Afternoon Report / Aussie stocks show reasonable fortitude (TLS, FMG, APT, S32)

By Market Matters 18 October 18

Aussie stocks show reasonable fortitude (TLS, FMG, APT, S32)

Market Matters Afternoon Report 18th October 2018

WHAT MATTERED TODAY

A pretty robust session on Oz today with the market grinding up from early weakness to finish more or less flat on the day despite weakness throughout Asia plus US Futures traded lower through our time zone – a rare bit of fortitude shown locally thanks mostly to buying in the banking stocks following strong employment numbers out at 11.30am this morning. Unemployment printed 5% v 5.3% expected which is a strong outcome  even though the participation rate ticked lower. Without harping on about this too much, employment is very important for Australian housing and whether or not we see a soft or hard landing. Today’s data is another cog in the wheel that supports the soft landing call while a bearish note out from AMPs chief economist on housing is probably another sign that a hard landing is unlikely!

Australia employment data – out at 11.30am this morning.

Today the ASX 200 closed up +3 points or +0.06% at 5942. Dow Futures are down -78pts/-0.34%  

ASX 200 Chart

ASX 200 Chart

CATCHING OUR EYE

Broker Moves; Super Retail (SUL) was upgraded today by Morgan’s to an Add, which is their equivalent of a BUY. We added this to the Income Portfolio recently, and the stock was up +2.52% today at $9.35

RATINGS CHANGES:

·         Z Energy Downgraded to Neutral at Macquarie; PT NZ$7

·         Steel & Tube Downgraded to Underperform at Macquarie; PT NZ$1.20

·         Reject Shop Downgraded to Neutral at Goldman

·         Insurance Australia Raised to Outperform at Credit Suisse

·         Treasury Wine Upgraded to Neutral at Credit Suisse; PT A$16.45

·         Super Retail Upgraded to Add at Morgan’s Financial; PT A$10.44

Money stocks; Afterpay (APT) rebounded +14.1% today while Z1P added +3.76% recovering some of yesterday’s decline following the SMH article that said a Senate Enquiry into the sector was likely. APT and Z1P came out on the front foot today + they had the support of some analysts with Bells who are big on Afterpay saying that… We consider ASIC’s review as the bigger concern, not the Parliamentary Senate Enquiry. We see the current short-term sell-off as a Buying opportunity, as we do not consider the space in the same vain as Pay Day Lending.

Shaw’s is a bigger supporter of Z1P and they wrote… Z1P are well prepared for any review/inquiry and in Shaw and Partners’ view, offer ‘best-in-class’ transparency, systems, checks and ethical behaviour (Z1P are very strong advocates of consumer protection – after all, a sustainable and recurring business and revenue model is critical). It is also an opportune time for Z1P to again clearly enunciate its differentiated offering in the market and why it shouldn’t be lumped in with the aforementioned players (APT, FXL, etc).

Afterpay (APT) Chart

 

Fortescue (FMG) $3.97 / 4.47%: FMG is now threatening to break $4.00 and a break of that resistance seems likely. Long Iron Ore v short Energy seems a play at the moment as the price of Crude unwinds. This could also be played through BUY RIO, SELL BHP as a pairs trade.

Fortescue Metals (FMG) Chart

 

Telstra (TLS) 3.16 / +3.27%; A good session for the much hated Telco today with some talking up the prospect of TLS buying the NBN resulting in the reinstatement of Telstra's fixed line monopoly. As we suggested yesterday, back to the future for the Telco! From the Age today… Two sets of comments this week, from Telstra chairman John Mullen and Labor's shadow minister for communications, Michelle  Rowland, illustrate how the preconditions for a restructuring of the fixed line segment of the telecommunications sector are  starting to form. It was apparent from the moment Telstra chief executive Andy Penn unveiled his "T22'' strategy earlier this year that Telstra is positioning itself for an acquisition of NBN Co once the national broadband network rollout is completed. Source The Age

That of course would come at massive cost to the tax payer and I can’t help but think about Kerry Packers response to a parliamentary enquiry back in 1991… "I'm not evading tax in any way shape or form. Of course I'm minimising my tax. If anybody in this country doesn't minimise their tax they want their head read. As a government I can tell you you're not spending it that well that we should be paying extra."  Never a truer line spoken!

Telstra (TLS) Chart

South 32 (S32) $3.85 / +0.79%; the diversified miner rounded out quarterlies for the three biggest miners today which came with few surprises, reiterating full year guidance across the deck of operations. Coal was likely the focus in the release as the market was keen to see how labour issues in the previous quarter had impacted ongoing production, but the figure was strong with both mines running at full tilt for the quarter. 

The annualized met coal rate shapes up to be 7.6mt vs guidance of 5.8mt, although with maintenance planned the company didn’t upgrade guidance here. The company also noted a slight discount to the price received for alumina, and expects the discount to continue with maintenance impacting the output quality. All-in-all, nothing to write home about but also nothing really to worry the market either

South 32 (S32) Chart

 

OUR CALLS

No changes in the MM 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.

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