Packer gets the feature – cha ching!

James Gerrish

Market Matters

The market ebbed and flowed around 6220 handle on the ASX 200 today – the positive influence from the material stocks offset by some selling amongst the banks – CBA the weakest link after cutting rates on their fixed mortgages, the stock down -0.59% at $70.25 although it traded back below the $70 handle in early trade. Jamie Packers’ Crown Resorts (CWN) was a standout, adding ~20% after Wynn Resorts lobbed a $10bn bid for the local operator, more on that below however Star Entertainment (SGR) was also up +5.42% in sympathy – this could well be the circuit breaker for the local casino operators after a tough 12 months.

BHP traded up through $40 today, and closed above - the first time it’s traded there since August 2011, just before the US debt downgrade scuttled the mkt while energy stocks more broadly were bid up strongly - Woodside (WPL) adding +2.72% while Santos (STO) put on +2.96%. Asian market were fairly flat today while US Futures tracked marginally lower. Locally, the longer the market hangs around / consolidates the 6200 area, in our view the greater the chance of a move down into the 6000 handle.

Overall today, the ASX 200 ended unchanged while Dow Futures are trading down -55pts / -0.21%

ASX 200 Chart

ASX 200 Chart


As expected, Crown (CWN), +19.68%, rallied on the back of takeover talks with US based Wynn. We suggested in the morning report that the deal may have legs, and the market certainly bought in today although there still remains a ~5% discount to the current 50/50 cash and scrip offer that values crown at around $14.75/sh, close to $10b. It is hard to see value in buying shares here, but also tough to be on the sell side with plenty still yet to play out. Star Entertainment (SGR), +5.42%, caught some of the residual buying with the bid for Crown as the casino space became a little harder to get access to. We like Star, but closer to $4.

Crown Resorts (CWN) Chart

Sims Metals Management (SGM) –3.59% – The largest metals recycler in the southern hemisphere was hit today and to a lesser degree yesterday following a strategy update and site tour. The crux seems to be around a large increase in capital expenditure as Sims targets more aggressive growth to expand their US business plus additional investment in turning waste and landfill into energy . There was some in the market looking for capital management however clearly SGM sees an opportunity and is spending up to take advantage.

The longer term payoff’s look good, however the higher near term capex has provided a weight on the share price. The rationale for buying SGM last week was about higher scrap metal prices – the market here looks to have bottomed and SGM is very much leveraged to it. The rationale remains intact for now.

Sims Metal Management (SGM) Chart

Broker Moves

· Flight Centre Downgraded to Sell at Morningstar

· South32 Downgraded to Sell at Goldman

· Oil Search Downgraded to Neutral at JPMorgan; PT A$8.65

· Senex Upgraded to Neutral at JPMorgan; PT A$0.40

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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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