Afternoon Report / ASX hits 7-month highs, Telsta rallies (TLS)

By Market Matters 13 October 20

ASX hits 7-month highs, Telsta rallies (TLS)

Market Matters Afternoon Report 13th October 2020

WHAT MATTERED TODAY

The ASX hit a 7 month high today although it looked nervous above 6200 again – understandable given its had a number of ‘go’s’ to break out and failed at every turn in the last 3 konths or so, however as we’ve suggested this week, the sectors that are good from an index perspective (banks) and those that are good for sentiment (tech) have done well and that’s been a big support to the broader market.

AGM season kicked up a gear today with Commonwealth Bank (CBA) and Telstra (TLS) holding virtual meetings, the later closing up 4% on rehoric around their dividend plus a bullish note from UBS that calls the stock an outstanding buy– we touch on TLS below given today’s commentary adds support to our recent views towards the seriel underperformer. The 4% bounce in the stock underpinned a 2.24% gain for the sector.

Asian markets were strong today, particuarly China which rallied more than 2% while US Futures were a tad lower during our time zone.

By the close, the ASX 200 was up by 63pts / +1.04% to close at 6195. Dow Futures are trading down -42pts/-0.15%

ASX 200 Chart

ASX 200 Chart

CATHCING MY EYE

Ausbiz: I was on this morning talking about the trading day ahead, nothing earth shattering here TBH.

Telstra (TLS) +3.96%:  Rallied today following comments at their AGM which talked up the prospect of the dividend being maintained through a weaker period for earnings. This is the concept we wrote about recently in the MM Income Note and was the reason why we’ve added it to the portfolio. Here’s what we wrote at the time, the view gained support today: Given the rhetoric around free-cash-flow that we saw at the recent result, it seems likely that the market is too bearish on the sustainability of the TLS dividend given its being anchored to EPS, not FCF. While earnings are under some pressure, they are expected to improve over the coming years (I know I know – it’s been like this for ever), however worth bearing in mind that TLS have made some tough decisions in recent times to get the business on a better footing to deliver that much anticipated growth.

In broad terms, a sustainable dividend we think is enough to support the share price up to about a 4.5% yield which equates to a SP around $3.50, then if earnings can show some growth, we think there is a very plausible path for TLS to trade back up towards $4.00. Click here for more on why we think the TLS dividend is sustainable.

Telstra (TLS) Chart

BROKER MOVES

·         Worley Raised to Equal-Weight at Morgan Stanley; PT A$10.50

·         Clinuvel Rated New Buy at Jefferies; PT A$30

·         Coca-Cola Amatil Cut to Sell at Morningstar

·         Link Administration Raised to Equal-Weight at Morgan Stanley

·         BHP Raised to Positive at Evans & Partners Pty Ltd; PT A$39.80

OUR CALLS

No changes today

Major Movers Today

Have a great night

James & the Market Matters Team

Disclosure

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