25 March 19
Subscribers questions (BBOZ, HUB, PPS, ECX)
25 March 19
Subscribers questions (BBOZ, HUB, PPS, ECX)
24 March 19
Market Matters Weekend Report Sunday 24th March 2019
22 March 19
Some of the ‘dogs’ starting to run (PMV, SGM)
22 March 19
Are there opportunities after the huge macro news of the last 24-hours (EHE, PGH, TLS, SYD, QBE, CBA)
21 March 19
Employment remains strong, although analysts not convinced (PGH, ECX)
21 March 19
Do we catch any of these the falling knives? (HLS, BIN, ECX, PTM, NUF, ELD, GEM,
20 March 19
ASX peppered with landmines today (NUF, FMG, ECX, PTM)
20 March 19
Income Report: A look at high yielding stocks
20 March 19
Overseas Wednesday is back on time! (CTX, FMG, AMZN US, C US, MSFT US, DIS US, FB US)
19 March 19
China snubs Aussie Coal (FMG, NHC, WBC, CTX, WTC, HSO)
The market has opening marginally lower again today, however we now expect some consolidation of the aggressive sell off that has played out over the past week, particularly aggressive in the last 2 sessions.
When we started the Market Matters Income Report mid-way through last year it was designed to be a once a week update on income opportunities with a fundamental rather than technical bias, giving more insight into the investments we’ve considered and either added to the portfolio, or not.
In our daily Market Matters Reports we try to keep things fairly simple, straight to the point and provide a clear view, without going into too much of the detail that has underpinned the formation of that view. We see the MM Income Report a little differently, putting a bit more meat on the bones. Today we’ll look at 4 Income Opportunities in equities as we move to ‘tweak’ the composition of the Income Portfolio, reducing Hybrids and increasing exposure to equities into the recent ~5% decline in the market.
As it stands, we have a ~51% allocation to equities, ~45% in defensive income securities (hybrids / Bonds and the like), and 4% cash. That’s a defensive stance for this portfolio and given that composition, you’d expect the portfolio to have lower volatility but with lower growth potential than the equity market, which is essentially what’s it’s been delivering to date.
On the week the portfolio dropped by -0.38% against the backdrop of the market that fell -1.39%. For the financial year to date, the market is now down around 2.50% while on an accumulation basis (including dividends) it’s down by -1.19%. For the FY to date, the Income portfolio has added a modest +1.40% while the portfolio is up 7.48% since inception (5th July 2017) against a benchmark of 1.51% and 6.95% respectively.
With the market’s sell off from the 6373 high to around ~6000, a drop of ~5.2%, we’re getting close to a buying opportunity for stocks. Today we’ll look at opportunities to reduce our defensive hybrid allocation and increase our exposure to stocks.
1 AGL Energy (AGL) $19.62
AGL Energy (AGL) has pulled back from its 2017 high of around ~$27.80 to close yesterday at $19.62, a ~30% drop in the share price versus a market that has rallied over that period.
AGL Energy (AGL) Chart
AGL typically trades on a P/E multiple of 15x (5 year average) yet today we see the stock languishing on a multiple of just 12.5x, making it about 17% cheap, or for those that look at ranges, more than 1 standard deviation below the norm. AGL is expected to yield an attractive 5.96% fully franked and the technical picture looks good. At a high level, this stock would sit nicely in the MM income Portfolio.
AGL Energy (AGL) Valuation Metrics
However, stocks don’t generally trade down 30% from their highs and at such a deep discount to usual multiples without a good reason. In the case of AGL, they’ve had a drop in earnings and the market has become concerned about policy and competition in the Energy sector.
Some key points here;
1. The Government wants to reduce retail power prices, and AGL sells power.
2. The Government (through the ACCC) now has greater control over energy prices, so in the short term, the ACCC becomes the default price setter of retail energy which reduces differentiation, increases competition and ultimately reduces margins.
3. When you have a Government under pressure and they have identified the price of your product as an election issue, it’s not a good thing
4. There is a clear lack of definitive longer term policy around energy, and that creates uncertainty for AGL
5. The potential change of Government throws in another challenge insofar as Labor would increase controls on energy pricing to include wholesale pricing as well as retail pricing- that would be another large issue for AGL.
Overall, a cheap yield stock that looks attractive at current levels on the charts, however for MM, there’s too much political uncertainty and potential influence on AGL’s earnings in the next 12-24 months to buy it at current levels. A pass for us.
2 Super Retail Group (SUL) $9.02
Super Retail Group (SUL) sits in a sector we’re not necessarily too keen on however that doesn’t mean we won’t consider it. Retail has been tough with the performance of some names in the sector highlighting that theme, however a number have actually done well. We have Nick Scali (NCK) in the MM Income Portfolio with a small weighting and that’s been a reasonable investment while other names like Kathmandu (KMD) which we’ve covered in the past have had a good 12 months. Super Retail Group (SUL) trades on 11.3 x expected earnings for FY19 which makes it 18% cheap relative to its 5 year average while it’s expected to yield 5.60% fully franked.
Super Cheap (SUL) Valuation Metrics
SUL operates brands including SuperCheap Auto, Rebel Sports, BCF and Macpac – generally outdoor leisure brands and is one of Australasia’s top 10 retailers. When they reported in August they beat expectations and the stock rallied strongly to a high of ~$10.50 - we’ve now seen the stock trade back to $9.00. Retail sales data has been better than market expectations of late, yet the market remains collectively bearish the retailers. In MM’s view, this sets up the strong possibility for a move in the direction of most pain, which is up.
MM is bullish SUL around $9.00 – watch for alerts
Super Retail (SUL) Chart
3 Cromwell Property (CMW) $1.055
CMW is a property and funds management company that we didn’t cover in our review of the sector last week, although it has been flagged on one of our technical scans this week. It trades on 13.2x funds from operations (FFO) while yielding an attractive ~7% unfranked making it an interesting income opportunity. In the last few weeks we’ve seen a number of corporate tussles playing out in the sector, which is often the case when views on the sector are turning – remember, bottoms in markets / sectors / stocks happen when the majority are bearish and negativity is high. It certainly feels like negativity in the property sector has built significantly over recent weeks – it now simply feels like a known known.
CMW looks excellent from a technical standpoint, targeting a move up to $1.30, however we simply can’t get excited over the fundamental picture (yet).
Cromwell Property (CMW) Chart
In August, they reported FY 18 numbers in line with expectations however their guidance was soft for FY19 with dividend expectations of 7.25cps representing a 13% decline v FY18, while at the earnings level they flagged a decline of 4.3%. While the share price has come back 10% since then pricing in that decline, it’s still trading at a decent premium to the sector. That implies that the market likes the story / management etc however it also means it’s unlikely to be the target of any sort of corporate activity relative to a property stocks trading at a discount to their assets.
Here’s a chart of CMW relative to its peers. The white line in CMW, the Orange is its peer group – CMW remains overvalued relative to peers
4 Fortescue Metals (FMG) $3.71
Investors familiar with Fortescue Metals (FMG) will appreciate the chart below. It tracks FMG share price (orange) with the lower quality Iron Ore price (IO58%) over the last two years. There is a clear correlation between FMG share price and the price of lower quality Ore. We are now seeing lower quality Ore rise, yet FMG has remained soft – simply put, we think its being held down as a ‘short’ proxy for emerging markets – and area that has been under significant pressure, but it is close to bottom in our opinion.
We intend to average our existing position in Fortescue (FMG) into current weakness, up weighting by ~2% to ~5%. Watch for alerts
Fortescue Metals (FMG) (orange) v lower quality Iron Ore
Hybrids – some movement in the ranks
This week we’ve seen ANZ announce $711M in after-tax expenses and revenue reduction for 2H18. The impact of this announcement on ANZ’s common equity tier 1 ratio is expected to be less than 10 basis points of risk weighted assets. The software write-off has no impact on this ratio.
That said, this is a small negative for ANZ’s credit quality, and if we look at the ANZPD which sits in the portfolio, this screens relatively expensive.
We plan to remove ANZPD from the MM portfolio , using the cash to increase equity exposure.
Source; Shaw & Partners
As equity markets fall, it makes sense to reduce the defensive income securities and up weight income equity exposure.
1. AGL looks cheap historically, but risks remain fundamentally.
2. SUL is cheap historically and we are bullish
3. CMW pays a good great dividend but is expensive relative to peers
4. FMG has diverged from the 58% Iron ore price, we are bullish.
Have a great day!
James, Harry & 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. Market Matters does not make any representation of warranty as to the accuracy of the figures and disclaims any liability resulting from any inaccuracy. Prices as at 10/10/2018
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 MarketMatters 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: Tuesday, 6th November 2018
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 monthly 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 monthly subscription fees are as follows:
Current subscription fees from time to time 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.
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 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 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
GPO Box 3
Melbourne Vic 3001
Phone 1800 931 678.
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 must subscribe to one or more membership categories available on the website.
To subscribe to the Market Matters website you must 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). 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 next month.
All cancellations within 14 days we be entitled to a full refund. Any introductory gifts, such as iPads, 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 Chifely 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 © 2013 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 persons and by accepting these terms you confirm that you are not a US person.