Sellers dominate in a weak session – all sectors lower
Sellers dominated today with the index on the skids from mid-morning onwards, the selling really kicking into gear post local inflation data at 11.30am that printed in line with expectations in terms of the headline numbers while the composition was also pretty close to expectations, the one thing that was obvious was a slight increase in housing rents which ticked up +0.1% while a small decline was the expectation – another positive for domestic housing and another (slight ) reason not to cut rates. That probably supported the AUD today which peaked around 68.70c before settling around 68.62c at time of writing. As we’ve seen in recent weeks, buying in the AUD has often corresponded with selling in SPI Futures at that was obvious today…
Inflation Data Today
The selling today was broad based, all areas of the market closed lower with the Telcos hardest hit off by 1.49% followed closely by the high value IT sector, down -1.42% on the day. Industrials and real-estate provided some sort of shelter (relatively speaking) down by -0.17% and -0.38% respectively. Asian markets were down while US Futures were a touch lower, however neither experienced the aggressive selling we saw locally today.
Overall, the ASX 200 closed -55pts lower today to 6689, Dow Futures are trading flat
S&P/ ASX 200 Chart
ASX 200 Chart
CATCHING MY EYE;
Woolies (WOW) -1.40%: Reported a decent set of 1Q20 sales numbers today with their supermarkets division printing +6.6% LFL sales growth, which looks too strong on face value however remember this time last year was when Coles had a number of good promo’s that hurt Woolies – I think Lion King Ooshies + Discover Garden – my youngest took the Ooshies for news on Monday I think!! That said, the outlook statement was light on saying “We are pleased with trading in the year to date and preparations for the Christmas period are well progressed.” – I assume the weakness was a result of 1. The good run in recent times 2. The lack of more meaningful guidance.
Woolies (WOW) Chart
Z1P Co (Z1P) -12.22%: Was trading higher initially on the back of quarterly results that on first run through looked strong however sellers really took to the stock from early highs (+3%) to send it down sharply on the session - this highlights just how long and bullish the mkt is in this part of the bourse. Shaw’s analyst in the stock Jono Higgins wrote…Overall the result represents a strong set of numbers with TV, gross receivables and revenues all beating our expectations and continuing a trajectory of strong growth, across a now sustainably positive operating envelope.Stock is well on track to do $145-150m+ in revenues FY20, versus $84m in FY19 and deliver gross profit of $75m+ which is nearly equivalent to last year’s total revenues number. I’m more cautious on these names at this point in the cycle holding the view that the easy money has been and gone.
Zip Co (Z1P) Chart
Costa Group (CGC) -23%: Hit hard today as they came back online post downgrade & post equity raise, however while there was obviously wreckage and it’s a clear disappointment to holders, the decline was ‘sort of’‘ palatable. While Frank Costa (no longer on the board) would be talking his own book he’s rhetoric is worth noting… "I'm very comfortable with where the company sits, I'm very comfortable with its management, I'm very comfortable with the products that we're actually involved in that we're growing. And it's only just a matter of staying the course," he said.
At todays close of $2.63 the rights, which are now trading under code CGCR are worth 43c or 10.75cps held. Institutions took up 88% of their rights under the issue which is fairly strong with the remainder being put in an institutional book build overnight which cleared at $2.30. CGC will continue to be a volatile beast particularly as the rights issue plays out. 27m shares are held short in CGC so some short covering would be expected from here given shorts are also now short the rights. Assuming the stock remains above $2.20, we intend to take up our rights, however we’re also looking to reduce our overall positon if strength should prevail in the short term towards $3 (simply from a risk perspective). 15m shares trade today.
Costa Group (CGC) Chart
Broker moves; Lots of moves happening about the place….
· ANZ Bank Cut to Hold at Morgans Financial Limited; PT A$29
· SeaLink Cut to Hold at Baillieu Ltd; PT A$5.20
· Fortescue Cut to Neutral at Goldman; PT A$9.20
· Freelancer Raised to Neutral at UBS; PT 79 Australian cents
· Pilbara Minerals Cut to Neutral at Macquarie
· Pilbara Minerals cut to Hold at Baillieu Ltd
· Healius Raised to Buy at Morningstar
· Independence Group Cut to Sell at Morningstar
· Independence Group cut to Hold at Bell Potter; PT A$5.90
· Regis Resources cut to Reduce at Hartleys Ltd; PT A$4.06
· Bega Cheese cut to Hold at Bell Potter; PT A$4.30
· Scentre Group reinstated Underweight at Morgan Stanley
· Charter Hall Group Rated New Overweight at Morgan Stanley
· Dexus Rated New Equal- Weight at Morgan Stanley; PT A$12
· Vicinity Centres Rated New Underweight at Morgan Stanley
· Lendlease Group Rated New Overweight at Morgan Stanley
· SCA Property Rated New Underweight at Morgan Stanley; PT A$2.35
· GPT Group Rated New Underweight at Morgan Stanley; PT A$5.70
· Arena REIT Rated New Overweight at Morgan Stanley; PT A$3.15
· National Storage REIT Rated New Overweight at Morgan Stanley
· Charter Hall Retail Rated New Underweight at Morgan Stanley
· Goodman Group Rated New Overweight at Morgan Stanley
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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...