Income Report / Income Report: Reporting dominates (CBA, CSL, CPU, JHX)

By Market Matters 12 February 20

Income Report: Reporting dominates (CBA, CSL, CPU, JHX)

Market Matters Income Report 12th Februrary 2020

A busy day on the desk this morning so a shorter Income Note with a focus on those companies that have reported. We’ll have more coverage later although overall, results have been good. The ASX is trading higher around midday, CBA’s +3% gain today is accounting for +15 points of the index move while CSL has added +5 index points. Similar to the US, it’s a few stocks dragging the index higher on the session.

Resources are lagging today, although Oz Minerals (OZL) had a decent update this morning and is bucking sector weakness. Overall, we remain sellers of current strength and this morning we increased cash in our Platinum Portfolio by selling out of CBA into today’s rally.

Overall, the ASX 200 is currently trading up +27 points / 0.39% at 7083.

ASX 200 Chart

The Income Portfolio gained during the week, ending a run of two consecutive slides by adding +0.29%, however this was against the backdrop of the ASX200 Accumulation Index which traded a strong 1.5% higher. While the portfolio as a whole was up, there was little in the way of movement in the underlying holdings with Metcash the biggest contributor managing +3.05% in the 5 sessions. There were no dividends paid in the week. The portfolio continues to track above the benchmarks, currently up +4.35% financial year to date, versus its absolute return benchmark of +2.99%. Since inception the portfolio is up +21.77% vs the benchmark of +13.91%.

A focus on company results today

Given the huge volume of company results today, we’ve focussed on this area for today’s income note.

1 Commonwealth Bank (CBA) 87.40

CBA is arguably the countries favourite income stock having taken the mantle from Telstra in recent years. Today they released a high-quality result (given a tough environment) and importantly for income conscious investors, the dividend is safe plus there is growing scope for more capital management at the end of this year. This could be in the form of a special dividend or share buy-back depending on franking credit balance. While we don’t own CBA in the MM Income Portfolio, we do in the Platinum and are taking the opportunity to sell into current strength to increase cash.

The stock has rallied strongly into the result and while todays update is positive, the valuation differential between the other banks is now too stark.

MM is now neutral CBA around $87.00

Commonwealth Bank (CBA) chart

2 CSL Limited (CSL) $328.21

Another strong half yearly result from CSL plus upgrade to full year guidance. The business continues to grow revenue at a strong clip, and this is dropping down to increased earnings. They increased guidance for full year NPAT to be between $2.11b - 2.17b, up from $2.05b - $2.11b previously, however the market had already pencilled in $2.13bn for the full year. So much optimism built into CSL at current levels, and while it’s hard to stand in the way of such a juggernaut, we could not be buyers at these levels.

MM would only consider CSL into a ~10% correction

CSL Chart

3 Computershare (CPU) $17.78

The share registry business missed expectations for the first half this morning, although they maintained full year guidance. The miss on the half was around 8% at the EBITDA line and the shares were sold off accordingly, however they did reconfirm prior guidance for the full year which was the key. An early sell-off was bought into and rightly so given the weakness in the first half should be transient. We remain positive CPU and todays price action is encouraging.  

MM remains bullish CPU

Computershare (CPU) Chart

4 James Hardie (JHX) $30.91

Building materials company James Hardie is trading lower today despite another upgrade to earnings guidance for the full year in the 3rd quarter release overnight. They printed another quarter of impressive growth corner stoned by North America Fiber Cement division.  Guidance for the full year was increased to $US350-370m, yet the market was already looking for near the top end of the range at $US366.5m hence shares trading lower today. Despite the upgrade, the market is very much ahead of itself here and the key reversal in shares today means it’s one to avoid for us.

MM is negative James Hardie (JHX)

James Hardie (JHX) Chart

Conclusion

Strong results today from CBA, CSL & JHX, while CPU was inline based on full year guidance

We remain sellers of CBA & JHX at current levels while CPU remains bullish technically

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.

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