Miners lead the ASX higher

James Gerrish

Market Matters

The local market threatened to fade the rally once again today, but instead some bidders in the afternoon managed to fight off any chance of another intraday slump and sent the index to levels not seen since September last year. It was the resource names seeing the most love again today – Rio Tinto (RIO) cracked and this time held the $100 mark, BHP only a whisker away from $40 – as iron ore continues to receive the most news flow.

Today, Chinese PMI’s were strong and the Iron Ore price put on another ~2% from the morning close. Iron Ore is now up more than 50% since November – massive moves clearly.

Data Today

Locally, retail sales were better than expected while the trade balance was also fairly strong.

Last night’s budget seemed to be in focus today despite Labor likely to take the next election. Two areas we see as getting bipartisan support would be healthcare & infrastructure – these two areas are prioritised at nearly every budget, seen as easy vote getters. Healthcare names tended to do well today, while the infrastructure leveraged plays were mixed although the three big contractors, DOW, CIM & LLC all finished higher.

Overall today, the ASX 200 added +42 points or +0.68% to 6285. Dow Futures are trading up 91pts / +0.35%

ASX 200 Chart


From a share price perspective, a few names caught my eye today – BHP front and centre with the miner now featuring in a number of our afternoon notes – today it locked in a high of $39.91 – just shy of the $40 handle. At MM we’re always keen to give kudos where it’s due and todays price action made me think of a video that James Gerrish did with Shaw’s Resource Analyst, Peter O’Connor back in September 2017. At the time, BHP was trading in the mid $20’s and Peter articulated a through the cycle target of above $40. Worth a retrospective look! Good call Rocky…

Video – James Gerrish & Peter O’Connor talk BHP back in Sep 2017 - click Here to view

Retailers were also a focus area today with a lot of SP volatility under the hood. JB Hi-Fi (JBH) traded in a big range, opening down, recovering but experiencing significant momentum on both sides of the ledger intra-day. The stock closed down -2.28% which was around 3% off its low. Harvey Norman (HVN) also has a volatile session down -3.14% pulling back from near 2018 highs. A couple of exerts interesting from NABs Online Retail Sales Index out today…

NAB Online Retail Sales Index contracted -3.4% in February on a month-on-month, seasonally adjusted basis. This is its worst growth rate in the series history. With the effect of the November sales events now passed, it appears that broader weakness in retail is flowing through to online.

While transaction volumes are growing, the average spend in each transaction appears to be falling. We estimate that in the 12 months to February, Australians spent $28.92 billion on online retail, a level that is equivalent to around 9.0% of the traditional bricks and mortar retail sector

Harvey Norman (HVN) Chart

Smartgroup (SIQ), -8.28%, took a hit today a day after announcing a special dividend and trading higher. The company which runs outsourced administration announced that the CEO had sold a total of 1.1m shares for ‘personal reasons,’ priced at $7.60 after market yesterday, ~6% below yesterday’s close price. The CEO still holds around 3m shares, so it’s not a total departure from the registry however the market never likes an internal seller.

Smartgroup Corporation (SIQ) Chart

Eclipx (ECX), -3.8%, one we have spoken a bit about recently, struggled again after formalising the end of takeover talks with McMillan Shakespeare (MMS), -1.24%. The market assumed this was likely the case, however the announcement also detailed that Eclipx would make an $8m payment to McMillan “for costs… incurred to date in connection with the SIA (Scheme of Implementation).” It seems McMillan held Eclipx to ransom here, with the payment equal to 1.8c/ECX share according to the company. Not one we are interested in.

Eclipx (ECX) Chart

Broker Moves:

· Independence Group Upgraded to Neutral at Macquarie; PT A$4.90\

· Air NZ Upgraded to Buy at UBS; PT NZ$2.90

· Transurban Downgraded to Neutral at Goldman; PT A$13.11

· Woolworths Group Cut to Hold at Deutsche Bank; PT Set to A$31

· Credit Corp Raised to Positive at Evans and Partners; PT A$22.55

· Nine Entertainment Downgraded to Hold at Morningstar

· Beach Energy Downgraded to Sell at Morningstar

· Coles Group Downgraded to Hold at Morningstar

· Bellamy’s Downgraded to Equal-weight at Morgan Stanley; PT A$10

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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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