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Stocks higher in quiet trade

James Gerrish

Market Matters

After opening higher this morning , the market chopped around in a tight +/-15pt range throughout the day, although it did end near the highs of the sessions. A fairly quiet day overall, most action in the healthcare names thanks to a strong update from Resmed (RMD) which saw the stock + while on the flipside, we saw Cleanaway (CWY) out with a ~12% downgrade, the stock down ~20% at the lows before closing off by -13% - Harry covers both of these names briefly below.

Overall, the ASX 200 closed up +45pts or +0.68% today to 6739, Dow Futures are trading fairly flat, down -20pts / -0.07%

ASX 200 Chart

ASX 200 Chart

CATCHING MY EYE;

ResMed (RMD) +11.02%; cracked intraday all-time highs today on a good first quarter - a 16% increase in revenue dropping down to a 19% increase in operating profit vs the first quarter of last financial year. Growth was seen across the business with the company’s sleep apnoea mask benefiting from the introduction of new products. ResMed also noted its software business, which helps health care providers with out of hospital care, saw revenue almost double in the period. While the sleep apnoea tech has been ResMed’s staple, the new software offering provides a lot of upside in the company’s value by providing ‘sticky’ reoccurring revenue with significant margins. Last year we saw RMD shares get sold off despite a reasonable 2nd quarter result and it highlighted that there are a lot of longs in the stock which can often cause shares to sell off on less positive news. We’re buyers of weakness in RMD – if it prevails rather than stepping into strength at current levels.

ResMed (RMD) Chart

Cleanaway (CWY) –13.15%; tumbled today on comments at the AGM. The CEO saying “Due to a combination of lower economic activity, softness in commodity prices… and a reduction in local Queensland volumes…we expect earnings in the first half of FY20 to be in line with FY19.” Not the comments you want to hear from the CEO of a company that’s priced to grow at 12% for the year so traders took shares to the cleaners. The CEO did go on to say they expected a better second half, however on 30x forward PE it’s easy to understand why shares were sold off. To stay flat on FY19, they still need a ~60% second half skew to earnings and to meet market expectations they need to print $100m at the net income line, versus ~$60m in the first half - clearly a big ask. Bingo (BIN) was also caught up in the selling, off -2.07% today. We like BIN but Cleanaway’s comments today justify our caution around the AGM. We will revisit BIN post their AGM next month.

Cleanaway (CWY) Chart

Sectors this week:

Stocks this week:

BROKER MOVES;

· Australian Pharma Cut to Neutral at Citi; PT A$1.50

· Australian Pharma Cut to Speculative Sell at Bell Potter

· Star Entertainment Cut to Underperform at Credit Suisse; PT A$4

· Star Entertainment Raised to Add at Morgans Financial Limited

· Newcrest Raised to Neutral at Credit Suisse; PT A$31.80

· Crown Resorts Cut to Neutral at Evans & Partners Pty Ltd

· JB Hi-Fi Cut to Negative at Evans & Partners Pty Ltd

· Cimic Raised to Neutral at Credit Suisse; PT A$36

· Sandfire Cut to Hold at Bell Potter; PT A$6.41

· Western Areas Cut to Accumulate at Hartleys Ltd; PT A$3.46

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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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