Daily Report

Somewhat of a reversion today of the recent trends with the high value growth stocks suffering some selling led by Wisetech (WTC) while a number of the value plays bounced strongly as AGM season heats up. The market was weak on open this morning before minutes from the RBA suggested they were close to cutting rates on Cup day, closer than the market gave them credit for. That saw the Australian Dollar sold off while the market bounced more than +55pts from the lows.

At a sector level, consumer staples and real-estate did well, benefiting from the decline in bonds yields while the materials stocks also traded higher today, up around 0.6%. US Futures were fairly quiet during our time zone while Asian markets were mostly up.

Overall, the ASX 200 gained +47pts/+0.7% today to close at 6814. Dow Futures are trading marginally higher

ASX 200 Chart – Big line of Futures through on the close

ASX 200 Chart – ASX 200 has now broken the August high

CATCHING MY EYE;

Stocks with AGM’s today: A2 Milk (A2M) +11.23%, Wisetech (WTC) -7.69%, Monadelphous (MND) +0.20% , Praemium (PPS) +1.75% , Pro Medicus (PME) -3.27% , Kogan (KGN) –6.59%, Propel (PFP) +1.27%, REA Group (REA) +1.16%, Sonic (SHL) +2.06%
Kogan was decent early before sustained selling throughout the session - now looks a short term sell technically…

Kogan (KGN) Chart

Housing Bulls Emerge: HSBC has become bullish on local housing doubling its forecast for Australian property price increases next year thanks to low rates and easier credit from the banks. They now forecast prices to rise by 5% to 9% in 2020, up from previously expected gains of 0% to 4%, Paul Bloxham, HSBC’s chief Australia and New Zealand economist, said in a note on Tuesday. Sydney & Melbourne in the box seat for the gains with the bank forecasting 8-12% growth in Sydney and 10-14% in Melbourne…Rising asset prices are ultimately good for stocks as well – we all feel good about ourselves when house prices are increasing!

Wisetech (WTC) -7.69%: held their AGM today and re-affirmed guidance for EBITDA of $145 - $153m while the market is currently looking for $151m, however the focus was squarely on the issues raised in the recent short report from J Cap. Rather helpfully, J Cap also sent out a list of questions investors should ask the company at the AGM today...one being the recognition of organic growth rates with WTC claiming organic growth at +33% while J Cap think 10% is the right number. The longer this goes on, the more investors will simply think the stock is ‘all too hard’ and look for growth opportunities without such a grey cloud hanging over them. Think about it, if a Fund Manager, or an market Newsletter for that matter now tips WTC and the short thesis proves accurate, they’ll look like idiots, and we all know how superficial the finance industry is!!

Wisetech (WTC) Chart

A2 Milk (A2M) +11.23%: Dual listed milk product producer A2 Milk has rocketed today, easily the best performer in the top 200 locally as well as the top 50 in New Zealand. The rally comes on comments made at the company’s AGM in Auckland with outlook comments far surpassing the market’s expectations. A2 has started FY20 strongly with expectations of first half revenue to hit $NZ780m to $NZ800m, hitting growth of 29% on the first half of FY19. Margins are also expected to expand to 31-32% in the half with improving price metrics as well as favourable FX moves helping lift the result. Revenue growth has been mostly driven by significant international infant formula growth, particularly in China which saw ~84% growth and now represents over 15% of the revenue make up.

The company does expect some slip in margin in the second half with packaging and input costs creeping higher while also lifting marketing spend and investing in distribution channels through China, however margins are still expected in the range of 31-32%. This compares to market consensus EBITDA margins of circa 28%, or an 11% beat at the EBITDA line if revenue expectations are met which the company is on track to do.

A2 Milk (A2M) Chart

Broker moves;

• PolyNovo Raised to Hold at Baillieu Ltd; PT A$2
• Rural Funds Raised to Overweight at Wilsons; PT A$2.09
• Monash IVF Raised to Add at Morgans Financial Limited
• Domino’s Pizza Cut to Reduce at Morgans Financial Limited; PT A$45.23
• Beacon Lighting Cut to Hold at Morgans Financial Limited
• Coca-Cola Amatil Raised to Neutral at Credit Suisse; PT A$11
• Australian Pharma Raised to Hold at Bell Potter; PT A$1.37
• Appen Cut to Hold at Bell Potter; PT A$28
• Appen Raised to Buy at Baillieu Ltd; PT A$29.32
• SmartGroup Cut to Hold at Morgans Financial Limited; PT A$10.01
• Alacer Gold Cut to Sector Perform at National Bank; PT C$7.50

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