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Australian Investment Blog

Afternoon Report 04/10/2018

Banks bounce, the local market bucks global weakness (BOQ, AWC)

WHAT MATTERED TODAY

While most markets around the Asian region + US Futures traded lower, the local index performed reasonably well today thanks to a particularly weak Aussie currency. The banks also saw some support after a couple of weak days, while we also saw support across the resources and energy names which pushed the index higher. Interest rate correlated industrials was the weakest sector on the day, Sydney Airports (SYD) & Transurban (TCL) both fell more than -1.5%.

Bank of Queensland (BOQ) was solid today post their full year result. Alumina (AWC) & South 32 (S32) also rallied thanks to Brazil alumina refinery outages – we discuss these two topics below. Elsewhere, mid-cap Collins Foods (CKF) jumped +5.56% following the announcement of a deal with the US based Taco Bell to open stores across Australia. CKF is the largest franchisee of KFC in Australia, and will now add around 50 Taco Bell stores to its portfolio thanks to the deal. Magellan (MFG), a stock we discussed in the AM report today, jumped significantly on the back of a better than expected FUM update and management reshuffle.

Two holdings we have in the Growth portfolio saw some love today. QBE rallied in line with US bond rates and a higher US currency, a common phenomenon for the global insurer – nice to see it breakout through the ~$11.20 resistancem, rising 2.63% today. Telstra (TLS) was also strong, adding 1.25% after consolidating around the $3.20 level for the past few weeks – TLS looks good technically for a crack at $3.50

Overall, the index closed up 30 points or 0.49% today to 6176. Dow Futures are currently trading down -0.47%/127pts, Hang Seng (Hong Kong Futures) are down -2.1%.

ASX 200 Chart

ASX 200 Chart

CATCHING OUR EYE

Broker Moves; A2 Milk was sent lower again today, off -4.31% thanks to a downgrade by Bell Potter which quoted the near term risks to the stock being recent director selling which also follows a miss to expectations in the FY18 result just last month. This is similar reasoning to why we sold.

A2 Milk (A2M) Chart

RATINGS CHANGES:

· A2 Milk Co (A2M AU): A2 Milk Co Downgraded to Hold at Bell Potter

· Genex Power (GNX AU): Rated New Add at Morgans Financial; PT A$0.36

· Magellan Financial (MFG AU): Raised to Outperform at Credit Suisse

· Pact Group (PGH AU): Downgraded to Neutral at Goldman; PT A$4.33

· Primary Health (PRY AU): Raised to Equal-weight at Morgan Stanley; PT A$3.20

· Spark Infrastructure (SKI AU): Reinstated Outperform at RBC; PT A$2.50

Bank of Queensland (BOQ) $11.01 / +2.23%; Bank of Queensland is having a pretty strong session trading up ~3.5% after reporting their full year numbers with an August 31st year end. Numbers were reasonable with a small beat at the profit line. Key to the result was a small increase in the Net Interest Margin (NIM) which expanded 1bp to 199bp in the second half, at a time where most other bank margins are falling + analysts has a slight decline pencilled in for BOQ. The CEO Jon Sutton also spoke to this point, looking for “margin over growth.”

Bank of Queensland (BOQ) Chart

Alumina (AWC) $3.09 / +10.75%; Alumina jumped out of the blocks today, trading as high as +14.7% on the day on the back of further issues to the Alunorte alumina refinery in Brazil. This refinery has already experienced problems this year after the waste dam being used spilled over, causing authorities to enforce a 50% capacity restriction on the refinery which isn’t likely to be lifted for another 12 months. Now the operator, Norsk Hydro, has announced it has shut production, further restricting the alumina and aluminium market forcing prices higher. A clear tailwind here for Alumina (the company) as the alumina (the commodity) market tightens further, already restricted by the capacity restraints on the refinery as well as US sanctions on Russian aluminium producer Rusal.

Alumina (AWC) Chart

OUR CALLS

No changes to the portfolios today.

Have a great night

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

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