Afternoon Report / Another lethargic session for the ASX; CYBG reported results

By Market Matters 16 May 17

Another lethargic session for the ASX; CYBG reported results

Market Matters Afternoon Report 16th May 2017

A higher open this morning despite both NAB and Macquarie trading ex-dividend before some lethargic mid-morning profit taking crept in again pushing the index a long way off the session highs…We had a range today of +/- 36 points, a high of 5871, a low of 5835 and a close of 5850,  up +12pts or +0.21%,

May / June remains a very weak period for stocks with the average decline on the ASX post GFC -6.9%. To date we’ve fallen around 2% so clearly there is room for further weakness and it’s the reason why we are maintaining high levels of cash during this period (currently +27.5%). That said, the components of the index have had some variance in terms of performance leading into this period. Banks were very strong in April which underpinned the markets positive return however resources lagged.

The weakness at the start of May has largely been driven by a reasonable correction in the banks, however the selling now looks nearing completion with our downside targets only 3% lower for the sector, implying that the bulk of selling is done for the banking stocks. In terms of resources, they were weak in April but have found some form in early May with BHP trading back up through $24 today.  They now look like they have found a low with higher prices a strong possibility. So, if both banks and resources have seen the worst, why are we still in so much cash?

The market is too complacent and any decline is likely to be short and sharp if it plays out throwing up good opportunities.

ASX 200 Intra-Day Chart

ASX 200 Daily Chart

CYBG (CYB); A stock we hold in the MM portfolio from lower levels has just reported and the conference call is on shortly which we need to run to….so more details forthcoming after that however on first run through the result is messy but OK and importantly the outlook statements are reasonable.

You’ll note a reasonable amount of RED on the numbers  above which implies a miss v consensus however the numbers that are the important ones were better (cash earnings) at £90m which was ahead of the street at £83m however we saw a few looking for high 70’s…

We own this stock given UK exposure but also because it’s a self-help turnaround play, below is FY17 guidance however out to 2019 is where the costs really come down and earnings get a boost.

 

Have a great night,

The Market Matters Team


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