Afternoon Report / Savage selling continues, second consecutive -100pt fall (PGH)

By Market Matters 14 November 18

Savage selling continues, second consecutive -100pt fall (PGH)

Market Matters Afternoon Report 14th November 2018

WHAT MATTERED TODAY

As Harry just put it….what insightful things can we write about this afternoon given the session we’ve just had? Not a bad question really as we look around the grounds and Asian markets have performed okay, U.S Futures have been mostly in the green all day yet we’ve booked our second consecutive day of -100points on the downside – the index has unwound aggressively from Mondays bullish close of 5941 to close today at 5732 and no one really knew why. The insto traders we speak with were none-the-wiser, the media were backfilling reasons however it simply seemed to be a call to sell Australia. Financials were a big weight on the market accounting for -38 points of the decline however the selling was broad based. The only sector that ended in the green today was the Telco’s thanks to Telstra (ASX:TLS) which added 2c to close at $3.05.

Energy stocks were hit hard today after crude prices fell by the most in 3 years overnight on growing fears of a supply glut – it feels like yesterday that we were seeing upgrades flow through from analysts with 12 month price assumptions around US$80/bbl , A far cry from the US$55/bbl it settled at overnight. Beach Energy (ASX: BPT) and industry contractor WorleyParsons (ASX: WOR)  led the declines, down 5% and 5.21% respectively: Woodside Petroleum (ASX: WPL) ended down -2.49%, Santos (ASX: STO) lost %-5.02% and Oil Search (ASX: OSH) fell 2.61%

Overall, ASX 200 closed down -101pts or -1.74% at 5732. Dow Futures are currently down -13points or -0.05%  

ASX 200 Chart

ASX 200 Chart

CATCHING OUR EYE;

Broker Moves; Not noted in the below changes, however Credit Suisse penned a bullish note on banks titled The worst is behind us - a brave day to publish that note. The analyst is now expecting earnings to be revised higher on the back remediation costs peaking and funding spreads tightening, benefitting bank margins. CS are also looking for the market to push the banks back to historical valuations noting the PE discount of banks vs industrials has reached 39% compared to the long term average of 30%.

·         Northern Star Upgraded to Outperform at Macquarie; PT A$9.80

·         SCA Property Downgraded to Sell at Moelis & Company; PT A$2.43

·         Lendlease Upgraded to Overweight at JPMorgan; PT A$15

·         Sundance Energy ADRs Rated New Buy at SunTrust; PT $9

·         Western Areas Reinstated at Canaccord With Buy; PT A$3

Pact Group (ASX: PGH) $3.21 / -9.72%; The packaging company plummeted today following the AGM as the market has reacted negatively to the company’s outlook which flagged a soft start to FY19 and guidance that was well below expectations for the full year. Pact Group, which supplies packaging in Australia, NZ the US and across Asia to the likes of a2 Milk & Blackmores among others, has struggled over the past few years as they grapple with rising input costs heavily impacting margins across the business. Resin prices continue to climb, which has had a material impact on the first half of FY19, which is now “expected to be weaker than pcp (previously comparable period) adversely impacted by on-going lags in recovering higher than anticipated resin costs.”

The company has been unable to pass on costs to customers as quickly as anticipated, and Pact Group now expects EBITDA for FY19 to be in the range of $245m, almost 10% below Bloomberg consensus estimate. Much of the company’s performance now relies on the integration of recent TIC Retail Accessories acquisition which was completed today.

Pact Group (ASX: PGH) Chart

OUR CALLS

No changes to the portfolios 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.

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