Afternoon Report / RIO just out with results - earnings a touch light, special dividend a win (RIO, ABC, JHG)

By Market Matters 01 August 19

RIO just out with results - earnings a touch light, special dividend a win (RIO, ABC, JHG)

Market Matters Afternoon Report 1st August 2019

WHAT MATTERED TODAY

Another soft day for the market as earnings season continues to throw up some landmines.- this time it was Janus Henderson (JHG) who reported 2Q earnings overnight and were hit on our market today.  RIO first half numbers just coming out as I type which we’ll  cover in the morning post the conference call with kicks off at 7pm, however at the headline level, underlying earnings at $4.9b seems a touch light ($5bn+) was expected however they have announced a special 61cps dividend plus an ordinary dividend of US151cps. That was below the US176cps ordinary we were looking for however obviously the special makes up the ground and some…more in the morning post the call.  

Rio Tinto (RIO) Chart

Today we saw the aftershocks of the US Federal Reserve who cut rates by 0.25%, the first time in a decade, however they were less dovish about future cuts than the market was positioned for. That saw the $US higher which ultimately applied pressure to commodity producers locally today – Newcrest (NCM) down  -3.88%, BHP fell -1.23% and RIO off by -1.1%. Iron Ore was lower in Asia, down around 3% while US Futures were fairly quiet during our time zone, settling marginally lower at our close.

Overall, the ASX 200 lost -23pts today or -0.35% to 6788. Dow Futures are trading down -25pts / 0.30%.

ASX 200 Chart

ASX 200 Chart

CATCHING OUR EYE;

Adelaide Brighton (ABC) -5.93%: A few questions coming through the pipe on ABC today which is understandable – it was off again on the back of a raft of broker downgrades as outlined below – eventually closing near the lows of the day. Worth re-visiting our original alert here on the stock as it provides insight into our thinking now… From the alert posted on the 22nd July….As discussed in the Weekend Report, we are bullish building materials company Adelaide Brighton (ABC) targeting 15-20% upside from current levels.  ABC has had a tough 12-months which has seen its shares halve due to the fall off in construction but we believe this is a quality business whose shares are now presenting decent value. There is some risk around the upcoming earnings report, hence the 3% initial weighting leaving room to add to the positon in time.

After a poor result selling often follows through for a few days - often 3 – the initial downside reaction then the influence of downgrades flowing through to models. Tomorrow an important day for the stock insofar as we should be seeing sellers dry up if the stock has found a point of perceived value. We’ll then revisit the stocks at that point.

Adelaide Brighton (ABC) Chart

Janus Henderson (JHG)  - 12.20%:We covered this morning however the selling was sustained in the stock throughout the day – eventually closing near the lows. In the AM report we suggested…This is an example of a “cheap stock” remaining cheap for a while, we now prefer Pendal Group (PDL) for similar market exposure / risk,  PDL is likely to be dragged lower if  JHG does get smacked today – it opened down only 3.7% in the US  but then slipped lower all night with the weak market. Hence  the price differential for the switch is unlikely to be too painful.

That theme didn’t really play out with PDL (today at least) remaining supported (+0.26%) on a relative basis – hence no opportunity to switch.  JHG now a strong chance of testing its lows ($26.96) where it traded in December. The mkt is clearly being harsh on those that miss the mark. Selling here seems overdone for the result was posted however as we often say, don’t fight the tape.     

Janus Henderson (JHG) Chart

Broker moves; 

  • Freelancer Downgraded to Sell at UBS; PT A$0.88
  • Freelancer Downgraded to Hold at Canaccord; PT A$0.95
  • Independence Group Cut to Neutral at UBS; PT Set to A$5.40
  • CBA Downgraded to Sell at UBS; PT Set to A$72
  • CBA Downgraded to Underweight at JPMorgan; Price Target A$76
  • Janus Henderson GDRs Cut to Negative at Evans & Partners
  • Marley Spoon GDRs Downgraded to Neutral at Macquarie; PT A$0.68
  • Genworth Australia Downgraded to Neutral at Macquarie; PT A$3.25
  • Adelaide Brighton Downgraded to Neutral at Macquarie; PT A$3.75
  • Adelaide Brighton Cut to Underweight at Morgan Stanley; PT A$3
  • Adelaide Brighton Cut to Underperform at Credit Suisse; PT A$3
  • Adelaide Brighton Upgraded to Neutral at JPMorgan; PT A$3.50
  • Resapp Health Cut to Speculative Buy at Morgans Financial
  • Myer Upgraded to Neutral at Credit Suisse; PT A$0.55
  • Insurance Australia Cut to Underperform at Credit Suisse
  • Woolworths Group Cut to Underperform at Credit Suisse
  • Wesfarmers Cut to Underperform at Credit Suisse; PT A$32.55
  • Coles Group Cut to Underperform at Credit Suisse; PT A$11.97
  • AGL Energy Downgraded to Underweight at JPMorgan; PT A$19.75
  • Origin Energy Cut to Neutral at JPMorgan; Price Target A$8.35

OUR CALLS

No changes across portfolios today

Major Movers Today

Have a great night

James / Harry & 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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