Markets cool as June 30 approaches

James Gerrish

Market Matters

It felt like some EOFY shenanigans started to play out today with some big lines through on the futures early lifting the market up from its knees into a midday high before drifting lower into the close. Stocks that are tax loss candidates remained in focus and it felt like sellers took an opportunity to offload the dogs and have funds settled before June 30 – a couple of our stocks hit on the back of that.

Asian markets were fairly mixed – ditto for US Futures as both regions await what’s now being touted as the G2 summit between Presidents Trump & Xi.

Overall, the ASX 200 fell -17 points or -0.26% to 6640. Dow Futures are trading down -17 points/-0.07%.

ASX 200 Chart

ASX 200 Chart


Bingo (BIN) flat: Held a site tour today for a group of analysts plus they released an investor presentation before trade this morning. It’s just finished so more wash up tomorrow. However, a couple of key points bearing in mind the stock was a lot quieter than expected today, eventually closing flat.

· No updated guidance provided with their last update on 1 May 2019 still relevant

· Not a huge amount of ground-breaking news really, although more positive than anything. Growth in landfills and recycling positive, growth in infrastructure positive, offsetting weakness in residential construction. However, at their last update in early May they said, headwinds in multi-dwelling residential construction have continued in 2H FY19 and are expected to continue throughout FY20 – so no new news on this front today.

· Price increases have been a focus in recent times and it looks like they will get price increases in FY20 while they’ll also get an uplift from the QLD waste levy in FY20.

· All up, a lot of moving parts – most were positive however the big variable remains residential construction - and this is the main reason the market has a big short position in the stock (about 11%).

MM is sitting on a ~60% profit here – we now have this position on a short lease.

Bingo (BIN) Chart

CSR -1.98%: Building materials company CSR has held its AGM today and the stock fell early before recovering from the lows. The commentary was fairly negative – construction activity/demand for building materials has been weak while they also spoke a lot about the impost of high power prices. The company has a 25% stake in the Tomago aluminium smelter in Newcastle – it employs about 1000 people and that smelter uses around 12% of electricity consumption in NSW each day. To put higher prices into context, CSR's aluminium business was hit with $61 million in higher electricity costs in 2018-19. CSR’s outlook was also reasonably muted, the company saying … Volumes in the two months of this financial year ending 31 March 2020 remain broadly consistent with the final quarter of last year. Recent reductions in interest rates, improving credit availability, stable tax policies and first homeowner support have boosted hopes for an improvement in consumer confidence and demand for housing. The timing of any positive impact is difficult to predict.

Clearly not all beer and skittles today for CSR, however the stock is priced for it, trading on 13x. We hold in the Income Portfolio & remain comfortable following today’s AGM.

CSR Chart

AMP +1.97%; traded higher today but it did set all-time lows yesterday when it briefly traded to the $2.00 level. AMP was today hit with a class action from Slater & Gordon in regards to the fees being charged on pension funds. Lawyers for Slater & Gordon have rounded up 2 million customers of AMP and will allege the trustees of the AMP pension fund products overpaid for administration services which were provided by – you guessed it – other entities within the AMP group.

This class action is not the only problem for AMP – it’s not even the only class action currently being put forward with shareholders taking action on the company’s disclosure of the issues raised within the Royal Commission. In today’s Income Note we linked an interview with Shaw & Partners’ Banking Analyst Brett Le Mesurier in which he also discusses his view on AMP. Click here to view.

AMP Chart

Broker moves; Sandfire (SFR) staged a strong recovery to claw back a large chunk of yesterday’s 11% drop on the back of its move to take over Botswana copper junior MOD. Shares were hit on plans to offer scrip to MOD shareholders which valued the company at ~45c, nearly a 50% premium on the previous close. Analysts were a little more supportive of the deal than the sellers were yesterday – the current Sandfire mine is set to run dry in 2022, and the deal may reap a new 12-year mine for SFR to plunder leading to a potential re-rate. Two analysts upgraded on the news/subsequent price drop.

This one's starting to look interesting

Sandfire (SFR) Chart


· Collins Foods Downgraded to Hold at Morgans Financial; PT A$8.20

· Myer Upgraded to Neutral at UBS; Price Target A$0.59

· Virtus Health Downgraded to Hold at Morgans Financial; PT A$4.87

· Metcash Upgraded to Hold at Morningstar

· Abacus Property Downgraded to Sell at Morningstar

· Sandfire Upgraded to Hold at Morgans Financial; PT A$6.98

· Sandfire Upgraded to Overweight at JPMorgan; Price Target A$8

· Altura Downgraded to Sell at Canaccord; PT A$0.1

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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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