TPG heats up the Telcos (TPM, TLS, LLC, WTC, ALU)
WHAT MATTERED TODAY
A day of some extreme moves from a select number of stocks / sectors while the broader market was weak overall. Telco’s the shining light following news that TPG is in talks with Vodafone Hutchinson Australia to merge the companies – clearly a move that would shake up the Telco landscape with 1. consolidation is now a strong possibility in the sector & 2. A merged Vodafone / TPG would be less aggressive on undermining current prices than a standalone TPG under David Teoh. More on that later.
Company results today were the main driver of SP reactions, with 2 tech stocks hitting it out of the park in terms of share price performance - WTC and ALU storming higher on the back of good results and solid outlooks, however the moves looked like they were amplified by some big momentum buyers…maybe quant funds that put more weight behind the trajectory of earnings ahead of the multiple being paid – the concept of Growth At Any Price (GAAP).
Here’s todays company results and SP reactions – we’ve tried something new today and will look to roll this out for the remainder of reporting – thanks Alex!
More broadly, the banks were weak today, probably because Labor is a shoe in at the next election and they’ll roll back cash rebates from franking credits – ultimately that reduces the appeal of fully franked dividends. Resource stocks were also weak with BHP trading below $32 and RIO closing at $71.44 – which is very close to our downside target. As suggested above, the telcos were the shining light and the +7% gain by Telstra (TLS) – yes, you read that right – added a massive +9% index points to the ASX 200.
Overall, the ASX200 fell -18 points today or -0.29% to close at 6266 – Dow Futures are currently trading up -74points/-0.3% at the time of writing.
Reporting hits its peak tomorrow by volume of companies by the look – including; AWC, CLY, CHC, EBO, FLT, FPH – AGM, IMF, IOF, IRE, NEC, PGH, QAN, QUB, S32, SGP, STO, VRL, WEB. For a full list of company reporting dates – click here
We hold IRESS (IRE) in the MM Growth Portfolio and for their full year, the market expects revenue of $463.5m, EBITDA of 125m dropping down to a 73m net profit. The market is expecting profit growth of 13% into FY19.
ASX 200 Chart
ASX 200 Chart
CATCHING OUR EYE
Broker Moves;
· Asaleo Care (AHY AU): Upgraded to Neutral at Credit Suisse; PT A$0.78
· Carindale Property (CDP AU): Cut to Underweight at JPMorgan; PT A$7.80
· Citadel Group (CGL AU): Downgraded to Hold at Wilsons; PT A$7.40
· Helloworld (HLO AU): Upgraded to Add at Morgans Financial; PT A$5.75
· Monadelphous (MND AU): Downgraded to Underweight at JPMorgan; PT A$13.02
· Suncorp (SUN AU): Upgraded to Buy at Bell Potter; PT A$16.50
· Super Retail (SUL AU): Cut to Underperform at Credit Suisse; PT A$8.39
TPG (TPM) $7.65 / +21.62%; News out this morning that TPG is in talks with Vodafone Hutchinson Australia to merge the companies which has seen a fuse lit under the Telcos today. TPG has not been quite about plans to enter the Australian mobile sector with most forming the view that they would build their own network – which it had already started doing – but these merger talks take the strategy down a different route. Although in the very early stages of “exploratory non-binding discussions,” the deal makes a lot of sense. Vodafone only recently started to operate broadband services while TPG purchased its first bandwidth last year – both moving into each other’s prime markets.
The telco’s have caught a bid on the back of these development for two reasons. Firstly consolidation in the sector is now on in a big way and it is likely other companies will be running the ruler through both competitors and complimentary businesses – a positive falling competition. Secondly a merged TPG/Vodafone would be less aggressive on pricing than a standalone TPG offering – chairman David Teoh had been very vocal about his aggressive pricing plans.
TPG (TPM) Chart
Telstra (TLS) Chart
LendLease (LLC) $20.24 / -1.89%; LendLease has seen some selling today following their FY18 results which seemed reasonable at first glance however a closer look showed the decent numbers were driven by low quality additions. The property and infrastructure group saw a poor construction result offset by a lower tax rate and positives out of development and investment. Development performed well on both residential –mostly Australian units - and office sales – European focussed. Investment performed with the help of revaluations and leases in Barangaroo.
The poor quality result was taken harshly by the market and rightly so – optimism has been high in LendLease recently and the stock had risen 26.2% for the year up until yesterday’s close. No guidance was given as is standard for LendLease.
LendLease (LLC) Chart
WiseTech (WTC) $19.90 / 27.24%; A cracking SP move today from the logistics software company after they released full year numbers and announced a surprise dividend. The result on most metrics was inline / to a miss however the market is fixated on growth and WTC guided to revenue of 315-325m for FY19 versus market expectations of 287m – a clear beat even though EBITDA guidance was below market expectations….A growth stock, on a growth multiple, and a ripping share price
Wisetech (WTC) Chart
Altium (ALU) $28.75 / 31.7%; Another result that met (but didn’t beat) in terms of the current year on pretty much all metrics however they confirmed they’re confident of achieving the long held 2020 target of US$200 million revenue and EBITDA margin of 35% or better. The market was already at 204m for 2020!
Altium (ALU) Chart
OUR CALLS
We reduced QBE and added to our BBUS holding in the Growth portfolio today.
Have a great night
James / 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.
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