Afternoon Report / ASX edges higher, Energy the standout (again), dogs Crown & Telstra actually look good (PMV, BPT, CWN, TLS)

WHAT MATTERED TODAY

The ASX snapped a two day losing streak today closing a few ticks higher thanks to strong buying again in the energy sector which marched up 4% higher as Crude hit 10 month highs overnight - we also saw buying amongst the Telco’s led by Telstra (TLS) which again looks bullish.  On the flipside, we saw selling in the IT stocks led lower by Altium (ALU) after they downgraded earnings yesterday, the market clearly not believing they’ll meet full year guidance with the AUD trading near 78c an additional headwind along with COVID, while Coles (COL) -2.44% weighed on the staples.

No tier 1 economic data out locally today however we do get inflation data in the US tonight which will be interesting, consensus expecting 0.4% MoM up from 0.2% in November so that annualises at 1.6%, below the Fed target but building steam

Asian markets were mostly lower today, Japan up ~1% bucked the trend while US Futures were trading fairly flat at our close. 

The ASX 200 finished up pts / +0.11% to close at 6686. Dow Futures are trading up +52pts / +0.17%. 

ASX 200 Chart

ASX 200 Chart

CATCHING OUR EYE

Forgetting Stuff: I’ve misplaced a set of keys and its infuriating, however not a patch on Stefan Thomas, a German Bitcoin buff who has two attempts left to remember his password that holds around $280m worth of the Crypto Currency. He’s used up 8 of 10 attempts and is now understandably a little stressed out about it."I would just lay in bed and think about it," Thomas says. "Then I would go to the computer with some new strategy, and it wouldn't work, and I would be desperate again."…the AFR

Premier Investments (PMV) +12.72%: Solly Lew’s retail group was the big winner today, and continued yesterday’s upgrades from other retailers. Premier, which runs global brands such as Smiggle, Peter Alexander, Jay Jays among a number of others, saw record online sales through the first half of the year to generate group sales growth of 5% through the first 24 weeks of the year. The knock on effect is expected to lead to a significant EBIT boost with online sales gaining better margins, with the company guiding to 1st half EBIT for the retail division of $221m to $233m, up around 80% on the prior year. This compares to a full year estimate by the analysts at $201m for the full year – a pretty handy start. Retail clearly has strong momentum also they have had a good run.

Premier Investments (PMV) Chart

Energy Stocks: Ripping higher thanks to a resurgence in the Oil price which is now trading at 10-month highs around $US54/bbl, a long way from the negative print we saw at the height of the pandemic. This is feeding through to strong gains in the local energy sector led by Santos & Woodside. We hold Beach Energy (BPT) in the growth portfolio and it’s now breaking out while we’ve also got BHP in both Income & Growth.  We remain bullish Energy.

Beach Energy (BPT) Chart

Crown (CWN) 1.18%: A stock benefitting from fewer headlines is Crown which is gradually grinding higher. We bought this at the end of last year around the time their casino licence to operate at Barangaroo was delayed and the press was having a field day, however as with most things, headlines pass and investors focus on the longer term drivers of earnings, and clearly Barangaroo is going to be a gamechanger for Crown. Lots of headwinds from the pandemic plus of course from their own doings however they can get through this tough period in reasonable shape, we think they’ll do very well when they have some clear air.

Crown (CWN) Chart

Telstra (TLS) +2.66%: Rallied today and looks very good technically after a period of consolidation from November. The Telco is MM’s view is in a major turnaround phase and we’re bullish on the inherent value that can be unlocked in a restructure. Here’s a re-hash of the rationale we put up when we bought the stock late last year in the income portfolio at $2.88

Telstra has delivered a world of pain to most holders over the past few years; however, this is about to change in MM’s view. We see value here based on 3 key areas:

-       The dividend is sustainable: TLS reported FY20 earnings mid-August, they met expectations for the current year however they poured cold water over earnings guidance for FY21. They maintained the dividend at 16c; however, this is made up of 10c ordinary and a 6c special which is related to NBN payments. The concern is that the ‘real’ dividend will be closer to 10c than 16c however in MM’s view that’s unlikely. On an earnings basis, the 16c dividend is not sustainable given TLS will likely generate around 14c EPS in FY21 & FY22 before rising from there, however TLS have shifted their dividend focus to be more heavily aligned with free-cashflow (FCF). In terms of that number, which seems to now be the key for the dividend, it’s expected to be 20c in FY21, 21c in FY22 and rising from there, making 16cps for the foreseeable future highly likely. Telstra yields 5.12% fully franked (7.3% gross) based on current prices, or 5.55% / 7.9% based on MM’s purchase price

-       There is value in their assets: TLS will be legally restructured by the end of CY2021 into the three business units. InfraCo now becomes InfraCo Fixed and InfraCo Towers. Inside these sit passive and active assets. These assets valued separated are worth a lot more than is currently being implied by the Telstra share price. The 3rd business will be ServeCo. The restructure is a smart move particularly given the demand / backdrop for infrastructure type assets in a low interest rate environment and the ability for analysts to value these divisions separately will be positive for the group

 -       Telstra is under owned by fund managers: Running an underweight to TLS has been a good play, however that becomes a risker proposition when a planned value accretion event is now on the horizon.

Telstra (TLS) Chart

BROKER MOVES

·         a2 Milk Cut to Neutral at Goldman; PT NZ$12.93

·         Accent Group Cut to Equal-Weight at Morgan Stanley; PT A$2.60

·         SCA Property Raised to Hold at Morningstar

·         Boral Raised to Neutral at JPMorgan; PT A$4.90

OUR CALLS

No changes today

Major Movers Today – WHC looks good here for a crack above $2

Have a great night

James & the Market Matters Team

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