Stocks and themes that stood out in week 3

Interestingly this week we saw some new information coming out of China where they've stopped Australian imports of coal going into the Dalian port. We've known about the slowdown in processing of coal, particularly Australian coal in a number of other ports, so this new information was interesting and certainly impacted the currency when it was announced — falling one cent on the back of that news. We're just waiting for further clarity on what's going on in China regarding this banning of imports of Australian coal into Dalian: whether it'll expand out to other ports, whether it's a one-off, or whether it's something that could continue through the year.

Key themes emerging

This week was the busy week of reporting season, with around 100 companies reporting. From a thematic perspective, we saw costs a bit higher on a number of companies. We observed that companies coming in with high expectations that didn't deliver got punished severely, including Blackmores (ASX:BKL), which was down 25% on the day, and Bingo (ASX:BIN), which was down nearly 50%. Conversely, companies that delivered solid results, without actually underperforming, outperformed quite substantially.

The price is right for retailers?

The market was very focused on the three big retailers Wesfarmers (ASX:WES), Coles (ASX:COL), and Woolworths (ASX:WOW) who all reported this week. We saw quite subdued results from all three. Sales were a bit lower than what the market was expecting, and certainly they called out that the ABS retail numbers were not reflecting the actual retail sales in the big supermarkets.

Wesfarmers, from a Bunnings’ perspective, went into the result with quite low expectations. Given the housing downturn, people were quite concerned about the Bunnings result. It was nowhere near as bad as what the market was expecting. Wesfarmers also surprised the market with a very nice additional $1 special dividend fully-franked, which made a $2 fully-franked dividend for the half —that’s over 8% on a gross debt basis. That actually rallied quite strongly on the day, whereas both Woolworths and Coles fell over given the results were probably a little below expectations.

What we are looking out for in the final week

In the final week, there are fewer companies reporting. Two companies that are of interest to us are BlueScope (ASX:BSL) and QBE (ASX:QBE), both overweight positions in the portfolio. BlueScope is still impacted by the Trump trade war and the housing downturn in Australia, so it'd be interesting to see what their outlook is. Certainly, profitability will be strong, and we're probably expecting capital management from them. On QBE, we're hearing that global insurance is starting to improve, and so it'd be interesting to see what they say on that aspect going forward.

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