Afternoon Report / Quiet above the surface but a few ducks paddling hard below (WSA, EHL)

By Market Matters 22 July 19

Quiet above the surface but a few ducks paddling hard below (WSA, EHL)

Market Matters Afternoon Report 22nd July 2019

WHAT MATTERED TODAY

A fairly quiet day at the index level overall (-9pts) with the market peaking +10pts up around lunchtime before the sellers took hold. It looked like a decent portfolio trading out today as some stocks moved a long way in the direction of the intra-day trend, ASX  & IVC two obvious examples. At a sector level, materials outperformed thanks to reasonable buying in the Iron Ore miners while Energy stocks enjoyed a higher Oil price on Friday – Whitehaven (WHC) copped a bid adding +2.74% closing at $3.75 after a tough few months.

Around the region, Asian markets were mostly lower while US Futures held marginally higher during our time zone.

Overall, the ASX 200 lost  -9pts today or -0.14% to 6691. Dow Futures are trading up +31pts / +0.11%. 

ASX 200 Chart

ASX 200 Chart

CATCHING OUR EYE;

Stocks moving: while the market closed marginally lower there were some interesting stock moves that played out , particularly across some of the recent market darlings. ASX was hit -4.79% in a sustained sell-off that looked like a large holder simply offering the stock all day, funeral provider Invocare (IVC) was also weak closing down -6.48% - again, it looked a lot like a concerted seller simply hitting the stock for most of the session.  

On the flipside, Elders (ELD) was strong again adding another +2.75% to close at $7.46 with  retail shareholders sent details today about taking up the 1 for 6.7 non-renounceable entitlement offer which will likely be priced at $5.55 – a big discount to the last traded price making it very attractive for existing retail holders.

Across the MM portfolios today, the move by Emeco (EHL) caught my eye, the stock rallying +3.62% to close at $2.29, with $2.50 the next logical target while Pact Group (PGH) also had an interesting session after a week or two consolidation. Technically that stock looks destined for higher levels.

Emeco (EHL) Chart

Nickel; Early in the month, nickel looked like it was teetering on the edge again after it slumped sub $US 5.50/lb, however it has since bounced back swiftly to crash through $US 6.50/lb and set a new 12 month high. The move has helped local nickel names Independence Group (IGO) and Western Areas (WSA) trade higher to their own multi-month highs. Indonesia is playing a big part in the rally. One of the world’s biggest nickel ore exporters is currently experiencing severe flooding which has constrained the supply in the market. Stock piles fell to four-weeks on hand as a result of the disruptions, and has also shed light on the potential impact that an Indonesia export ban could have on the market.

The Indonesian Government currently plans to ban unprocessed nickel exports from 2022, forcing miners to export the value-added refined product. Currently only a small portion of miners are prepared for the ban, with much of the supply unlikely to have smelters in pace in time for the cut off. Although the end date remains years away, it has helped the commodity higher in the short term and will potentially have a significant impact on earnings for IGO and WSA in the outer years. Nickel will continue to see increasing demand with steel mills currently running full pelt, and the rise of electronic vehicles set to surge over the next few years. If the average price holds around $US 6.50/lb, WSA could see a 10% uplift in its earnings for the year. We like WSA marginally lower for a small allocation leaving some powder try.

Western Areas (WSA) Chart

Broker moves; 

  • South32 Upgraded to Add at Morgans Financial; PT A$3.45
  • A2 Milk Co Downgraded to Sell at Morningstar
  • Fortescue Upgraded to Hold at Morningstar
  • Synlait Milk Rated New Hold at Morgans Financial
  • Sydney Airport Rated New Neutral at JPMorgan; PT A$7.90
  • Western Areas Downgraded to Neutral at Credit Suisse; PT A$2.45
  • PWR Holdings Upgraded to Buy at Bell Potter; Price Target A$4.85

OUR CALLS

We sold out of Healius (HLS) somewhat reluctantly given the high chance that a bid is still forthcoming, the issue is from what level. Earnings risk in the business ahead of results we think is high, while the share price has remained firm pricing in a takeover. The closer we get to reporting, the less chance there is for a bid to emerge.

Healius (HLS) Chart

Major Movers Today

Have a great night

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 22/07/2019

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