NAFTA falls over, the markets roll over (NST, A2M, BAL)
WHAT MATTERED TODAY
The local index never looked like living up to pre-market expectations as the trade war reared its head again. Just as it seemed Trump was getting along well with Mexico and Canada, the deals fell over and signs the US President is unwilling to negotiate returned. As a result, the resource names were hit, particularly nickel producer Western Areas which fell -6.46%, along with Asian markets which headed lower throughout the day. Telcos also saw recent weakness prevail as the pull back from recent telco mania continues.
Data also weighed on the markets sentiment today, with the double whammy of weak retail sales and house price figures dragging the consumer markets lower. The Aussie dollar also saw selling on the back of the numbers, hitting a 20-month low against the USD soon after the data came out, although it did bounce off this number to currently trade more or less flat on the day.
Overall, the index closed down -8 points or -0.14% today to 6310.
ASX 200 Chart
ASX 200 Chart
CATCHING OUR EYE
Broker Moves; a quiet day for the brokers, still digesting reporting season.
· Freedom Insurance Group (FIG AU): Cut to Sell at Baillieu Holst Ltd
· Zenitas (ZNT AU): Zenitas Downgraded to Hold at Bell Potter; PT A$1.46
A2 Milk (A2M) $11.61 / +0.91% & Bellamy’s (BAL) $10.64 / -5.66%; The Chinese Government released new regulations for the e-commerce industry over the weekend, and although it is early in to implementation, it appears to have some impacts on participants in the Chinese retail market. A2 Milk released a brief note this morning, welcoming the new regulation which hopes to protect the Chinese consumer market which will force platforms into more responsibility over the products it sells and the protection of customers. This works to make to both harder and easier to sell into the ever growing Chinese middle class market. Those with Chinese retail licences should see an initial kick with inventory sell downs before the regulations come into effect next year, while seeing an ongoing demand while they are viewed as a responsible provider. Those without licences may also see the sales increase short term, however avenues to sell into the market will likely dry up as the regulations are enforced.
A2 Milk’s SAMR registration should help the company tackle to ever changing regulation in China, but while Bellamy’s application continues to be delayed the stock will likely struggle
A2 Milk (A2M) Chart
Bellamy’s (BAL) Chart
Northern Star (NST) $8.12 / +16.67%; gold miner spiked higher today after resuming trading following a capital raise announced on Thursday last week. The company was looking to raise $175m in order to partially fund the $US 260mil acquisition of Pogo, an underground gold mine in Alaska. New shares were issued at $6.70, a 3.7% discount to the previous close, which are now looking very cheap with the placement reportedly heavily oversubscribed.
The transaction has been compared to Northern Star’s previous acquisition of Jundee – a key asset in operation, with cost out ability and potential to extend mine life with further discoveries. The acquisition gives Northern Star three high quality assets with the potential for each to produce over 300,000oz of gold per annum, just 17 mines are currently producing more than this in the Tier-1 mining jurisdictions of Australia, the US & Canada. Just a fortnight ago many were discussing why NST hadn’t paid a special dividend or launched a buyback with the mid-tier gold miner debt free and cashed up to the tune of ~$430mil. The acquisition is a big one, but hasn’t come at a huge cost with new shares making up just 4% of shares on issue. The risks to the purchase lay with the companies move offshore, no longer just the Australian miner.
Northern Star (NST) Chart
OUR CALLS
No trades across the MM Portfolio’s today.
Have a great night
Harry & the Market Matters Team
Disclosure
Market Matters may hold stocks mentioned in this report. Subscribers can view a full list of holdings on the website by clicking here. Positions are updated each Friday, or after the session when positions are traded.
Disclaimer
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