ASX bounces from oversold levels

James Gerrish

Market Matters

A better day for Aussie stocks with most sectors finishing higher following a more bullish session overseas. The high beta IT stocks did best with the likes of Appen (APX) +6.42%, Z1P Co (Z1P) +7.5% & Jumbo Interactive (JIN) +10% bouncing back from recent weakness. Asian markets enjoyed the more peaceful protests in Hong Kong over the weekend while US Futures were also higher during our time zone.

The biggest weight from the local market came from the Gold sector which is now pulling back after a solid run, Newcrest (NCM) down -3.01% and Saracens (SAR) down -5.12% to $3.71 – we continue to remain cautious gold in the short term, but will once again be buyers of protracted weakness.

Around 10 companies out with results today, around 15 out tomorrow then a big two days Wednesday/Thursday. BHP out tomorrow which is obviously of interest. Underlying profit expected to rise 11% to $9.9 billion.

A quick rundown on companies that reported today: BSL, SIQ, LLC, NHF,  

Overall, the ASX 200 added +62 points today or +0.97% to 6467. Dow Futures are now trading up +180 points /+0.69%.

ASX 200 Chart

ASX 200 Chart


Stocks today: The table below looks at the share price performance of those companies that reported today. A mixed bag although more beats than misses overall.

Bluescope (BSL) -8.36%: While the FY19 result was in line with NPAT coming in marginally ahead of expectations, investors seem to be spooked by the outlook statement provided for FY20 which implies a decent miss to current consensus expectations.

For FY19 all metrics were as per expected and shareholders will get a 14c full year dividend with income for FY19 in line with FY18. The company’s large cash balance is also being put to work in supporting the stock with buybacks currently in place. Despite all this, the stock has dropped more than 9% today. While the market was already downbeat FY20 earnings for BSL, pricing in a decline of 40% at the EBIT line, they have guided to a 45% fall in EBIT from the six months just passed for the first half of 2020. The significant fall will be driven by tightening steel spreads for the first half and falling volumes.

BSL do see a reasonable 40/60 skew in earnings towards the second half. With FY20 consensus EBIT sitting at $803m and applying the 40/60 1H/2H skew to those numbers, guidance now implies a number closer to $700m for the year, or a 12% miss versus current expectations. It also seems like the selloff is being amplified by a headline-grabbing $1b expansion of the North Star mill in the US, which will add 850kt of capacity by 2023. The big capex spend will hurt in the short term, however it is an amount the balance sheet can handle even while the company continues to buy back stock and pay healthy dividends. An in-line result for FY19 while the market's bearish expectations for FY20 where not bearish enough. With the stock trading on just 10x FY20 earnings, it’s hard to be too negative BSL at this juncture. We bought recently below $12 and remain buyers more than sellers of the dip.

BlueScope (BSL) Chart

NiB Holdings (NHF) -6.29%; It’s been a difficult reporting season for MM thus far, however a stock we did own and booked a nice ~47% profit in July is private health insurer NiB Holdings (NHF). Today they traded down -6.29% after reporting a result that was broadly in line with expectations. While the result was decent, the sell-off would have been further amplified by the strong share price gains of recent times. Guidance as is generally the case with NHF was tepid and for a stock trading on 21x, low single digit growth is hardly exciting. The post-election bump in price seems to be wearing off. Our $8.10 sale price looking better than our BSL buy.

NiB Holding (NHF) Chart

Lend Lease (LLC) +10.86%; A nice bump in share price today thanks to a beat at the EBITDA line and a lack of any material surprises. The ‘core’ business is performing well while the engineering business, which has now been deemed non-core continues to struggle. They talked about visibility in earnings and a substantial ‘near $100bn development pipeline’. The core business did profit after tax of $804m while the non-core business which includes engineering & services lost $337m. They say a sale is now underway for this business – something the market clearly took well.

Lead Lease (LLC) Chart

Beach Energy (BPT) +10.80%; Beach rallied back above $2 today on a solid full year. Pre-tax profit of $810m was ahead of expectations, helped by a strong start from their Lattice acquisition integration. Shareholders won’t see much of the income yet despite the company swinging into net cash, increasing capex in a bid to lift production by ~30% in the medium term. Guidance for FY20 was ahead of expectations as well and shareholders welcomed the exploration and development push.

Beach Energy (BPT) Chart

Smartgroup (SIQ) +21.68%: A very strong day for the salary packaging business, one we’ve talked about at MM and held off due to volume issues. They reported 1H19 beats across the board with top-line revenue coming in +3% better than expected while all other metrics followed suit. Importantly, the momentum year on year was reasonably strong and the market is now factoring in decent momentum for their December year-end FY results. Decent numbers in a low volume stock and the price has rallied strongly.

Smart Group (SIQ) Chart

Broker moves;

  • oOh!media Downgraded to Hold at Canaccord; PT A$3.10
  • SmartGroup Upgraded to Add at Morgans Financial; PT A$10.15
  • SmartGroup Upgraded to Outperform at Credit Suisse; PT A$9.80
  • InvoCare Downgraded to Sell at UBS; PT A$12.70
  • Domain Holdings Upgraded to Neutral at UBS; PT A$3
  • Domain Holdings Raised to Neutral at Evans & Partners; PT A$2.56
  • Orora Downgraded to Neutral at UBS; PT A$2.85
  • Newcrest Downgraded to Sell at Citi; PT A$31.05
  • Credit Corp Downgraded to Hold at Morgans Financial; PT A$28.80
  • Aristocrat Upgraded to Buy at Wilsons; PT A$32.69
  • Breville Downgraded to Sell at Wilsons; PT A$13.28
  • Blackmores Upgraded to Buy at Morningstar
  • Southern Cross Media Upgraded to Buy at Morningstar
  • Charter Hall Retail Upgraded to Hold at Morningstar
  • Star Entertainment Upgraded to Buy at Morningstar
  • Star Entertainment Cut to Neutral at Credit Suisse; PT A$3.75
  • Star Entertainment Raised to Positive at Evans & Partners
  • Abacus Property Cut to Neutral at Credit Suisse; PT A$3.87

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James Gerrish
Portfolio Manager
Market Matters

James is the Lead Portfolio Manager & primary author at Market Matters, a digital advice & investment platform with over 2500 members that offers real market intel & portfolios open for investment. He is also a Senior Portfolio Manager at Shaw and...

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