Afternoon Report / NWH reinstates dividends (NWH, ALL, BIN, SSM)

By Market Matters 21 May 20

NWH reinstates dividends (NWH, ALL, BIN, SSM)

Market Matters Afternoon Report 21st May 2020

WHAT MATTERED TODAY

The ASX broke its 4 day wining streak today to end the session marginally lower weighed by the more defensive utilities sector while Energy and IT continued to outperform. A fair amount of stock specific news to get across today, a number of stocks we hold out with updates that proved to be a mixed bag overall, although NRW’s update and 30+% pop in the stock a clear highlight.

At the index level today, the market peaked early with options expiry for May before losing 60pts into the close. As we’ve suggested the last few days, the short term picture is now more muted as the mkt traded up to 5600. We’ve used that to increase cash across the portfolio today and now sit tight for other stock specific opportunities to drift along.

Asian markets edged lower today, although all less than 1% while US Futures were down during our time zone.

Overall, the ASX 200 closed down -22pts or -0.41% to 5550. Dow Futures are trading down -147pts/-0.60%.

ASX 200 Chart

ASX 200 Chart

CATCHING MY EYE;

NRW Holdings (NWH) +32.73%: The mining and construction services business provided a business update today, and wait for it, reinstated their dividend which had been suspended. They talked of a record 10 months and are on track to meet full year guidance. To put this into context, NRW trades of 10x earnings with a very strong order book of mostly contracted projects. In terms of guidance, the company said didding activity is high and following the BGC acquisition the pipeline continues to improve given the likely acceleration of public infrastructure projects. NRW is very well placed to address a growing list of opportunities through both its Golding business on the east coast and the significantly enhanced construction business in the west.  With respect to the outlook for FY20 we remain on track to meet our revenue guidance of $2 billion. We own in the Platinum Portfolio and remain happy holders for now. 

NRW Holdings (NWH) Chart

Aristocrat Leisure (ALL) -5.01%: Delivered half year results this morning that were impacted by COVID-19 as expected however the business remains strong, the balance sheet is in good nick and the digital division continues to grow. We held this stock in the Platinum Portfolio however today we took profits on the position, the decision was based on two main factors. From a business perspective, the market was focussed on top line growth in digital and while it grew by 19% in AUD terms, the market was looking for mid 20’s. This is likely to lead to downgrades tomorrow which could curb the recent momentum in the stock. At a portfolio level, we wanted to increase cash into current strength, and by selling ALL and trimming Bingo (BIN) today, we’ve now brought cash up to over 13%.  

Aristocrat Leisure (ALL) Chart

Bingo (BIN) -2.19%: Staying on BIN, we’ve seen a number of analysts downgrade earnings assumptions here, UBS the latest to move overnight, the broker saying softness in residential, commercial and diversified construction to hit volumes, however that will be offset by a growing infrastructure pipeline. They retain the buy call however move price target from $3.45 to $2.55 and lower earrings numbers. While we don’t generally like going with the crowd, we had a big overweight position on the stock in the Platinum Portfolio and this being the 3rd broker downgrade (Shaw, Credit Suisse now UBS) implies the stock could tread water in the short term. We cut our position in half to raise some cash. Now holding a 3% weighting.

Bingo (BIN) Chart

Service Stream (SSM) -5.91%: two parts to the session today – SSM initially held up well before halting trade mid-afternoon to provide an update on the business in the COVID world. The network services company said while demand had remained strong it had incurred some costs as it brought in safety measures to reduce the risk on employees while some customers had paused or delayed work. As a result of the impacts, the company guided EBITDA for the full year to $108m,  a small fall based on comments at the half year result and $6m/5% below market expectations. The managing director also noted that the impacts would likely be felt into early FY21 despite the strong pipeline of work ahead of it. Disappointing for holders, of which MM is, but the small fall in EBITDA seemed already priced in. SSM did close off its lows which is promising. $2.00 strong support.

Service Stream (SSM) Chart

BROKER MOVES;

·        Western Areas Cut to Neutral at Citi; PT A$2.50

·        Fortescue Cut to Sell at Citi; PT A$11.10

·        Seek Cut to Hold at Morningstar

·        Charter Hall Group Cut to Hold at Morningstar

·        TPG Telecom Raised to Overweight at JPMorgan; PT A$8.65

·        Fortescue Raised to Hold at Morgans Financial Limited

·        Genworth Australia Cut to Negative at Evans & Partners Pty Ltd

·        Sims Raised to Neutral at JPMorgan; PT A$6.90

·        Sydney Airport Cut to Hold at Jefferies; PT A$6.26

OUR CALLS

Platinum Portfolio: We sold Aristocrat (ALL) and reduced Bingo (BIN)

Major Movers Today

Have a great Weekend all

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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