts why of the recent highs – before losing some steam leading into the close. Still, a was a bullish day with BHP coming out with news around the sale of their US Shale assets for US$10.8b – a good price however the market knew it was coming and early strength for the ‘Big Australian’ was sold into. A clear cut case of buy the rumour / sell the fact by the look with BHP now at the top of its recent trading range. Elsewhere, Macquarie (MQG) recovered after yesterday’s sell-off, much of the focus being rightly so on the new CEO who seems to be universally loved by those who have worked with her – while their guidance for flat earnings in FY19 versus the markets 5% expectations simply being put down to under promising from the silver donut.

Elsewhere, AMP had another poor session down by -5.17% after providing a market update that was less than comforting, the other wealth managers were also weak while we saw some interest in Newcrest (NCM) today following their strong production numbers yesterday. We bought NCM in the Growth Portfolio this morning – the stock adding 1.72% on the session to close at $21.28.

Overall, the index closed up 55points or 0.89% to close today at 6300 – up 0.2% on the week, just 6 points from the recent intra-day high & the highest close since 2008.

ASX 200 Chart

ASX 200 Chart

CATCHING OUR EYE

BHP Billiton (BHP) $34.40 /+2.26%; This morning BHP announced the sale of US shale assets to BP and Merit Energy for an all cash total of $US 10.8bil. It’s a great result for BHP, with the market expecting a number closer to the $US 10bil mark. Half of the cash will be paid in October, with the remaining coming in 6 equal monthly instalments. BP picked up the bulk – paying $US 10.5bil for the Petrohawk Energy Company while Merit paid $US 300mil for the Fayetteville assets. Management had previously flagged that the proceeds for this transaction would go straight to shareholders, so we can expect special dividends and/or buybacks to occur, although the timeframe for this will now depend on whether BHP will wait until all cash has been received.

The timing of the transaction comes as a slight surprise - it was a little earlier than we expected. It is a great result for the times, although worth mentioning that they lost a fortune on the assets since buying them a few years ago. Shareholders can expect the full benefit of the proceeds, we expect mostly through buy-backs as BHP will be able to utilize its large franking credit balance it has struggled to pass on to shareholders in the past. While commodity companies do well in an inflationary environment, we remain keen buyers of weakness, but not strength.

BHP Billiton (BHP) Chart

AMP (AMP) $3.30 / -5.17%; No surprises here from AMP as the poor news continues to come out of the financial services firm. This morning AMP gave an update ahead of their first half report, “AMP takes action to reset business” – hardly a comforting name, in which AMP went on to announce provisions of $290mil for advice remediation, reduced fees on products, lowered expectations for first half profits and predicted the dividend to be at the lower end of the pay-out ratio for the full year, however they said the interim dividend would be cut more substantially.

The announcement highlights the difficult conditions AMP is operating in, as platform and advice fees come under pressure, AMP is also under pressure from the regulator, shareholders and clients – certainly a tough gig at the moment. Our last note on AMP here

AMP Chart

Weekly Moves – Stocks & Sectors;. A mixed bag for Aussie sectors throughout the week – Energy remains strong while the Healthcare stocks – mainly the US earners started to struggle.

Sectors over the past week

At a stocks level, a downgrade from Nufarm (NUF) and a takeover from Nine Entertainment (NEC) saw both stocks plumb new lows while AMP remains on the nose – rightly so.

Stock moves over the week

Broker calls; Most analysts agree that the Nine Entertainment Co.’s plan to acquire Fairfax Media Ltd. for A$2.2 billion ($1.6 billion), bringing together two of the nation’s biggest brands in television and newspaper publishing, is unlikely to get antitrust scrutiny from regulators.

Elsewhere;

· Fortescue Downgraded to Neutral at Citi; PT A$4.70

· Marley Spoon GDRs Rated New Buy at Canaccord; PT A$2.40

· Oceania Healthcare Raised to Outperform at First NZ Capital

· Nine Entertainment Upgraded to Hold at Morningstar

· Woolworths Group Downgraded to Neutral at JPMorgan; PT A$30

· St Barbara Downgraded to Sell at Canaccord; PT A$4.35

· Treasury Wine Downgraded to Sell at Goldman; PT A$14.20

· Macquarie Group Cut to Hold at Shaw and Partners; PT A$122

OUR CALLS

We added Newcrest to the Growth Portfolio this morning around $21.15 with a 3% allocation. A reasonably active week for the growth portfolio adding small positions in IRE, MIN, HSO & NCM.

Have a great night

James / Harry & the Market Matters Team

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