Property stocks now feel the heat (CIM, MQG, FLT)

James Gerrish

Market Matters

The market hit again today despite the RBA’s decision to cut the cash rate by 25 basis points to a historic low of 0.25%, plus they announced arrange of other measures to no-avail. The market was higher this morning, up 3% however a 6% turnaround and we closed near the session lows. The Real-Estate stocks were hit hard today, the 1-2 combination of concern that rents will not get paid at a time when credit markets are also under pressure, simply some huge lines of stock right across the board, sector heavyweight Goodman Group (GMG) down -14.61% = an example. Every REIT (other than GMG, CHC & INA) is now trading below NTA, some at massive discounts (Stockland (SGP) & National Storage (NSR), the latter of which had a deal on the table at $2.40 with two underbidder’s at $2.20, now the stock trading at $1.225, astonishing!

Economic data out this morning however largely backward looking, GDP at 1.8% YoY v expectations of 1.7%, unemployment AT 5.1% v 5.3% expected…yada yada yada…all backward looking though.

Eco Data Today

Source: Bloomberg

Overall, the ASX 200 fell -170pts / -3.44% today to close at 4953 - Dow Futures are trading down -271pts/-1.36%.

ASX 200 Chart – market simply grinded lower

ASX 200 Chart


Regulatory Trading Halts: a total of 6 stocks were halted for 2 minutes by the regulator today for some excessive moves in the session. Credit Corp (CCP) was halted twice in the session – it hit a low of $7.23, down 41% soon after the first halt was lifted, but shares did recover into the close. Contractor Cimic (CIM) wasn’t so lucky with the halt failing to stem the flow of selling as investors jump ship, closing down 31%. Printing business Ive Group (IGL) saw money flee for the exits (albeit it’s a think stocks with only 800k worth of shares trading), particularly late in the day, crashing over 40% today taking the total fall to 75% since the start of February. IDP Education (IEL) cratered as more pressure is placed on travel – Australia has just banned non-residents from entering the country, not a great sign for student placement services. In the travel space, Flight Centre (FLT) and Helloworld Travel (HLO) took a breather – the other travel booking stock Webjet (WEB) spent the day in their own half as they look to raise capital, a sign of things to come.

Cimic (CIM) Chart

Macquarie (MQG) -12.90%: A second tough day on the trot for Macquarie which is not surprising given how heavily linked their revenue is to the market, and how the market has been in recent times.

1. In the GFC, the All Ords declined and average of by 42% from 1H08 to 2H09 and MQG’s revenue declined by 46% over the same period; and

2. Coming out of the GFC, the All Ords increased by an average of 31% from 2H09 to 1H11 and MQG’s revenue increased by 43% over the same period.

They also have around $1.6bn invested in an aircraft business along with a decent exposure to the US energy sector, clearly two areas that are very much under the pump. My view on MQG is that it is a well-run business, it’s exposed to the market (for better or worse) and is the financial company most likely to take advantage of the opportunities that come its way. It was a better company after the last crisis and hopefully the same will happen this time.

Macquarie (MQG) Chart

Flight Centre (FLT) -33.04%: We wrote about this in AM note today (below), however they fell another 33% today and went into a trading halt, not good. They’ll update market shortly on their response to COVID-19 however I would suspect they’ll need to tap markets for equity. They’ve got cash but a big store network and no real near-term revenue potential, lowest prices guaranteed almost an understatement.

From the AM Report today… Retail travel agency Flight Centre is at the centre of lifestyle disruption but its trading at an almost 65% discount to its historical book value while carrying net cash on its balance sheet. Since the GFC, FLT have prepared for downturns like this by carrying a large cash balance and this is proving to be a good move. Obviously, FLT is going to struggle for income in the months ahead, but this business should be well positioned for a rebound if the shutdown does not continue for an extended period of time. The main concern here is the potential liability of closing stores, they’ve already announced the closure of 100 underperforming stores, with more likely.

In the longer term, this shock will put FLT in a better position for the future, however in the short term, more pain is likely.

MM is negative FLT short term however there will be a time to step up and buy this, just not yet

Flight Centre (FLT) Chart


· Premier Investments Cut to Neutral at Macquarie; PT A$11.71

· Lovisa Cut to Neutral at Macquarie; PT A$5.80

· Breville Raised to Outperform at Macquarie; PT A$16

· Super Retail Cut to Hold at Morgans Financial Limited

· Coca-Cola Amatil Raised to Hold at Morningstar

· Cleanaway Raised to Hold at Morningstar

· Ramsay Health Raised to Buy at Morningstar

· Charter Hall Retail Raised to Buy at Morningstar

· Breville Raised to Buy at Morningstar

· JB Hi-Fi Raised to Hold at Morningstar

· Afterpay Raised to Buy at Morningstar

· Growthpoint Raised to Buy at Morningstar

· Dexus Raised to Hold at Morningstar

· REA Group Raised to Outperform at Credit Suisse; PT A$94.80

· Domain Holdings Raised to Outperform at Credit Suisse

· Appen Raised to Outperform at Credit Suisse; PT A$22

· Mirvac Group Raised to Outperform at Credit Suisse; PT A$2.76

· Qube Raised to Buy at Jefferies; PT A$2.39

· Brambles Raised to Hold at Jefferies; PT A$9.57

· Transurban Raised to Buy at Jefferies; PT A$15.41

· Sydney Airport Raised to Buy at Jefferies; PT A$7.99

· Ramsay Health Raised to Overweight at JPMorgan; PT A$63

· Iress Raised to Overweight at JPMorgan; PT A$12

· Oil Search Cut to Underperform at Credit Suisse; PT A$2.23

· Pro Medicus Raised to Positive at Evans & Partners Pty Ltd

· REA Group Raised to Hold at Morgans Financial Limited

· Iluka Raised to Outperform at Credit Suisse; PT A$10

· Oil Search Cut to Equal-Weight at Morgan Stanley; PT A$3.10

· Beach Energy Raised to Equal-Weight at Morgan Stanley

· CBA Raised to Hold at Morgans Financial Limited; PT A$67

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3 stocks mentioned

James Gerrish
Portfolio Manager
Market Matters

James is the Lead Portfolio Manager & primary author at Market Matters, a digital advice & investment platform with over 2500 members that offers real market intel & portfolios open for investment. He is also a Senior Portfolio Manager at Shaw and...

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