15 January 21
Stocks taper off into the weekend, IT & Materials remains firm, Have a great weekend all
15 January 21
Stocks taper off into the weekend, IT & Materials remains firm, Have a great weekend all
15 January 21
3 stocks approaching our long dated “Buy Zones” (XRO, Z1P, CTD, A2M, CSL)
14 January 21
Afterpay leads ASX higher, Financials remain firm (APT, WHC)
14 January 21
Could the Telco’s be the surprise package of 2021? (WHC, AMZN US, TLS, VOC, TPG)
13 January 21
ASX edges higher, Energy the standout (again), dogs Crown & Telstra actually look good (PMV, BPT, CWN, TLS)
13 January 21
Income Note: Reviewing the MM Income Portfolio against our key macro calls (NABHA, CLW, TCL, SUL)
13 January 21
Has Gold et al become simply too hard? (TSLA US, RRL, NCM, EVN, NST)
12 January 21
ASX soft again, Financials rally, Outdoor adventure retailers shine (ALU, SLU, ARB)
11 January 21
ASX grinds lower as we ease into another year, Energy up, Gold down (WPL, PTM)
11 January 21
Market Matters 2021 Outlook Report including our major forecasts for the year ahead (BHP, OZL, CBA, XRO, RIO, MND, VUK)
The ASX200 ended Wednesday like the rest of the week, giving back early gains although this time the selling continued unabated all day leaving the index down over -0.5% by the final bell. Less than 30% of the ASX200 closed up with notable losses in the high valuation IT sector which we will cover today while the large cap resource stocks, and previously out of favour fund managers, enjoyed solid gains on a day when red dominated screens. No surprise to MM who remain bullish cyclicals like banks / resources and bearish growth / defensives e.g. The IT and Healthcare Sectors.
One sector of the market we haven’t looked too closely at within the cyclical group is the Energy Sector, the MM Growth Portfolio has some exposure via BHP while in the Income Portfolio we hold Woodside Petroleum (WPL) – is the enough considering our current views? The US energy sector has generated technical buy signals unlike our own but we are getting very close, after further inspection MM feels any increase to its resources position may come via the Energy Sector, well take a closer look in future report.
Technically when the ASX continues to close towards its intra-day lows it’s often a precursor for a more aggressive move to the downside, our initial target is again the 6600 area. One of our favourite sayings at MM is a market which cannot rally on good news is a weak / bearish market, the US S&P500 has made fresh all-time highs all week yet we closed over 3% below Julys high, not an encouraging sign.
Short-term MM remains neutral the ASX200 with a downside bias – 6600 is again looming fast.
Overnight global stocks were firm led by Europe where the EuroStoxx climbed 0.3%, the ASX looks poised to open up a similar amount today.
This morning MM has looked at the almost panic like selling that’s rolling through the Australian IT sector with one eye as always on when may value present itself, its relatively easy to write an interesting piece on the whys and wherefores but it’s the levels that we should consider putting our hard earned $$ to work that matters the most.
Yesterday MM reduced our holding in Costa Group (CGC) from 7.2% to 5%. The 7.2% weighting included the renounceable rights we have to buy more stocks at $2.20 per share. It’s important that subscribers understand this was more of an exercise in money management than any increase of concern with this position i.e. given we plan to take up new shares through the raise at $2.20 we felt our position was simply a touch too large.
Just a reminder, the rights are to buy 1 new share for every 4 we held as at the record date of the 31st October. Information on this entitlement was sent to retail shareholders yesterday.
MM remains comfortable with our lower 5% holding in CGC.
Costa Group (CGC) Chart
Our second alert yesterday was frustrating, initially we tried to buy Pendal Group (PDL) at $7.75 and then at $8, both to no avail – it looks like our bullish comments in the last morning report were on the money. The question this morning is where or do we chase it higher following yesterday’s 10% advance. We still want to be long this stocks and believe that yesterday’s result was enough to see the stock commence a re-rate , they still experienced outflows of $4.7bn, profits were down 24% and performance fees fell almost 90% following its severing of ties with Westpac, a good platform going forward but arguably not one to chase too aggressively right now.
The previous BT is an active manager who’ve had a tough few years but with sector rotation coming back into vogue and BREXIT feeling close to a resolution we feel PDL is well positioned moving forward, however we are maintaining discipline with an $8 limit price on our buy call.
MM remains bullish PDL initially targeting ~15 to 20% upside.
Pendal Group (PDL) Chart
**NAB Result – has just reported full year results with underlying cash earnings coming in line with market expectations. No capital raise (other than underwriting their DRP) and interestingly underlying income was up 1.1% while costs increased by 0.4%, which is good relative to what we saw from WBC and ANZ - this is known as positive Jaws. Dividend was maintained at 83c as was expected. All in all, holding up well in a tough environment.**
WAAAX stocks remain under pressure
The Australian IT stocks had became so popular in recent times that the dominant players were named the WAAAX stocks i.e. Wisetech (WTC), Appen (APX), Altium (ALU), Afterpay Touch (APT) and Xero (XRO). While these are all exciting companies with great prospects and we should applaud them for the success they’ve had, we simply saw valuations become too high. P/E’s are not as relevant here given the companies are in growth mode however using Altium as an example, this is a $4.2bn producing revenue of ~$200m, a multiple of 20x sales. I’m a happy seller of most businesses on that metric, my own included!
However, when momentum traders and FOMO (Fear of Missing Out) is dominating proceedings stocks tend to run much further than common sense would usually dictate. Suddenly now I’m reading numerous reports around the “WAAAX off” theme but at MM we would rather stand back and say “great we’ve avoided the current carnage but where could panic selling create opportunities”.
The growth stocks have thoroughly enjoyed the economic tailwind of falling bond yields (interest rates) but since they’ve plateaued in September the sector buyers appear to have vanished on mass. Also the improvement in trade relations between the US & China has led to some definite rotation back into the value stocks, considering there has been many years of outperformance by the growth stocks common sense suggests that far more than a few weeks rotation is ahead of us.
Technically we remain short-term bearish with an initial target ~5% lower but if we return to the sectors medium-term rhythm we could return to the late 2018 lows, almost 20% lower – caution is warranted even after the current 10% pullback.
MM remains bearish the Australian IT Sector.
ASX200 Software & Services Index Chart
Interestingly the correction by our IT stocks has not been accompanied by the US NASDAQ which has continued to make fresh all-time highs. However when we stand back and compare the 2 groups we see far more quality and proven track records in the US group e.g. Apple (AAPL US), Microsoft (MSFT US), Amazon (AMZN US) and Facebook (FB US). In the past 6-months we’ve said we like the US tech space to outperform our own and we stick with this opinion into 2020.
ASX200 Software & Services Index v NASDAQ Chart
Moving onto the 5 stocks within the named WAAAX group:
1 Wisetech Global (WTC) $26.09
Global provider of cloud-based software solutions for the logistics sector WTC has been hammered over 35% since being on the receiving end of a damning report from Hong Kong hedge fund J Capital which basically called WTC a big sell with allegations around inflated profits – the report was well written and investors have clearly listened. This was a stock priced for perfection, not question makes over its accounting practices.
We can see a trading opportunity around $23.50 but only for the aggressive player, to us it’s simply in the too hard basket.
MM is neutral / bearish WTC at current levels.
Wisetech Global (WTC) Chart
2 Appen Ltd (APX) $19.96
APX is a global leader in the machine learning & artificial intelligence space but its shares have tumbled well over -35% from their 2019 highs as the stock demonstrates that crazy valuations usually come down to earth at some point. APX has more foundation to it in terms of earnings and their customer base has proven to be very sticky which doesn’t seem to be the case with WTC. That suggests their products have real competitive advantage.
APX is trading on a P/E for 2019 of ~40x – lofty but when anchored to expected earnings growth of ~30% over the next couple of years this is a business we are more comfortable with.
MM is growing more positive on APX below $20
Appen Ltd (APX) Chart
3 Altium Ltd (ALU) $31.34
ALU develops electronic PCB software, including design automation (EDA) software for the Microsoft Windows operating system, the company believes they can continue to grow until 2025 with a target then of ~$US500m revenue. China is a growth area for ALU hence the trade wars haven’t helped the stock but in a world where technology growth appears almost guaranteed ALU’s goals appear realistic.
The stock is very expensive on traditional metrics trading on an estimated P/E for 2020 of 46.5x however their Altium 365 product is cutting edge and this should underpin future growth. The current almost 20% pullback could become a major opportunity if the negativity towards the sector gathers momentum as we believe it will.
MM likes ALU around $28-$29.
Altium Ltd (ALU) Chart
4 Afterpay Touch (APT) $25.94
Afterpay APT is a story we haven’t fully embraced at MM which has looked daft at times but today its nice to have avoided the current 30% correction. Broking powerhouse UBS recently dropped a bomb on APT’s share price citing concerns around competition in the US, an area of intended huge expansion for the buy now pay later operator.
UBS has a target for APT of $17.25, still over 30% lower and with the stock trading on a P/E for 2020 of 665x!! there’s certainly plenty of room for a correction on valuation grounds. At this stage, we think 2020 will be a year characterised by higher competition and higher regulatory scrutiny.
MM can see APT again testing the $20 area.
Afterpay Touch (APT) Chart
5 Xero Ltd (XRO) $67.50
Lastly XRO which has just reported 1H20 results this morning booking subscriber growth of 30% and revenue growth of 32% - these numbers look strong with market expectations for around 25% subscriber growth - importantly, they also booked free cash flow of $4.8m. They surpassed 2m subscribers which is a few more than MM at this stage - this is a real milestone for the business. Interestingly, it took them ~10 years to get their first 1m and only 2.5 years to get their 2nd showing the power of the platform and their distribution strategy.
This is clearly a great business which has enjoyed 2019 to date. Today should have another solid day today however ultimately we believe it’s too rich at current levels. We are looking for a pullback with a simple mild valuation rerating by the sector.
We feel patience should reward those in XRO at some point.
MM likes XRO around $57.
Xero Ltd (XRO) Chart
MM sees at least another 5% downside for the Australian IT sector and potentially 20%.
At this stage the stocks we are keenest on are APX & ALU, while we could buy XRO around $57.
No change, we had given the benefit of the doubt to the post GFC bull market and fresh all-time highs have been achieved as anticipated but major resistance is now being tested reverting us to a neutral stance. A break below 3000 is required to switch us to a bearish short-term stance, still over 1% away.
MM is now neutral US stocks.
US S&P500 Index Chart
European indices continue to “climb a wall of worry” at this point in time MM is neutral but we maintain our slight positive bias.
Euro Stoxx50 Chart
Overnight Market Matters Wrap
Have a great day!
James & the Market Matters Team
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.
All figures contained from sources believed to be accurate. All prices stated are based on the last close price at the time of writing unless otherwise noted. Market Matters does not make any representation of warranty as to the accuracy of the figures or prices and disclaims any liability resulting from any inaccuracy.
Reports and other documents published on this website and email (‘Reports’) are authored by Market Matters and the reports represent the views of Market Matters. The Market Matters Report is based on technical analysis of companies, commodities and the market in general. Technical analysis focuses on interpreting charts and other data to determine what the market sentiment about a particular financial product is, or will be. Unlike fundamental analysis, it does not involve a detailed review of the company’s financial position.
The Reports contain general, as opposed to personal, advice. That means they are prepared for multiple distributions without consideration of your investment objectives, financial situation and needs (‘Personal Circumstances’). Accordingly, any advice given is not a recommendation that a particular course of action is suitable for you and the advice is therefore not to be acted on as investment advice. You must assess whether or not any advice is appropriate for your Personal Circumstances before making any investment decisions. You can either make this assessment yourself, or if you require a personal recommendation, you can seek the assistance of a financial advisor. Market Matters or its author(s) accepts no responsibility for any losses or damages resulting from decisions made from or because of information within this publication. Investing and trading in financial products are always risky, so you should do your own research before buying or selling a financial product.
The Reports are published by Market Matters in good faith based on the facts known to it at the time of their preparation and do not purport to contain all relevant information with respect to the financial products to which they relate. Although the Reports are based on information obtained from sources believed to be reliable, Market Matters does not make any representation or warranty that they are accurate, complete or up to date and Market Matters accepts no obligation to correct or update the information or opinions in the Reports. Market Matters may publish content sourced from external content providers.
If you rely on a Report, you do so at your own risk. Past performance is not an indication of future performance. Any projections are estimates only and may not be realised in the future. Except to the extent that liability under any law cannot be excluded, Market Matters disclaims liability for all loss or damage arising as a result of any opinion, advice, recommendation, representation or information expressly or impliedly published in or in relation to this report notwithstanding any error or omission including negligence.
Financial Services Guide
Date prepared: Wednesday, 22 November 2017
Last update: Friday, 25th October 2019
About this Financial Services Guide (FSG)
This FSG provides you with key information about a range of subscription services offered by:
Marketmatters Pty Ltd (Market Matters) Australian Financial Services Licence No. 488798 ABN (20 137 462 536)
Level 29, Chifley Tower, 2 Chifley Square Sydney 2000
T: 1300 301 868
E: [email protected]
In this FSG, “we”, us” and “our” refer to Market Matters.
Market Matters holds Australian Financial Services Licence No. 488798 (AFSL) and is responsible for any financial services that we provide to you.
This AFSL was issued on 8th September 2016.
The purpose of this FSG is to provide you with information about:
Market Matters operates a website, www.marketmatters.com.au (Website), where customers may, for the payment of a subscription fee, access certain financial information and general advice. In particular, the Website provides:
This FSG relates only to the Website Services.
What financial services we can offer in connection with the Website Services
As holder of AFSL number 488798, in connection with the Website Services we are authorised to provide general financial product advice to both retail and wholesale clients in relation to the following financial products:
The Website Services are comprised of general advice only. That is, none of the advice given on the Website or by provision of the Website Services takes into account any of your objectives, financial situation or needs (Your Personal Circumstances). Before acting on any of the information, advice or Website Services, you must consider the appropriateness of this information in light of Your Personal Circumstances and, if necessary, consult a financial adviser before making any investment decision.
If you are seeking to acquire a specific financial product or security, you should obtain a copy of and consider the Product Disclosure Statement or Prospectus for that product before making any investment decision.
The Website does not provide a trading platform or access to a trading platform. There is no ability to purchase or sell financial products through the Website.
How do I access these services?
You can access these services by going to www.marketmatters.com.au and following the prompts and steps required to sign up for membership. Please read all terms and conditions carefully.
Fees and benefits payable to us and our associates
The Website is a subscription-based service. A yearly fixed subscription fee is payable to Market Matters when you subscribe to the Website which will vary depending on the type of subscription for which you subscribe. At the date of this FSG, the yearly subscription fees are as follows:
Platinum: $1,238 for 12 months
Platinum: $1,993 for 24 months
Subscription fees vary from time to time and are provided on the Website.
The Website does not currently feature third party advertising. Market Matters reserve the right to advertise at a future time for which they may receive remuneration. Any such advertising will be independent of any other content on the Website.
All representatives of Market Matters (Market Matters Staff) receive a salary paid by Market Matters. Market Matters Staff may also receive performance-based bonuses which are based on profitability, the number of subscribers and subscription renewal rates.
Where we refer you to a third party financial services provider, we may receive a referral payment. This referral payment may be a percentage of the fee’s charged by the financial services provider between 0% and 25%, or a fixed amount. These referral payments are made by the financial services provider to Market Matters and are not an additional cost to you.
How do we manage potential conflicts of interest?
Market Matters have implemented policies and procedures to mitigate the risk of conflicts of interest. These include:
Market Matters Staff and Contributors are encouraged to express independent views and opinions on the topics they write about. This is established through ongoing training, external audits and our conflict of interest and staff trading policies. Market Matters Staff are required to serve the best interests of the subscribers, without consideration of any commercial or personal interests.
How is my personal information dealt with?
If you have a complaint about our services, you should take the following steps:
Contact us and discuss the complaint directly. If you do not feel comfortable discussing the complaint with us or your complaint is not satisfactorily resolved within 2 business days, please telephone Market Matters, on 1300 301 868 and ask to speak with the Complaints Officer. We suggest you put your complaint in writing at this time so that the issues are fully documented and understood by the parties. Your complaint should be addressed to:
The Complaints Officer
Level 29, Chifley Tower,
2 Chifley Square Sydney NSW 2000
Market Matters will review your complaint within 45 days and attempt resolution. If you are still not satisfied with the outcome, you may take your complaint to an external dispute resolution scheme. Market Matters is a member of the scheme operated by the Financial Ombudsman Service. You should write to:Australian Financial Complaints Authority Limited (AFCA)
You may also wish to consult ASIC in relation to your complaint. ASIC’s website contains information on complaining about companies and people and describes the types of complaints handled by ASIC. You can contact ASIC on its free call infoline:
Tel: 1300 300 630 or email [email protected]
We maintain professional indemnity insurance to cover our employees and Authorised Representatives (including us) for the financial services they provide, having regard to the following:
If you require further information about these compensation arrangements please contact us.
Terms and Conditions
This website, www.marketmatters.com.au, is published by Marketmatters Pty Limited (ABN 20 137 462 536) ('Market Matters', 'MM', 'us', 'we', 'our') Australian Financial Services Licence 488798
Financial Services Guide
Market Matters Financial Services Guide (FSG) is located here, and contains important information about the financial services provided by Market Matters. You must read our FSG and consider it in the context of your Personal Circumstances before acting on any advice. By accepting the terms and conditions you are acknowledging that you have read the FSG.
Provision of the Reports
Reports and other documents published on the Market Matter’s website (‘Reports’) are authored by Market Matters. The Reports represent the views of Market Matters based on technical analysis of companies, commodities and the market in general. Technical analysis focuses on interpreting charts and other data to determine what the market sentiment about a particular financial product is, or will be. Unlike fundamental analysis, it does not involve a detailed review of the company’s financial position.
The Reports contain general, as opposed to personal advice. That means they are prepared for multiple distribution without consideration of your investment objectives, financial situation and needs (‘Personal Circumstances’). Accordingly, any advice given is not a recommendation that a particular course of action is suitable for you and the advice is therefore not to be acted on as investment advice. You must assess whether or not any advice is appropriate for your Personal Circumstances before making any investment decisions. You can either make this assessment yourself, or if you require a personal recommendation, you can seek the assistance of a financial advisor.
The Reports are published by Market Matters in good faith based on the facts known to it at the time of their preparation and do not purport to contain all relevant information with respect to the financial products to which they relate. Although the Reports are based on information obtained from sources believed to be reliable, Market Matters does not make any representation or warranty that they are accurate, complete or up to date and Market Matters accepts no obligation to correct or update the information or opinions in the Reports.
If you rely on a Report, you do so at your own risk. Any projections are estimates only and may not be realised in the future. Except to the extent that liability under any law cannot be excluded, Market Matters disclaims liability for all loss or damage arising as a result of any opinion, advice, recommendation, representation or information expressly or impliedly published in or in relation to this report notwithstanding any error or omission including negligence.
Past performance is not a reliable indicator of future results. Brokerage costs have not been included in the calculation of performance. As financial products rise and fall in value, returns may be negative. Performance figures are not intended to be a forecast. Market Matters does not guarantee the performance of or returns on any investment.
Employees and/or associates of Market Matters may hold one or more of the stocks reviewed on this website.
Subscriptions and Subscription Prices
To access premium content available on the Market Matters website you may initially subscribe through the complimentary trial which provides you full access to all services for the trial period. You are limited to two trials after which you must subscribe to one or more membership categories available on the website or direct with Market Matters before you can trial the service again, three months after the expiry of your second trial.
To subscribe to Market Matters services and access to the website you may go to the Memberships page of the website, provide the information marked as ‘Mandatory’ and select the payment option for the price quoted (at the time of your transaction) or contact the team directly at Market Matters by phone or email. You will then receive a verification email from Market Matters indicating that your subscription and payment have been accepted and you will be able to access the premium content.
Prices published on the Market Matters website are quoted in Australian Dollars (AUD) and are inclusive of GST and/or all other duties and taxes. Market Matters has used reasonable endeavours to ensure that prices for subscription to its services are published accurately on the website but these prices are subject to change and Market Matters reserves the right to change these prices and will notify you of any increase by email (with the price increase to apply from the time the next payment is due).
Marketmatters Pty Ltd (ABN 20 137 462 536) will issue a tax invoice to paying subscribers in relation to any supply that is subject to GST in accordance with A New Tax System (Goods and Services Tax) Act 1999.
Any member is entitled to cancel their membership at any time. In the event a member does wish to cancel their subscription, cancellations must be notified in writing to:
Level 29, Chifley Tower, 2 Chifley Square, Sydney NSW 2000
or by email to: [email protected]
All cancellations of month-by-month subscriptions will be cancelled and not billed again the following month.
All cancellations within 14 days we be entitled to a full refund. Any introductory gifts, such as, but not limited to; iPads, Fitbit watches, Apple watches, Google Homes, must be returned in their original condition before a refund will be made.
All cancellations made after 14 days of subscription commencement will not be entitled to a refund unless in the event of extenuating circumstances, at the sole discretion of Market Matters.
Subscriptions will automatically renew on the expiry date of current subscription. In these instances the subscription will be renewed at the current rate published on the Market Matters web site, using the same credit card that paid for the initial subscription, unless otherwise requested by the subscriber. A subscriber who wishes to cancel after being renewed in this way will have a “14 day cooling off period” in which they can request to discontinue and will receive a full refund for the renewal payment, this can be done in writing to:
Level 29, Chifley Tower, 2 Chifley Square Sydney 2000
or by email to: [email protected]
Market Matters has not reviewed any of the websites which link to this website or to which this website links. Market Matters is not responsible for the content of any other website or pages linked to or linking to its website. Following links to any other websites or pages shall be at the user’s own risk.
Copyright © 2018 Marketmatters Pty Ltd (ABN 20 137 462 536). No part of this website, or its content, may be reproduced in any form without the prior consent of Market Matters.
This Agreement is governed by and is to be construed in accordance with the laws of New South Wales, Australia. You agree to the non-exclusive jurisdiction of the courts of New South Wales, Australia in respect of any proceedings concerning this Agreement. This website is not available to US and/or EU persons and by accepting these terms you confirm that you are not a US and/or EU person.