Rio softens costs guidance

There was very little volatility in the market today with the index ticking within a tight range of around 10 points either side of yesterday’s close – the lead changed eight times before the top 200 softened late in the session. Volumes remain light with school holidays in play contributing to the muted trading day. Under the surface there was a little more at play. Oil names were hit as WTI dipped back below the $US60/bbl level. Communications were dragged by the sector heavy weight Telstra (TLS) which fell -1.84% - the second consecutive day of weakness as the stock comes of the boil. REITs and Utilities were supported with bonds rallying overnight.

Today Harrison Watt sat down with our Primary Contributor James Gerrish covering our current portfolio positioning, the backdrop for lower rates along with some stock ideas as we search for opportunity in an expensive market. CLICK HERE to view.

Overall, the ASX 200 lost -12 points today or -0.18% to 6641. Dow Futures are trading up +9 points / +0.03%.

ASX 200 Chart

ASX 200 Chart

CATCHING OUR EYE;

Rio Tinto (RIO) -0.64%; well underperformed the other iron ore stocks today on the back of soft cost guidance at their quarterly report. Production was hindered over the quarter on weather issues which forced Rio to downgrade production guidance twice, however the strength in the iron ore price has been more than enough to support the stock over the period.

In today’s announcement, Rio looks on track to meet the updated guidance targets from a production standpoint, however the company was forced to increase cost guidance at their main iron ore operations in the Pilbara by $1/t. Also unsettling investors was the commentary around the copper projects. Rio had a softer quarter on the copper front, with volumes reasonable but at a lower grade. The company also flagged some risks to capital needs at the Mongolia underground mine Oyu Tolgoi, which may need an additional $2bn above what has been provisioned. Production is set to achieved here between May 2022 and June 2023. We own Rio in the Income Portfolio.

Rio Tinto (RIO) Chart

Broker moves;

NIB Holdings (NHF) -3.77%; Hit today after two brokers downgraded the stock on valuations grounds. NHF saw an early low of $7.14, down 10%, however buyers stepped up into the weakness. Goldmans put a very bearish $5.63 price target on the stock. However, it's worth noting the analysts rank low on Bloomberg given their bearish view over the past 12 months into what’s been a very bullish period for private health insurers. Citi is more credible in the stock, and they moved to a sell with a PT of $7.05, saying they expect lower rate increases over the next two years. We’ve had NHF on our sell radar for a while, after buying in February at $5.60. Today’s buying into weakness leaves us confident we’ll be able to realise a price above $8.00.

NIB Holdings (NHF) Chart

• NIB Downgraded to Sell at Citi; PT A$7.05
• NIB Downgraded to Sell at Goldman; PT A$5.63
• Perpetual Upgraded to Hold at Morningstar
• Atomos Upgraded to Add at Morgans Financial; PT A$1.63
• Aspen Group Ltd/Australia Cut to Hold at Moelis & Company
• South32 Downgraded to Hold at HSBC

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