Afternoon Report / Growth again leads ASX higher (ALL, BIN, APT)

By Market Matters 29 November 18

Growth again leads ASX higher (ALL, BIN, APT)

Market Matters Afternoon Report 29th November 2018

WHAT MATTERED TODAY

A strong night in the US thanks to comments from the Fed Chair insinuating interest rates were approaching neutral, or in other words – lower for longer. As we showed in the income note yesterday, the market is applying a nearly 80% probability of a hike in December, however it seems given the recent trends around inflation thanks to a weak Oil price and overnight rhetoric from the Fed, that implied probability is high. Less interest rate hikes are a positive for the market and we saw that play out overnight and to a lesser degree on our market today.

We opened firm this morning however peaked around 11am and tracked lower into the close. The last hour was choppy given stock options expiry today – Alex who focusses on our insto flow put in the hard yards this afternoon!!  

Aristocrat (ASX:ALL) a stock we hold in the Platinum Portfolio was weak today, down -2.57% after missing earnings expectations for FY18 – more on that below although buying came into weakness and we still like the stock, while some the growth names we’ve added recently were strong, Altium (ALU) the best of them adding +8.59% to close at $23.00 while Xero (ASX:XRO) added +3.05% to close at $40.56

Overall, the ASX 200 closed up +33 points or +0.58% to 5758. Dow Futures are currently down  -40 points or -0.22%.

ASX 200 Chart

ASX 200 Chart

 

CATCHING OUR EYE;

Broker Moves;  Laf from Bells – the big bull on AfterPay (ASX:APT) wrote -- Rapid increase in customers in the U.S, with the growth rate outpacing Australia & New Zealand, as well as a regulator review into the sector being as expected are both seen as positive developments for Afterpay – he upgraded his PT today to $23.63 versus todays close of $13.87.

RATINGS CHANGES:

·         Tower Rated New Outperform at Macquarie; PT NZ$0.90

·         Aurelia Rated New Outperform at Macquarie; PT A$0.90

·         oOh!media Downgraded to Hold at Morningstar

·         Coronado Global GDRs Rated New Outperform at Credit Suisse

·         Coronado Global GDRs Rated New Buy at Goldman

·         Coles Group Rated New Neutral at JPMorgan; PT A$13.25

·         Wesfarmers Downgraded to Underweight at JPMorgan; PT A$29

·         Link Administration Raised to Outperform at Credit Suisse

·         Xanadu Mines Reinstated Speculative Buy at Bell Potter

Afterpay (APT) Chart

 

Bingo Industries (ASX: BIN) $2.15 / -5.29%; The Waste Management business has taken another hit today, trading down nearly 6% after the ACCC voiced concerns over its proposed takeover of Dial-a-Dump. Specifically, they said "Our preliminary view is that the acquisition would remove Bingo’s most substantial competitor for B&D waste processing, particularly in the Eastern Suburbs and inner Sydney. Although alternative facilities exist, our current view is that many are not viable alternatives as they either will not accept third party mixed B&D waste, charge significantly more for heavy loads, or are too far away to constrain Bingo from increasing prices. The acquisition would remove future competition between Bingo’s and Dial-a-Dump’s dry landfills, which may lead to higher gate fees than would be likely without the acquisition.”

As you can imagine, the company strongly disagrees with the decision however unfortunately (for them) their interpretation is less influential than that of the ACCC. While this is a blow, the actual decision is not scheduled until the 21st February 2019. The Bingo share price has been weak for some time, trading from $3.28 in August to a low today of $1.965 – a 40% decline. BIN raised $425m in new capital in August on the expectation the deal would be done, however it seems the market ‘sniffed out’ the ACCC’s reservations and sold ahead of the latest news. We like BIN into this ‘blow off’ low as the move to appease the regulator ahead of the final decision in February now commences.  

Bingo (ASX: BIN) Chart

 

Aristocrat Leisure (ASX: ALL) $25.44 / -2.57%; the gaming company Aristocrat is trading lower today following a less than impressive full year result announced this morning. Full year profit growth of 34% to $730m was below the markets expectations of $757.8m with the miss attributed to rising costs. The uplift in profits was also supported by acquisitions of Big Fish & Plarium for a total close to $2b.

Design & development was the biggest driver of increased costs, jumping over 50% to be 11.4% of total revenue. The poker machine maker doesn’t plan to stop its spending there, with the company flagging further investment to acquire more users. We like Aristocrat and although the result is slightly soft, we see upside on the back of it. Costs can be stripped however there is clearly an opportunity to outpace cost increases with revenue generation which the company is doing a good job off. The market also turned less negative, with the stock rallying throughout the afternoon. We own ALL in the Platinum Portfolio.

Aristocrat Leisure (ASX: ALL)Chart

OUR CALLS

No changes 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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