27 January 20
Market Matters Weekend Report Monday 27th January 2020
27 January 20
Market Matters Weekend Report Monday 27th January 2020
24 January 20
ASX gives up a reasonable lead
24 January 20
Is reporting season providing any bargains? - (BPT, RMD, QAN, CIM, DOW, NHF, APE)
23 January 20
Cimic shows why doing business in the Middle East is not all Beer & Skittles (CIM, DOW, WBC)
23 January 20
Should we be backing the “BOJO” horse? (WOW, RMD, A2M, IRE, VUK, JHG, PDL, BVS)
22 January 20
ASX makes another new all-time high (WOW)
22 January 20
Income Note: Supermarkets – have we missed the boat? (WOW, COL, MTS, NBI)
22 January 20
Overseas Wednesday – International Equities & Global Macro ETF Portfolios (BLD, SFR, IEM US, 700 HK) **700 HK**
21 January 20
All rallies must come to an end (BHP, PGH)
21 January 20
Are insurance stocks simply too hard? (BPT, BHP, SUN, IAG, QBE, NHF, MPL, SDF)
An early Income Report today as it’s likely to be another fairly busy one on the desk with a number of companies out with results, and a few other bits and pieces. This morning alone we’ve seen a downgrade for Pact Group (ASX:PGH) with the stock getting hit hard (-12%), an inline full year result and guidance from Dulux (ASX:DLX) while Seven West Media (ASX:SVW) had their AGM this morning and reiterated guidance. We’re also seeing Ramsay Healthcare (ASX:RHC) CEO speaking now at their AGM suggesting that core earnings will be up 2% on FY18, which is in line with current market expectations.
At time of writing, the market is trading down -7pts points at 5826
ASX 200 Chart
For the week, the MM Income portfolio added +0.25% against a backdrop of the ASX which fell -0.70%. For the financial year to date, the portfolio is down -0.75% versus its benchmark of RBA cash rate +4% which sits at +2.03% while the ASX 200 accumulation (including dividends) is down by -4%. Since inception (5th July 2017) the portfolio has added 5.43% versus its benchmark of +7.47%. The biggest drag on the week came from Alumina (AWC) while Super Retail Group (SUL) bounced (lethargically).
Wilson Asset Management (WAM) – has Chris Stott called the top of the market?
The main Listed Investment Company under the Wilsons banner is ASX:WAM and its clearly popular with income investors, delivering a current dividend yield of around 6.5% fully franked. Chris Stott, the Chief Investment Officer for the group has recently resigned to spend more time with family. Chris was at WAM for 12 years and oversaw significant growth in funds under management. Of course it was the well-known founder Geoff Wilson (who was originally a stockbroker) who set up Wilson Asset Management back in 1997 and the WAM portfolio kicked off in 1999. Between 1999 and 2006 they had some great returns as outlined below;
In 2006 when Chris joined they managed around $100m. Now that particular LIC has around $1.4bn in it while they’ve built out a number of other funds - today they manage around $3.5bn collectively.
Chris was a young CIO at WAM, he’s around the same age as I am and he’s has had a great track record of success, although as funds grew it became harder to replicate the earlier performance that Geoff delivered in the first 7 years or so. Clearly that early performance provided the foundation for what was to come. Over the past 10 years with Chris as CIO for the bulk of it, WAM delivered 16.1% per annum versus their benchmark of 7.7% and that strong outperformance has allowed them to raise capital for other funds.
10 year performance versus the benchmark – solid
Strong performance over a long period afforded them a platform to present their views to wide audiences and have a strong profile in the media. Their communications are on point and they articulate their approach exceptionally well – a lot to learn from them in that respect. This has led to WAMs share price typically trading at a significant premium to the value of its assets (NTA). For example, at the last NTA report they had around $1.45bn is assets yet they have a market capitalisation of $1.66b, a ~$200m premium or around 14%. Why buy something for more than the value of the underlying assets? Clearly you’re paying a premium for the people running those assets, the systems in place and the ability for those people and systems to deliver strong results which Wilsons have delivered in the past, however it gets harder from here!
Focussing on results over the short term becomes less appealing for WAM.
1 year performance v index
2 year performance v index
The current composition of the portfolio is also interesting, with a big skew towards Consumer Discretionary.
WAM Portfolio Composition (Bloomberg)
The average Australian focussed listed investment company currently trades at a pre-tax discount to NTA of 6.95% according to the latest data from Independent Research while on a 3 year view, that number is a discount of 5.95% at the end of October. WAM has often enjoyed periods of 20%+ premiums to NTA and currently trades around a 14% premium, or around a 20% premium to the LIC market generally. That’s not a criticism - kudos to them, however the simple fact that a major contributor to WAMs growth and importantly performance over the past 10 years (Chris Stott) has effectively left at a time when performance relative to their own standards has struggled should be a concern. (Chris is staying on at board level but is out of the day to day)
As we’ve written at length, we believe the market gets harder from here, a fact not lost on WAM (hence the 30% cash weighting in the portfolio), however a change of leadership at a precarious time means that we simply wouldn’t be paying a premium for WAM , and if we held, we’d sell it.
Investment Opportunity – Westpac (WBCPI) **Book build closing at 4pm today**
Earlier in the week we met with Westpac regarding a new Hybrid security being issued in part to refinance an existing security (WBCPD). The existing security has $1.4b on issue and WBC say they’ll issue a new security worth $750m with the ability to do more or less. From discussions, I think they’ll print somewhere between $1.2-$1.5b which probably means that bids in this hybrid will be scaled back which was the case with the recent CBA Hybrid issue.
In terms of the CBAPH which was refinanced recently, the size of that deal was up scaled from $750m to $1.25bn. There was a reinvestment component to the offer from the CBAPC’s which was a large $2.0bn issue. Of that $2.0bn, ~$870m was rolled into the new security and they accepted ~$380m of new money. New money bids were scaled heavily, something to the tune of ~60%. The CBA issue was done at the same 3.7% margin as Westpac will do theirs. Interestingly enough, Westpac didn’t need to refinance this security until Mar 2019 so they’ve obviously seen the demand into the CBA notes and wanted a slice of the pie.
Looking ahead in terms of hybrid deals, there is unlikely to be a lot of opportunity in 2019. Given CBA and WBC have / are refinancing issues now, the only other major one I can see is the IANG which has $550m on issue and is due in December 2019. There is an AGL note due in June 2019 worth $650m and a Tatts Bond due in July worth $192m however both are unlikely to offer rolls into new securities leaving very little on the horizon for 2019.
In short, on a relative basis to both existing bank issuance and to existing Westpac notes this new WBC security looks attractive, particularly given the dearth of new issuance for the next 12 months
Margin; The range is 3.70% to 3.90% over the 90 day bank bill rate. This means the indicative yield based on current interest rates are as follows;
Duration; 5.5 years
As suggested above, based on the 5.5 year swap rate of 2.59%, this security will pay a grossed up running yield of 6.29% - floating – with dividends paid quarterly.
Given the terms of these securities are fairly standard, the variables come in terms of the issuer (Westpac), the duration (time) and the rate (assume 3.70% over swap) relative to where the current market is at. Here’s a look at the current landscape for financial hybrids with 4 years or more to maturity;
Financial hybrids with more than 4 years to maturity
It’s also worthwhile looking at where bank hybrids typically trade in terms of margin over the bank bill rate as a group. This is essentially a function of investor demand for them, the higher the margin, the less demand and vice versa. Just like a stock that has consistent earnings - when the market is bullish they’ll pay 30x those earnings but when the market is bearish they’ll pay 20x. There has been a lot thrown at the hybrid market in 2018 however pricing has remained fairly resilient. Tier 1 bank hybrids on the market have traded from a low of 296 basis points while hitting a high of 395 basis points in terms of margin.
Since 2012, the average margin is 360 basis points according to Morningstar.
Our view; While these notes are not without risk, and individual investors should consider the prospectus, on a relative basis to both existing bank issuance and to existing Westpac Notes, the deal looks attractive.
Timetable; If you would like to bid into the broker firm offer, you can email [email protected] or call (02) 9238 1561 – the broker firm offer is closing today at 4pm. The broker firm means that you bid an amount in dollars which is submitted into the ‘book’ and within a few days you know the amount you have been successful with. This may be 100% of your bid amount or it may be a portion of that, however the benefit of this process is an investor knows what they will get before having to send funds, however those looking to bid through James will ultimately need to set up a Shaw and Partners account. Alternatively, subscribers could bid through their existing broker which could be easier.
The notes are expected to start trading on the ASX on the 19th December 2018.
Qualitas Real Estate Investment Fund
I covered the above new listing in the Monday Question’s report this week (click here), and I’ve been pulled up on a few inaccuracies, which I’ll address.
Inaccuracy 1; The fund invests in loans only, not equity. They were originally looking to do a version of the fund some months back that included debt and equity however as a consequence of feedback, they changed the fund to debt only.
Inaccuracy 2: I suggested they may have had a difficultly raising funds, I’m told that is not the case. They planned to raise between $150m & $500m, and have raised circa $220m…
All else stands…The fund lists end of November by the look under code ASX:QRI. We have not invested.
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 14/11/2018
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: 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.