Australian Investment Blog

The market opened down a touch but then saw some decent follow through selling pushing the index to a midday low around 5710, a recovery into 2pm then another selloff in the last hour of trade. Iron Ore Futures copped a bid and traded up more than 5% in China at their best and that prompted a decent turnaround for the mining stocks eg (RIO +$1 from their daily lows – FMG up from $6.48 to a $6.66 close ), but it wasn’t enough to get the index up by the end. We had a range today of +/- 33 points, a high of 5743, a low of 5710 and a close of 5724, off -14pts or -0.26%.

ASX 200 Intra-Day Chart

ASX 200 Daily Chart

QBE Insurance (QBE); A very good set of full year numbers from QBE this morning and the stock was up sharply in early trade before profit takers came in and the stock drifted back from the highs to close up +2.44% to $12.60. A couple of really strong aspects to the QBE result are worth highlighting. Gross Written Premium was up, Insurance margins were up, Return on Equity was up and Expenses were down. Insurance profit was a 10% beat to consensus, insurance margins, which has been a real problem for QBE in the recent times came in at 9.7% v consensus of 8.4% and importantly we’re seeing good momentum in premiums…a topic we’ve discussed many times and one of the reasons we’re very overweight the sector with both SUN and QBE in our portfolio. Other metrics were very good with a $1bn share buy-back proposed over a 3 year period and the usual positive flows from higher interest rates that will continue to help their investment returns. The AUD trading down to 65c would be the cherry on the cake… We own QBE

QBE Insurance (QBE) Daily Chart

Lend Lease (LLC); Reported 1H17 numbers this morning and on the face of it, they looked very good. A beat on consensus for most metrics with all divisions growing relative to IH16. That said, LLC is a very complicated business and they can easily realise gains from projects earlier than the market had anticipated, thus bringing forward revenue. From experience, we’re reluctant to jump quickly following an LLC earnings result because the devil is always in the detail with this stock. More on this one tomorrow. LLC closed +3.58% at $15.35. We don’t own LLC

Lend Lease (LLC) Daily Chart

We had a fairly busy day in terms of the Market Matters portfolio, selling two holdings, tweaking a number of existing holdings and adding an additional 2 stocks to the portfolio.

Newcrest Mining (NCM); we sold our 5% position in NCM booking an ~11% profit with the view of buying Evolution (EVN) into expected weakness for Gold in the short term. We remain very keen on Gold for 2017 however the price has run too far in the short term in our view.

Newcrest (NCM) Daily Chart

Healthscope (HSO); we sold our 5% position in HSO today for a small loss. We bought HSO into weakness following their ‘downgrade’ earlier in the year after the overreaction by the market. After digging deeper into HSO’s recent result, it seems fairly clear that there is a lack of clarity in terms of hospital demand in Australia over the next 6-12 months. Given we like the longer term drivers for private hospitals we switched 4% into Ramsay. RHC has a higher exposure internationally (as well as locally) and we think RHC will outperform HSO over the next 6 months…

Healthscope (HSO) Daily Chart

Ramsay Healthcare (RHC) Daily Chart

Ansell (ANN); We bought ANN today allocating 4% of the portfolio into the stock. ANN has traded back into our targeted range around $21, a good technical level for ANN after its recent pullback from above $25. This is a good defensive earnings stream and a business we rate highly.

We tweaked two existing positions slightly, with a reduction in Vocus (VOC) by 2.5% to 7.5% and an increase in Platinum Asset Management (PTM) from 5% to 7.5%. Clearly, Vocus has been a thorn for the MM portfolio for some time and we’re pleased with the recent share price performance from the recent low of $3.69 to close today at $4.43. We trimmed our holding a tad above $4.46 by 2.5%. This remains one of our larger positions in the portfolio, however recent history suggests that VOC should be considered a ‘higher risk’ stock and as such, we trimmed to a more realistic weighting relative to this risk level.

We used the capital from VOC to up weight in PTM. Despite PTM reporting a mixed set of results recently, the underlying trends in the business have ticked up (performance / FUM flow etc), they have a high level of cash on the balance sheet, and go ex-dividend on the 1^st March for 15c fully franked. PTM closed up +1.76% today to $5.20.

Have a great night,

The Market Matters Team

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