Property’s good news supports market

James Gerrish

Market Matters

While the market closed fairly flat on the session overall there was some decent movement under the hood . Weakness early leading into an 11.30am low before a sustained grind higher into the close, the buying corresponding with some intra-session weakness creeping into the local currency thanks to a slight reduction in skilled job vacancies over the past month. Iron Ore moved higher in China, Futures +1.7% on the session thanks to a production downgrade from Vale overnight, the move supporting Iron Ore stocks today with Fortescue (FMG) +2.23% and RIO +0.41%, although they did trade down from earlier highs.

Wisetech (WTC) was back on the boards with a volatile session, eventually closing up +8.48%, Kogan (KGN) also had a volatile day after delivering a decent 1Q trading update, closing marginally higher, Harry covers that one below along with Western Areas (WSA) after they kicked off a good start to FY20 with solid production stats with the Nickel company tracking well to meet FY20 guidance for prodn/sales/costs.

At a sector level, property stocks were well supported to close +0.61% higher while the weakest sectors were dominated by the defensives, staples, healthcare & communications

Overall, the ASX 200 closed less than +1 point higher today to 6673 – thanks largely to a big match, Dow Futures are trading down -53pts/-0.20%.

ASX 200 Chart

ASX 200 Chart

CATCHING MY EYE;

Western Areas (WSA) +4.17%; was out with their quarterly production today – the lone ranger after a busy day of reports yesterday. The stock was up before the report hit the tabloids mid-morning and rallied a bit further after the release on a decent set of numbers. Sold nickel was up slightly on pcp, while the average price received was up to $11.50/lb, over 50% higher vs the FY19 average. Costs did track higher, as has been the case for most miners this quarter, but it still came well within guidance. Guidance was maintained on costs and total mined nickel.

The nickel market, although easing slightly over recent weeks, is still tight and miners are set to benefit through better contract terms with customers which should reduce the discount the miner receives.

Western Areas (WSA) Chart

Westpac (WBC) –0.24%; came out with their own remediation expectations ahead of the full year results in the next fortnight or so. WBC are expecting a customer remediation charge of $341m alongside a $36m for the second half, taking the full year’s total notable items to $1.13b after tax. Westpac shares held up after the announcement with remediation costs about in line with expectations, trading more or less in line with peers.

Westpac (WBC) Chart

Dexus (DXS) +3.43%, Vicinity Centres (VCX) +2.67%; the two property stocks continued the good September updates today with both trading higher. Vicinity was boosted by higher moving annual turnover (MAT) which grew 2.6% in the quarter with discount department stores the main driver. Higher MAT allows for better rent negotiations for the landlords. Dexus saw occupancy by income marginally higher at a tight 98.1% and weighted average lease expiry (WALE) out to 4.5 years. This did, however, come at the cost of rising incentives which grew to 14%, up from 13.4% at the end of the prior quarter as the office market eases.

Dexus (DXS) Chart

Kogan.com (KGN) +1%; the online retailer was out with a business update pointing to 16% sales growth and 28% profit growth vs the 1st quarter of FY18 as the company integrates a number of new products to drive revenue and scale. With the site now attracting more than 1.6m active customers Kogan has launched their own suite of energy, mobile, insurance and more to capture more of the customers spending power. Four new brands that were planned to launch at the end of the year hit the market early including Kogan’s push into personal finances with Money Credit Cards coming online earlier this month. The vertical integration continues, with Kogan Travel partnering with Corporate Travel (CTD) to offer white labelled travel services later this financial year.

The significant growth coupled with prudent cost control has resulted in a strong uptick in profits for KGN however shares weren’t confidently higher today trading in a wide range either side of par. The market is expecting lot of Kogan, but also fears the co-owners may come back the market to sell down stock at some stage so no one really appears desperate to own it at these levels – us included.

Kogan.com (KGN) Chart

Service Stream (SSM) -4.33%: was hit today, although the ~4% decline almost feels a win when the stock was off ~10% at the worst. Two factors at play here 1. The MD sold ~1m shares for personal tax reasons via an on market sale, never a good look 2. The AGM was held today and while they said they expected revenue and profits to increase YoY there was nothing more specific . Point 1 I think had more sway however thinking about the timing of the sale in the days leading up to the AGM , it was either good timing from a price perspective (which is a negative reflection on us as buyers), or he was doing it before getting in front of shareholders at the AGM, potentially a very admirable time. The buying from the lows today was encouraging – we remain holders for now.

Service Stream (SSM) Chart

Broker moves; Gold Road (GOR) the big winner today, jumping into RBC’s top pick list following their quarterly yesterday. The stock jumped +13.66% today as a result.

Elsewhere…

· Independence Group Raised to Hold at Argonaut Securities

· Independence Group Raised to Neutral at JPMorgan; PT A$5.70

· Tourism Holdings Cut to Neutral at Forsyth Barr; PT NZD4

· Inghams Raised to Neutral at UBS; PT A$3.10

· Orica Rated New Hold at Jefferies; PT A$25

· Mesoblast ADRs Assumed Overweight at Cantor; PT $23

· Gold Road Raised to Top Pick at RBC; PT A$1.50

· Gold Road Raised to Hold at Baillieu Ltd

· Orocobre Cut to Neutral at JPMorgan; PT A$2.30

· Saracen Mineral Raised to Hold at Canaccord; PT A$3.75

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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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