Edging higher, but wind seems to be coming out of the sails (NHF, SUL, KGN)

Another positive open to trade this morning with the market again having a second crack at the ~7100 region before a range bound day played out, the ASX 200 ebbing within a ~20pt range, although there was some decent variance amongst the sectors. Resource stocks the clear standout, BHP above ~$41, RIO ~$107 & Fortescue (FMG) ~$11.80 the stars. Elsewhere, confession season kicked in with a number of companies, mostly consumer facing names providing weaker than expected trading updates. Kogan (KGN) and NIB (NHF) whacked, Super Retail (SUL) also down but not as much – Harry covers below.

From a very short-term tactical sense the market is looking tired, struggling to hold higher highs intra-day and it looks likely to pause at least here. Of the 14 trading days in Jan so far, 12 have been positive while only two have been down. The trading updates today were a clear warning of what could play out come reporting season. Most are sighting a liquidity driven rally, MM included however interest rates are low for a reason, remember not to forget it!! As an aside, on Friday I flagged that when stocks finish lower in the match (i.e. at 4.10pm) than they were at 4pm by a reasonable margin, it’s a sign of impending weakness – which hasn’t played out as yet, although that theme happened again today on reasonable volume in the futures.

A mixed bag in Asia today but no real moves of note, US Futures were little changed through our time zone while US markets are closed tonight for Martin Luther King Junior day.

Overall, the ASX 200 added +15pts / +0.22% today to close at 7179. Dow Futures are trading marginally higher up by +21pts/+0.07%

ASX 200 Chart

ASX 200 Chart

CATCHING MY EYE

NIB Holdings (NHF) -12.69%: Hit on the back of a sizable downgrade today with the health insurer saying underlying pre-tax profit would be at least $170m versus their prior guidance for at least $200m. The market was sitting at nearly $211m before today’s announcement implying a ~19% reduction on consensus. They sighted an uptick in claims, and importantly, the cost of claims however it seems ‘claims inflation’ was higher than expected which impacted insurance margins. The stock has been struggling for a while, and todays update could be the final nail in the coffin. Our sale in the MM Platinum Portfolio for a ~47% profit now looking a good call. The stock now back on our radar.

NIB Holdings (NHF) Chart

Super Retail Group (SUL) -1.84%: Released 1H20 trading update this morning which showed group sales across the Super Retail brands of nearly 3% growth to 28 December despite the impact of drought and fires late in the second half, however it has not been enough to please the market with shares trading lower throughout the session. The BCF and Macpac brands, Super Retail’s two smallest contributors, were most heavily impacted “due to their higher exposure to the outdoor category” with like-for-like sales falling 0.5% and 7% respectively. Macpac was the only brand to see total sales fall, down 1% in the first half with BCF store openings delivering some growth. Supercheap Auto and Rebel both recorded more than 3.5% total sales; however it was Rebel who won out on a life-for-like basis hitting 3.3%.

The company now expects first half EBIT between $113-115m, around flat on the first half of 2019. The company blamed higher labour costs and a delay in price increases in Macpac ahead of the winter period for tighter margins although they expect this to normalize somewhat in the second half. The market is looking for low single digit EBIT growth over the year, so Super Retail have some work to do in the second half. Although shares were down, they did bounce from the morning lows. We are neutral here.

Super Retail (SUL) Chart

Kogan.com (KGN) –22.17%; the company gave a business update today, covering the trading conditions of the first half which look to have come in behind some lofty expectations the market had. The company has beaten out last year’s half yearly, piggy backed by its highest Black Friday and Boxing Day sales events with Exclusive brands and Kogan Marketplace continuing their strong growth driving active customer growth of more than 10% year on year. Gross profit grew more than 9%, but this was well behind consensus, hence the selloff. We are on the sidelines here, preferring to wait for some buying support to kick in.

Kogan.com (KGN) Chart

Broker moves;

· nib Raised to Neutral at Citi; PT A$6.85

· Qantas Cut to Neutral at Citi; PT A$7.45

· Rio Tinto Cut to Accumulate at Ord Minnett; PT A$112

· Transurban Rated New Sector Perform at RBC; PT A$15

· Metcash Raised to Neutral at Macquarie; PT A$2.65

· Woolworths Group Raised to Outperform at Macquarie; PT A$42.40

· Nufarm Cut to Neutral at Macquarie; PT A$5.77

· Nufarm Cut to Hold at Jefferies; PT A$5.70

· Whitehaven Raised to Hold at Ord Minnett; PT A$2.80

· Independence Group Cut to Sell at Morningstar; PT A$5.20

· Sandfire Cut to Hold at Morningstar

· Ramsay Health Cut to Sell at Morningstar

· Costa Cut to Hold at Morningstar

· Origin Energy Cut to Hold at Morgans Financial Limited

· Metlifecare Cut to Hold at Deutsche Bank

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