Reporting season kicks off with Credit Corp (CCP, CYP, SUN)
WHAT MATTERED TODAY
A lot across the ticker today with the start (sort of) for reporting season while we continued to see a barrage of quarterly activity reports particularly in the mining space, with some big moves playing out as a consequence. The market was hit early with the banks and resources trading down from early highs, however the market booked an 11am low and rallied for most of the afternoon…only to see a massive line go through on the match (end of month square up) which took a quick 13pts from the ASX 200.
At a company level today, Senex (SXY) delivered strong quarterly production numbers and rallied +9.76%, Credit Corp (CCP) released full year results that were around 2% ahead of expectations, however their guidance was weak – the stock rallied 8.54% - more on that below, Carnarvon (CVN) gave a strong drilling update at their Dorado project which pushed the stock up 2.80% while we also had a good update from Infigen (IFN) – the stock adding 2.34%. Iluka (ILU) and Western Areas (WSA) announced a JV in South Australia, the market liked ILU’s deal better than WSA’s with the former up 1.33% while the later lost 0.61%.
On the flipside the market continued to punish those companies that have been well supported leading into an update where they fail to live up to expectations – Regis Resources (RRL) a clear example here with the company missing in terms of quarterly production and getting knocked by 10.8% on the session closing at $4.46.
The small tech sector in Australia has also felt the brunt of recent weakness in their larger US rivals…Wisetech (WTC) down 7.91% today and Altium (ALU) off by 4.49% the weakest of the bunch while the Lithium stocks were also hit hard, Kidman (KDR) and Pilbara (PLS) down 8.2% & 2.76% respectively. Orocobre (ORE) was down hard early however a strong production report released mid-morning had the sellers on the back foot and the stock recovered strongly – closing at $4.62 versus a $4.46 intra-day low. Companies that report strong numbers have tended to do well over the following few days and ORE should start outperforming the sector from here.
As we reiterated in the AM report today, we prefer GARP rather than GAAP…Growth at a reasonable price rather than growth at any price and some of the more highly valued ‘go to’ stocks now seem to be in the sights of sellers – profit taking ahead of reporting perhaps after seeing Facebook & Netflix hammered in the US!
Overall, the ASX200 added +1point today or +0.03% to close at 6280 – Dow Futures are currently trading up 17pts. We remain mildly short-term bullish the ASX200 while the index holds above 6250, neutral between 6250 & 6140 and bearish on a break of 6140.
ASX 200 Chart – BANG on the close for end of month!
ASX 200 Chart
CATCHING OUR EYE
Volatility or NOT; July has seen the lowest monthly trading range since before the GFC i.e. well over 10-years. Hence while the market may have made fresh new decade highs this month the momentum has been far from convincing as stock / sector rotation remains the main game in town.
On a sector level the Telcos did best by a fair margin while the utilities were the weakest link.
Sectors for the month of July
Broker Moves; Suncorp saw 2x downgrades this morning from JP Morgan & Bells, both moving to a HOLD and $15 PT, which saw the stock sold early as their respective followings re-weight- still, early weakness was bought into and the stock did well to close only marginally lower on the session which implies underlying strength.
Suncorp (SUN) Chart
Elsewhere…
· Rio Tinto Downgraded to Hold at Morgans Financial; PT A$84.42
· Netwealth Group Rated New Hold at Wilsons; PT A$8.59
· GrainCorp Reinstated at Wilsons With Hold; PT A$7.79
· Suncorp Downgraded to Hold at Bell Potter; PT A$15
· Suncorp Downgraded to Neutral at JPMorgan; PT A$15
· Flight Centre Resumed at Bell Potter With Hold; PT A$64.20
· Orora Downgraded to Neutral at JPMorgan; Price Target A$3.60
· Breville Downgraded to Neutral at Credit Suisse; PT A$11.60
Clydesdale Bank (CYB) $6.06 / +1.68%; The UK bank provided investors with a 3rd quarter update late yesterday which came with no surprises, although was somewhat light on detail regarding the progress of the Virgin money acquisition. Mortgage growth was at an annualised rate of 3.8%, which is expected to drag the full year growth to the lower end of the 4-6% guidance. This was offset somewhat by SME lending which showed healthy growth of 5% annualised with resilience expected into the fourth quarter. Guidance was maintained across the board – we do see some risk to NIM however as CYB target 220bps, they have been running at ~218bps for the year.
CYB did say their ongoing PPI complaints remain elevated, although this is in line with expectations and are comfortable with current provisions for claims – some risk to their forecasts here as they expect a slowdown in claims before the deadline. Human mentality would suggest the potential for a spike in complaints before the August 2019 deadline.
Clydesdale (CYB) Chart
Creditcorp (CCP) $20.58 / +8.54%; Ah…the scent of local reporting season is wafting around the office with Credit Corp (CCP) out with full year results this morning ahead what’s likely to be fairly lively month ahead for Australian equities. Looking at CCP’s share price move today could well be precursor to what’s in store, with the stock down ~3% early before rallying strongly as the CEO does the rounds and talks up their US growth opportunity – a range +/-10%. As shown below, the FY18 result was about a 2% beat on the EPS line with revenue as per programmed while the dividend met expectations. A good result considering that the debt collector purchased less debt in the period which essentially means they ran on lower inventory, perhaps that’s why their FY19 guidance was lower than expected.
In terms of guidance, they outlined the following…
Consensus was already at $71m in terms of NPAT, 148cents at the EPS line and 74cps for the dividend, so a slight miss in terms of forward guidance, nevertheless, this is a business trading 13x so not a huge amount of upside built in. Assuming they meet company guidance, a business growing at 5% pa with a decent dividend while trading on a cheaper multiple than the market looks relatively attractive.
Credit Corp (CCP) Chart
OUR CALLS
No trades across the MM portfolios today
Have a great night
James / Harry & the Market Matters Team
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