ASX comes off the boil after a stellar run

James Gerrish

Market Matters

The ASX came off the boil today after a very strong 6 day advance which saw the market rally from a 6203 low to a high yesterday of the 6510 – a 307pt unabated run up led by the influential banking sector. Across the market today, it was the energy stocks that provided most weight at the index level followed closely by the financials while the consumer discretionary stocks brushed off a Reject Shop downgrade to move higher on the session.

US Futures were trading lower throughout our session, down around -100pts on the Dow while Asian markets were also on the back foot, most down around 1%. The move isn’t surprising given the run up in stocks of late, and some short term consolidation is far from a concern. At a technical level, MM remains bullish the ASX200 while the index can hold above 6380.

Overall today, the ASX 200 fell by -18 points or -0.29% to 6491. Dow Futures are trading down -104pts / -0.40%.

ASX 200 Chart

ASX 200 Chart


Aristocrat Leisure (ALL) +7.09%; rallied strongly today after the gaming company released a strong first half result. The gambling leveraged play posted a normalized net profit of $422m for the 6 months, up 17% on the same period last year, coming in slightly ahead of estimates for the half.The EBITDA figure of $766.3m was a 19% improvement, and bettered consensus by nearly 5%. The stock is trading 7.8% late in the session today.

The result was driven by some growth out of the company’s America arm, however the performance of the digital arm has been hailed as the reason for the pop in the share price. At the full year announcement last year, the market sold the stock fearing the digital investment would struggle to meet forecasted returns however stable growth over the half has eased the concern.

Aristocrat also expects incremental gains out of the American arm, seen as an integral part to the company’s current valuation. Positive commentary here has certainly assisted the stock jump today. We own ALL in the Platinum Portfolio

Aristocrat Leisure (ALL) Chart

The Reject Shop (TRS) –7.49%; A big downgrade to earnings expectations today from the discount retailer resulting in the CEO Ross Sudano falling on his sword. TRS now expect a loss for the year ending 30 June of $1-2m compared to guidance for a $3.1 - $4.2m profit (market expectations were at $3.5m profit). TRS have been doing it tough for some time, tracking from a market capitalisation of $194m a year ago to ~$60m today. They did have a takeover offer on the table from Allensford at $2.70 a share, well above Reject Shop's current share price of $2.11 - Allensford failed to gain control of the retailer before the offer closed, and now own 18.99% of the company.

The departure of the CEO is clearly a kneejerk reaction, given they’ll now have an interim CEO in place until they find someone else. Falling sales + falling margins is not a good combination – cost cutting now the main focus as they look to turn around / reposition the business with the help of KPMG. We have no interest in TRS.

The Reject Shop (TRS) Chart

Broker moves:

CSR +6.19% rallied strongly today on a very bullish note from Macquarie, upgrading the stock to outperform with a $4.70 price target. We added CSR to the income portfolio last week at $3.37 and today the stock traded to a $4.17 high. As outlined yesterday in the MM income note, we had been targeting $4.20, however with the dividend of 13cps only a week away + we want the franking credits, we’ll likely hold.

CSR Chart

· Technology One Downgraded to Sell at UBS; PT A$7

· Sonic Healthcare Downgraded to Sell at UBS; PT A$24.90

· AGL Energy Downgraded to Sell at UBS; PT A$21

· Adelaide Brighton Upgraded to Outperform at Macquarie; PT A$4.80

· CSR Upgraded to Outperform at Macquarie; PT A$4.70

· Helloworld Upgraded to Buy at Bell Potter; PT A$5.50

· Computershare Upgraded to Buy at Morningstar

· Stockland Downgraded to Sell at Morningstar

· GWA Group Downgraded to Sell at Morningstar

· Harvey Norman Downgraded to Sell at Morningstar

· Credit Corp Downgraded to Sell at Morningstar

· oOh!media Downgraded to Hold at Morningstar

· Domain Holdings Downgraded to Sell at Morningstar

· Super Retail Upgraded to Overweight at Morgan Stanley; PT A$10

· Fortescue Downgraded to Hold at Renaissance Capital; PT A$8

· Rio Tinto Upgraded to Hold at SocGen

· Northern Star Downgraded to Neutral at JPMorgan

· Evolution Downgraded to Neutral at JPMorgan

· Charter Hall Long Upgraded to Overweight at JPMorgan; PT A$5.25

· Reliance Worldwide Rated New Overweight at Morgan Stanley

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James Gerrish
Portfolio Manager
Market Matters

James is Portfolio Manager & Primary Author at Market Matters, a daily investment report with over 2500 subscribers that offers real market insight. He is also Senior Portfolio Manager within Shaw and Partners heading up a team that manages...

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