Afternoon Report / ASX knocked back to earth with a thud (RHL, IPL)

By Market Matters 13 November 18

ASX knocked back to earth with a thud (RHL, IPL)

Market Matters Afternoon Report 13th November 2018


Yesterday the market looked bullish having grinded +50points up from early lows and 24 hours later, we’ve dropped 100pts in short order with the only bright spot being the defensive utility stocks.  I think its worthwhile revisting the scenarios we discussed in the Weekend Report on Sunday after this pullback.  

The ASX200 has hit our 5925 target making us far more cautious short term.

We actually see 2 likely scenarios unfolding over the next few weeks:

A – The market experiences a corrective pullback towards 5800 prior to an assault well above the psychological 6000 area.
B – The October weakness returns with a vengeance and stocks retest, and probably break, the 5600 area.

At this stage MM’s preferred scenario is A, implying the next 100-point for the local market is down, as said above some of this will come from a few major stocks trading ex-dividend next week.

At this stage we stick with scenario A however concede that todays selling was more aggressive than we envisaged. A more subdued pullback to the 5800 region over a few session would have been the preferred scenario. Given todays move, option B certainly can’t be ruled out.

Overall, ASX 200 closed down -107pts or -1.80% at 5834. Dow Futures are currently up +97points or +0.38%  

ASX 200 Chart

ASX 200 Chart



I was on YourMoney this morning talking stocks before the open, with specific coverage of the Incitec Pivot (IPL) and Ruralco (RHC) full year results, plus some bits and pieces from a markets perspective.

Ruralco Holdings (ASX:RHL) $3.12 / +7.22%; Agricultural stocks have been in focus this week with Elders (ASX:ELD) hitting it out of the park yesterday with better than expected full year numbers, while today we have seen Ruralco Holdings (ASX:RHL) beat expectations by around 7% at the profit line. The diversified agricultural company produced EBITDA of $70m vs expectations of $67m while underlying net profit came in at $28.8m vs expectations of $26.9m. The market has been downbeat on agricultural stocks and to date a number of players have produced better results than what has been expected. RHL was trading on 10.3x estimated FY19 earnings and today’s beat should see a solid rerate.

In a similar theme to Elders, the company pointed to recent efforts to diversify the company both in offering and geographical footprint as driving the result. That should also help the market become more comfortable with the business and its risks. The company guided to profit growth into FY19, without being too specific – Bloomberg consensus expects $29.4m FY19 net profit, just a 2.1% increase on today’s result.

Ruralco holdings (ASX:RHL) Chart


Incitec Pivot (ASX:IPL) $4.01 / -5.2%; This morning Fertilizer Manufacture Incitec Pivot (IPL) was out with full year results, and they were about a 4% miss at the profit line relative to Bloomberg Consensus. While guidance was difficult to ascertain, the market was positioned for profit growth of 15% in FY19 relative to FY18 suggesting a fair amount of optimism ‘baked into the cake’.

Fertilizer prices are clearly important for IPL, however so too is the currency. A lower AUD is a benefit for IPL while a higher AUD is a headwind. The sensitives here are fairly significant, with a 1c appreciation in the AUD reducing EBIT from their American operation by $3.6m while at the same time reducing their EBIT in Asia by  $7.4m. The AUD has fallen ~10c over the past 12 months providing a tailwind for IPL. I doubt that the FY19 result will have the same assistance! To put these numbers into context, in FY18 IPL achieved EBIT of $556.7M.

Incitec Pivot (ASX:IPL) Chart


No changes to the portfolios today.

Have a great night

James / Harry & the Market Matters Team


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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