Income Report / Income Report: An interview with Banking Analyst Brett LeMesurier (GMA, CSR, NBI)

By Market Matters 26 June 19

Income Report: An interview with Banking Analyst Brett LeMesurier (GMA, CSR, NBI)

Market Matters Income Report 26th June 2019

US stocks were weaker overnight and that has flowed through to weakness on our market this morning, although again the market is proving resilient with some large buy orders hitting the futures around open which has helped the index up from the early lows.

A lot of volume through the Shaw Institutional desk today as we host our annual charity day, where all brokerage generated on the day is donated to charity. If the 250k target is achieved today, that will take the total amount donated to Australian charities in the past 4 years to $1.1m - from the institutional day alone. A big thanks to all the fund managers pushing orders through our desk for charity today.   

Also on today is the Bingo (BIN) site tour of their Patons lane facility – we’ll have an update on it this afternoon. I’ve not been able to attend, however have one of our analysts there.  

Currently, the ASX 200 is trading down -10pts or -0.16% to 6647

ASX 200 Chart

The Income Portfolio was higher over the week, adding +0.47%. The resurgence in the price of Crude underpinned a +5% rally in Woodside while Genworth (GMA) continued its recent strength, now flirting with the $3 region.

GMA has a $100m on market share buy-back under way which has around 40% remaining, or ~38m shares to buy. We’ve previously sighted the share buy-back as the reason to continue to hold this stock, plus of course some improvement in the property market has helped. There should be another few months of the buy-back to run.

Genworth (GMA) Chart

Building materials company CSR has held its AGM today and the stock is trading down ~2.7% as a result. The  outlook comments are to blame with the company saying… Volumes in the two months of this financial year ending 31 March 2020 remain broadly consistent with the final quarter of last year.

• Recent reductions in interest rates, improving credit availability, stable tax policies and first homeowner support have boosted hopes for an improvement in consumer confidence and demand for housing. The timing of any positive impact is difficult to predict.

We still remain comfortable holding CSR.

CSR Chart

The income portfolio continues to track above its benchmark of RBA + 4%. For the current financial year the portfolio has added 8.58% vs the benchmark at 5.31%, and since inception the portfolio is up 16.06% vs the benchmark of 10.81%.

For those interested in investing for income in a low rate environment, Market Markets does run an Separately Managed Account (SMA) which is open for investment. The portfolio is based on the MM Income Portfolio below. The SMA is now approaching its first anniversary and performance has remained sound. The Monthly Performance for May can be viewed here

An interview with Banking Analyst Brett LeMesurier

Last week we hosted a mid-year market update for Sydney based Market Matters subscribers. We covered a broad range of topics ranging from commodities to the potential woes facing AMP over the next 12 months. While it was not the intention to record the presentations, there are some snippets throughout that can be shared, the first of which is a discussion with Brett LeMesurier, Senior Banking Analyst on the big 4 banks.

To write Market Matters notes on a daily basis we draw on a number external views including Brett’s. A key takeaway from the interview was that bank valuations have a lot of moving parts and can be ‘massaged’ depending on various inputs like discount rates. Market sentiment plays a big part in all of this as we’ve seen from the strength in bank share prices following the end of the Royal Commission & more importantly, the election of the Coalition government. Property prices are also an important factor, and the key to property prices is the cost and availability of credit which have both improved as shown in recent banks results. This confluence of factors means that the technical picture becomes more important, and right now it remains medium term positive.  

Current broker calls on the banks:

ANZ $28.45: 3 buys, 10 holds, 3 sells (JP Morgan most optimistic with $29.40 price target, Morgan Stanley most bearish with a $25.90 price target)
CBA $82.38: 2 buys, 10 holds, 4 sells (Bell Potter most optimistic with $86.00 price target, Morgan Stanley most bearish with a $64.00 price target)
NAB $26.85: 11 buys, 4 holds, 1 sell (Goldman’s most optimistic with $30.24 price target, Morgan Stanley most bearish with a $25.70 price target)
WBC $28.28: 6 buys, 6 holds, 4 sells (Morgans most optimistic with $33.00 price target, Morgan Stanley most bearish with a $24.60 price target)

MM remains overall bullish the banks, particularly for income. 

**Reminder** NBI Global Corporate Income Trust **Shortfall Offer**closes on Friday

The MM Income Portfolio holds a global bond fund exposure called the NBI Global Corporate Income Trust, listed under code NBI. The trust has launched a capital raising via an entitlement to existing holders, while they’ll also have a shortfall facility available to new holders. Shaw is a co-manager on the deal and has access to the shortfall facility ([email protected]) if you have interest.

They are raising capital at an offer price of $2.00 versus current listed price of $2.04 and below the current NTA of $2.07.  Existing holders will be able to buy 1 new unit for every 1 unit held as at the record date of the 31st May . The shortfall offer is set to close on the 28th June.

We remain positive on NBI and plan to take up our rights under the offer.

NBI Global Bond Fund (NBI) Chart

Conclusion(s)

MM remains positive on CSR despite todays AGM commentary
MM remains positive on the banks overall

Have a great day!

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.

Disclaimer

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 26/06/2019

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