Afternoon Report / Production reports dominate the news flow today

By Market Matters 17 January 19

Production reports dominate the news flow today

17th of January 2019


A choppier session today with the market well bid early one only to suffer a case of the wobbles when Asian markets came on stream and US Futures drifted lower around midday, however the bulls regained control and the ASX 200 bounced ~30points from the low to close near the high of the day. From the low on the SPI Futures on the 24th December at 5330 to ~5800 today, the market has rallied ~470pts or nearly 9% unabated – a strong recovery following an atrocious December quarter. Today it was the consumer staples  that provided most support, however they were ably assisted by both the resources and energy names. On the flipside, the defensive areas, the utilities and the like that we discussed this morning  provided the biggest drag.

Strong quarterly results in the US overnight, particularly from Goldman Sachs and Bank of America was supportive of Macquarie today which added ~1% to close back at $117.18, a good bounce from its recent $103.30 low. Reporting in the US tonight will be interesting with Morgan Stanley along with Netflix out with results + American Express and State Street also out with numbers. Netflix is up +30% in the first two weeks of the new year after raising prices on their 58 million subscribers in the US - expect price increases here in the not too distant future.

Overall today, the ASX 200 closed up +15points or +0.26% to 5850. Dow Futures are currently trading down  -70pts or -0.28%.

ASX 200 Chart – choppier session today

ASX 200 Chart


Broker Moves; Beach Energy stands to benefit from potential consolidation among Australia’s east coast gas producers and could spend ~A$700 million on M&A by 2020 says a report by Credit Suisse. Beach was a stock we flagged into recent weakness however given our tight cash position at the time,  we didn’t pull the trigger. The stock has bounced from ~$1.30 to ~$1.60 in line with the rest of the sector. The bulk of analysts are keen on the stock -  of the bulge brackets Morgan Stanley the most bullish.

The stock closed today at $1.66, up +1.22% on the session.

Broker calls on BPT

Beach Petroleum (ASX: BPT) Chart


·         Beach Energy Upgraded to Outperform at Credit Suisse; PT A$1.75

·         Freightways Upgraded to Neutral at Forsyth Barr; PT NZ$7.50

·         Starpharma Rated New Outperform at Macquarie; PT A$2

·         Michael Hill Upgraded to Hold at Morgans Financial; PT A$0.62

·         Computershare Downgraded to Hold at Morningstar

·         Evolution Mining Downgraded to Neutral at Goldman; PT A$3.80

·         Saracen Mineral Downgraded to Neutral at Goldman; PT A$3.10

·         Suncorp Reinstated at Shaw and Partners With Buy; PT A$16

·         AGL Energy Downgraded to Neutral at JPMorgan; PT A$23.20

·         Navigator Global Upgraded to Buy at Shaw and Partners; PT A$4.65

Production Scorecards – lots of them

Woodside (ASX: WPL) $33.74 /+0.66%; Q4 production numbers out today plus they gave some detail around their Scarborough project. All in all, production was good, slightly above some market expectations (Shaw’s analyst looking for 22.7MMboe and they delivered  24.1MMboe) and although the price of Crude took a dive through the period there was limited impact on revenue growth given the lag on LNG pricing. Average unit prices were US$59/boe compared to Brent of US$68.5/bbl. LNG prices reflect Brent with a ~3 month lag, so the full effects of the November oil price crash won’t be evident until the next quarter.  Overall, a good year for WPL in 2018 and they have some interesting growth projects bubbling away in the background.

In terms of 2019 annual production, they forecast  88-94 million barrels which was a tad light on – most expecting around 96MMboe from what I can see, however the variance is tolerable. As we suggested in the income note yesterday, we’re keen on WPL into $1 retracements in share price.

Woodside (ASX:WPL) Chart

Alumina (ASX:AWC) $2.36 / +3.06%; A record QTR for AWC on a number of levels and the scorecard was an impressive one. Prices were up, production was up leading to 4Q AWAC distribution coming in at a record of $273m and FY18 distributions up over 2x to $827m. In short most numbers should be seen as impressive, albeit not unexpected. We hold AWC in the income portfolio and it looks like the dividend outlook is on track, although not a beat to current market expectations. That said, AWC has enjoyed some strong trail winds in recent times, largely a result of Russian sanctions that have curbed production (and thus supported prices) which look like tailing off in 2019 – therefore, the price tailwinds of 18 may not be enjoyed to the full extent in 19 – Key support ~$2 while $2.65 is our upside target.

Alumina (ASX:AWC) Chart

Whitehaven Coal  (ASX:WHC) $4.70 / +3.74%; A great set of quarterly numbers today and the stock is reacting accordingly. We were hoping to see WHC bounce back from a weak prior quarter and they did that in spades, producing 5.5mt up over 30% from the prior period. Commodity prices have been lower through the period - Thermal coal now >20% below 2018 peak and met coal price now ~15% below recent 2018 peak , however that’s already been reflected in the share price coming back from ~$5.80 to near $4.00 at the recent low. Trends look good here and this could clearly be an interesting ‘income’ stock in 2019 as discussed in the Income Report yesterday (click here)

Whitehaven Coal (ASX: WHC) Chart

South32 (ASX:S32) $3.45 / 3.60%; We spent less time on this one today however numbers looked okay and SP reaction suggests it was good. On quick read through, numbers pretty much on track, guidance maintained for all assets and a slight uptick for met coal (7%). Importantly manganese production (Aust/Sth Africa) at or near record levels  - nice timing given continued buoyant prices. In terms of capital management, they have complete 79% of the $1B capital management program, paid $154M special dividend and purchased 272M shares back…miners are clearly printing cash! $3.00 support with upside target of ~$4 so the risk / reward at current levels no that exciting.

South32 (ASX: S32) Chart


We sold our position in Altium (ASX:ALU) today for a ~13% profit.

Altium (ASX:ALU) Chart

Have a great night

James & 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.


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