Afternoon Report / The rally fades on bank selling (ANZ, EHL)

By Market Matters 12 June 19

The rally fades on bank selling (ANZ, EHL)

Market Matters Afternoon Report 12th June 2019

WHAT MATTERED TODAY

The local market quickly pushed on with yesterday’s rally to post an extra 41pts to rally to the intraday high within the first hour. The selling picked up from there however, and the ASX200 gave back all of the morning’s move, stumbling to its first fall in 6 sessions. 

Healthcare fell today on a tumble by heavyweight CSL giving back yesterday’s rally, the banks took a hit today thanks to APRA, and the money flowed in to the miners thanks to a rally in iron ore. The price spiked once again overnight thanks to some news from China – the government has extended its bond policy so that money can be raised for infrastructure and development projects. More projects = more steel and so the already extended iron ore price rallies further.

We now look to US inflation data overnight for another read for the Fed’s next move – a print below the expected 2.1% should see equity markets higher. Locally we see Aussie employment data tomorrow morning at 11.30AM. 

Overall today, the ASX 200 fell -2 points or -0.04% to 6543. Dow Futures are trading down -75pts / -0.29%.

ASX 200 Chart

ASX 200 Chart

CATCHING OUR EYE;

The Banks; in a flat market the banks were walked all over today. Fortunes for the Big 4 had been better of late thanks to a Morrison Government, the RBA helping house prices and an APRA move to ease lending standards. Today though, APRA announced it planned push on with extra capital requirements for interest-only loans in time for 2022. The move will squeeze already tight margins on the banks – although some time before it will fully take hold.

ANZ Chart

Emeco Holdings (EHL) +14.24%; the earthmoving equipment rental business  was out today re-confirming guidance of EBITDA to be in the range of $211-$213m which represents a ~40% lift on FY18. The stock has been trading very poorly ahead of today’s announcement  with clear concern around the potential for a weak result in August. Those fears are not without foundation, the company missing 6 of their last 7 earnings reports which is clearly one of the reasons why the stock is languishing near all-time lows. The market’s reaction  tells this story pretty clearly, with a +20% pop in the share price on confirmation that they’ll at least meet market expectations which sat at EBITDA of $211m. More a relief than anything by the look.

We own EHL in the Platinum Portfolio – bought recently at slightly higher levels – it’s a higher risk play however it’s on 8.5x expected FY19 earnings with decent earnings growth potential. Debt is high, however they’re addressing this and a reduction in financial leverage will reduce borrowing costs in time. We remain keen in EHL although concede it’s a  candidate for tax loss selling into EOFY.

Emeco Holdings (EHL) Chart

Broker moves:

  • ALS Upgraded to Hold at Deutsche Bank; PT Set to A$6.57
  • Cochlear Downgraded to Sell at Morningstar
  • Credit Corp Downgraded to Sell at Morningstar
  • GPT Group Downgraded to Sell at Morningstar
  • Star Entertainment Upgraded to Buy at Morningstar
  • Star Entertainment Cut to Hold at Morgans Financial; PT A$4.04
  • nib Downgraded to Sell at Morningstar
  • Vocus Upgraded to Hold at Morningstar
  • Magellan Financial Cut to Underweight at JPMorgan; PT A$40.50

OUR CALLS

No changes 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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