Afternoon Report / BOQ kicks off bank reporting (BOQ, ASL)

By Market Matters 11 April 19

BOQ kicks off bank reporting (BOQ, ASL)

Market Matters Afternoon Report 11th April 2019

WHAT MATTERED TODAY

The local market couldn’t replicate the strength seen in the US overnight. There was a switch out of growth names today into more defensives as resources and financials were hit but money was seen moving into telcos and, utilities and REITs. Asian markets were also trading lower as we closed this afternoon. The biggest news out today was Scott Morrison calling the election for 18 May. The market looks to have priced in a Labor win here, and although I wouldn’t be betting against that at this stage, the market has a poor track record of predicting voting outcomes of late.

A few minor pieces of news on the stock level today. Rio Tinto held their AGM in London overnight, and the major shareholder made it clear it doesn’t want to see further buybacks as it would raise their holding over 15%. Expect the company to use special dividends if the cash balance blows out. Zip co (Z1P) set a new all-time high close today at $2.15. Bank of Queensland (BOQ) posted a soft first half while Ausdrill sold some assets – more on these two below.

Overall today, the ASX 200 ended down -24 points, or -0.4%. Dow Futures are trading down -10pts / -0.04%

ASX 200 Chart

ASX 200 Chart

 

CATCHING OUR EYE;

Ausdrill (ASL), +0.3%, announced the sale of its water well drilling business for a $16m fee. The mining services firm was been reviewing its assets and deemed this non-core so away it goes. It was sold to a Vysarn (VYS), which has had shares in a trading halt for nearly 3 years and had no operations until it picked up this asset. Overall, the water welling business wasn’t a large contributor to Ausdrill’s earnings, so it is neither here nor there to the ongoing operations while the proceeds can be used to fund a ramp up in core assets. We own ASL in the platinum portfolio

Ausdrill (ASL) Chart

Bank of Queensland (QLD), -4.89%, was sold off today on a soft 1st half report from the company posted prior to the market open. The regional bank saw profit slip 10% from the same period in 2018, despite growing the loan book by 3%. The net interest margin (NIM) fell 4bps over the 6 months to an extremely tight 1.94% due to rising funding costs and increasing competition. Although they still remain at low levels, bad debts did start to creep higher in the quarter – an area which has helped support bank earnings over the past few years.

The bank will pay a 34cps dividend for the half, about 10% below each of last year’s dividends, and below expectations of 38cps.  It does still trade on a yield of over 7%, grossed up to over 10%. The company guided to a flat second half, likely coming in below current consensus expectations. We own BOQ in the income portfolio

Bank of Queensland (BOQ) Chart

Broker Moves:

  • Asaleo Care Reinstated at Macquarie With Neutral; PT A$0.84
  • InvoCare Downgraded to Hold at Morningstar
  • Sandfire Downgraded to Sell at Morningstar
  • Flight Centre Downgraded to Sell at Morningstar
  • Beach Energy Downgraded to Sell at Morningstar
  • Beach Energy Downgraded to Neutral at Credit Suisse; PT A$2.02
  • Rio Tinto Downgraded to Underperform at Exane
  • Santos Downgraded to Underperform at Credit Suisse; PT A$6.40

OUR CALLS

We sold Sims Metals (SGM) in the platinum portfolio 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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