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

WHAT MATTERED TODAY

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

 

CATCHING OUR EYE;

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

OUR CALLS

No changes to the portfolios 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.

Disclaimer

All figures contained from sources believed to be accurate.  Market Matters does not make any representation of warranty as to the accuracy of the figures and disclaims any liability resulting from any inaccuracy.  Prices as at 13/11/2018

Reports and other documents published on this website and email (‘Reports’) are authored by Market Matters and the reports represent the views of Market Matters. The MarketMatters Report is based on technical analysis of companies, commodities and the market in general. Technical analysis focuses on interpreting charts and other data to determine what the market sentiment about a particular financial product is, or will be. Unlike fundamental analysis, it does not involve a detailed review of the company’s financial position.

The Reports contain general, as opposed to personal, advice. That means they are prepared for multiple distributions without consideration of your investment objectives, financial situation and needs (‘Personal Circumstances’). Accordingly, any advice given is not a recommendation that a particular course of action is suitable for you and the advice is therefore not to be acted on as investment advice. You must assess whether or not any advice is appropriate for your Personal Circumstances before making any investment decisions. You can either make this assessment yourself, or if you require a personal recommendation, you can seek the assistance of a financial advisor.  Market Matters or its author(s) accepts no responsibility for any losses or damages resulting from decisions made from or because of information within this publication. Investing and trading in financial products are always risky, so you should do your own research before buying or selling a financial product.

The Reports are published by Market Matters in good faith based on the facts known to it at the time of their preparation and do not purport to contain all relevant information with respect to the financial products to which they relate. Although the Reports are based on information obtained from sources believed to be reliable, Market Matters does not make any representation or warranty that they are accurate, complete or up to date and Market Matters accepts no obligation to correct or update the information or opinions in the Reports. Market Matters may publish content sourced from external content providers.

If you rely on a Report, you do so at your own risk. Past performance is not an indication of future performance. Any projections are estimates only and may not be realised in the future. Except to the extent that liability under any law cannot be excluded, Market Matters disclaims liability for all loss or damage arising as a result of any opinion, advice, recommendation, representation or information expressly or impliedly published in or in relation to this report notwithstanding any error or omission including negligence.