NRW excites but traders take some profits (VUK, NWH)

Early bidding soon gave way to some profit taking as the index eased back from intra-day all-time highs set 15 minutes into the session marginally below the 6900 marker. The ASX200 closed on the session’s low thanks to a 7pt sell off on the closing match. Resources gave up the most points in the session with each of the iron ore names opening higher only to close down around ~0.5%, while gold names were soft throughout. Banks rounded out a difficult week on the back foot, but utilities were the worst hit today.

It wasn’t all bad news though – NRW Holdings (NWH) came back online and traded firmly higher following their capital raise to buy BGC Contracting. Shares closed up 5.3% but were 14% higher (plus a 2c divi) earlier in the session. Virgin Money (VUK), Clydesdale’s replacement, was up 24.54% on their full year result – more on these below.

For the week, stocks were up 137pts, cracking through all-time highs – this equates to a ~2% gain in equities.

Overall, the ASX 200 closed down -18pts or -0.26% today to 6846, Dow Futures are trading down 80pts-/0.28%.

ASX 200 Chart

ASX 200 Chart

CATCHING MY EYE;

Sectors this week:

Stocks this week:

Virgin Money (VUK) +24.54%; The old Clydesdale bank, and prior to that the UK arm of NAB, has seen its shares rocket higher today following their full year result posted to the UK market last night - now up over 70% from the panic lows set last month on hard BREXIT fears and earnings problems tore the stock up. The result itself was a long way from the FY18 result but curbed a multitude of fears the market had from the UK based deposit taker. Underlying profit before tax came in at £539M, around about in line with consensus but 7% below last year.

The statutory after tax figure fell into a significant loss of -£268M thanks to climbing remediation costs from claims against the bank. Net interest margin continued to come under pressure, coming in at 166bps for the full year, but as low as 160bps in the last quarter. Funding costs are rising and the home loan book earnt 8bps less. The result reads poorly, but when shares are priced at around half of NTA, a little goes a long way. Clearly there is trouble within the business, but the market was positioned particularly negative heading into the result. The Virgin Money integration is coming along well, and will complement the business long term if it can be executed properly. A big part of this will be costs, with plenty of fat on the bone here for VUK to carve into. MM is neutral VUK here.

Virgin Money (VUK) Chart

NWH Holdings (NWH) +5.3%; The mining services business came back online today after placing $120m worth of stock at $2.85, a premium to the last traded price on 27^th November. The funds are being used to make a good acquisition that will be earnings accretive by around 14% from the get go. NWR also traded ex-dividend today for 2cps. While the stock was stronger earlier, up 13% at the peak, a rally of 5% following the placement of stock is clearly a vote of confidence by the market on the acquisition. A share purchase plan now open for holders. We own in the Platinum Portfolio.

NRW Holdings (NWH) Chart

BROKER MOVES;

• OZ Minerals Raised to Buy at Canaccord; PT A$10.90
• Metlifecare Cut to Neutral at Forsyth Barr; PT NZ$6.30
• Brambles Cut to Sell at Morningstar
• AMA Group Rated New Neutral at Goldman; PT A$1.38
• Fletcher Building Cut to Sell at Goldman; PT NZ$4.70
• Empired Cut to Hold at Bell Potter; PT 38 Australian cents

Get regular market updates