Afternoon Report / Broad based buying today – aggressive in patches! (SEK, TLS, APX)

By Market Matters 27 November 18

Broad based buying today – aggressive in patches! (SEK, TLS, APX)

Market Matters Afternoon Report 27th November 2018

WHAT MATTERED TODAY

A good session for Aussie stocks today although it was choppy in the morning despite  the strong overnight leads. More news around Trump adding tariffs to China, including a 10% tariff on Apple phones!! prompted some jitters early on however a low at midday held and the market rallied +58points from 5670 to close at 5728 – a strong move underpinned by good  buying in the likes of Challenger Group (ASX:CGF) which saw high volume buying without any major news flow underpinning it, a bullish sign while Telstra (ASX:TLS) added +2.79% to close at $2.95.

The Banks were also in the winner’s circle with the group adding 16 index points to the ASX 200 – ANZ the best of the bunch up +2.08% on the day with the market clearly starting to fixate on their strong (future) capital position. Appen (ASX:APX) was the best of the tech names we now own, adding +4.96% however it was up more than 8% at its peak thanks to a UBS upgrade.  

I had a quick chat with Harry this morning about the Christmas rally plus our current view on resources & banks…click to view

Overall, the ASX 200 closed up +56 points or +1% to 5728. Dow Futures are currently down  -40 points or -0.01%.

ASX 200 Chart

ASX 200 Chart

CATCHING OUR EYE;

Trump Posturing; Lots of news circulating around the market today regarding Trumps posturing ahead of the G-20 summit later in the week where Trump and Chinese President Xi Jinping will look to do a deal over trade. Looking into the crystal ball we see Trump coming out before trade starts next week with a ‘phenomenal’ deal for the US with Xi Jinping a great friend and exceptional person! Seems the market is coming around to that thinking as well with Aussie stocks seeing  strong support into the close.

Earlier in the day news was out that the U.S was prepared to impose tariffs on all remaining imports from China if they couldn’t come to an agreement at the G-20. So far, the U.S. hasn’t put tariffs on many consumer goods like mobile phones, laptops, storage devices, toys, and some clothes. Bloomberg is saying that will change if no agreement is reached…with the following list given as targets.  

The G-20 Summit started with finance meetings yesterday with the Leader’s Summit taking place on the 30th Nov to 1st December (i.e this Friday and Saturday). News flow will be interesting over the weekend.

Broker Moves;  We’ve had a fair amount of commentary around Nufarm (ASX:NUF) in our Monday missives…with some very helpful insight from subscribers that deal with the company. Today Credit Suisse, had some positive words to write about NUF saying… Nufarm’s omega-3 canola will be a “company transforming opportunity” with first commercial output expected in 2019. The development offers positives including scope for market growth, constrained supply, limited alternatives cost of production advantage and patent protection (source – Credit Suisse)

RATINGS CHANGES:

·         Appen Upgraded to Buy at UBS; PT A$16 – stock rallied +6% today

·         Integral Diagnostics Rated New Positive at Evans and Partners

·         Coles Group Rated New Sell at UBS; PT A$11.90

·         Sims Metal Upgraded to Hold at Morningstar

·         oOh!media Upgraded to Buy at Morningstar

·         Whitehaven Upgraded to Hold at Morningstar

·         Charter Hall Retail Downgraded to Sell at Morningstar

·         Oil Search Upgraded to Overweight at JPMorgan; PT A$8.65

·         Santos Upgraded to Overweight at JPMorgan; PT A$7.10

Appen (ASX: APX) Chart

Telstra (ASX: TLS) $2.95 / +2.79%; the big telco turned a soft morning’s trade into one of its best in recent weeks to add nearly 3%, knocking off some of its recent weakness. The stock has been soft lately, even during the bounce in the market thanks to an ACCC ruling on the company’s copper network. ACCC has long held Telstra to a set price the company can charge other telecommunication retailers for using their national copper network. The market had held the view that this restriction would be either relaxed or lifted as the network becomes obsolete with the NBN being constructed, and the network loses its monopoly status. There is still a portion of the population yet to be connected to the NBN, and even by 2024, ~8% of Australians, mostly in rural areas, will still rely on this network.

With the limitations still in place over Telstra’s copper line pricing, Telstra’s ability to lift profits remain constrained. However, as the company noted, with the extension of ACCC’s declaration, we will have to wait until early 2019 to see if they do raise the chargeable price. We own Telstra, and like it from these levels.

Telstra (ASX: TLS) Chart

 

Seek Limited (ASX: SEK) $18.55 / +1.59%; The online jobs platform outperformed the broader market today in a case of no news is good news for the stock. The company held their AGM today, and there were no skeletons in the presentation closet helping the stock move higher. SEEK said that revenue growth is on track to improve by 16% to 20% this financial year compared to FY18, while underlying earnings before interest, tax, depreciation and amortisation (EBITDA) is tipped to grow between 5% and 8% over the period.

Our largest job-seeking website is also investing heavily to drive future growth but that will come at the expense of near-term profitability with underlying net profit expected to stay flat in FY19 despite the healthy top-line increase. That could disappoint some as online platforms are supposed to be highly scalable – meaning a small increase in sales should translate to a bigger increase in net profit due to high fixed costs. It’s hard to really like Seek here, near the top of the labour market and still pushing a expense ramp up story. There are other growth names we prefer – see recent activity for an idea.

SEEK Limited (ASX: SEK) Chart

 

OUR CALLS

No changes today – we’re looking to increase resource holdings overall into weakness

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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