Strong production numbers from RIO to end the week (RIO, NUF)

James Gerrish

Market Matters

A more subdued session to end the first week back on the desk with stocks opening firm before trickling down from early highs into the close (2000 lots of futures done on the death put the boot in late). A few weeks ago I flagged a trend that if stocks fall between 4pm and 4.10pm (in the match) it was a good indicator of weakness to come overseas, so for those with interest, it played out today so theory suggests overseas stocks should be weaker tonight. Doesn’t work all the time however when I see it, I often buy a few puts on the close – today I did that …I'll report back on Monday!

SPI Futures 3-minute intra-day chart

The market was just a stone’s throw away from the 7100 level this morning driven largely by a strong move in the material sector followed closely by the supermarket stocks, on the flipside, the Energy names led by Woodside (WPL) was a drag. A few downgrades today for WPL, a stock we’re now looking to cut from the Income Portfolio – more on that next week however capex intentions imply a possible cut to the dividend.

The first week back on the desk after Christmas is always a touch hard, feels like a long week however the markets have certainly helped us ease back in. A number of quarterly production reports from the mining sector this week with RIO Tinto (RIO) out today, a good read as Harry covers off below.

Overall, the ASX 200 closed up +22pts or +0.32% today to 7064, Dow Futures are trading up 32pts/+0.12%.

ASX 200 Chart

ASX 200 Chart


Rio Tinto (RIO) +1.78%; stock was higher on Dec quarter production report that met expectations across the board – copper, iron ore, aluminium the main segments all meeting guidance. FY20 guidance was much the same with Aluminium and TiO2 expected to be flat year on year, copper slightly behind and iron ore and Bauxite higher than 2019. Iron ore guidance bets production to return to levels near the record 2018 year where Rio shipped 338mt. We like Rio – own it in both portfolios - although not our first pick of the diversified miners at current levels. Iron ore is also trading at elevated levels and while this could continue for some months, it will eventually track lower as the global supply issues ease.

Rio Tinto (RIO) Chart

Nufarm (NUF) –10.02%; shares fell sharply today after the company guided 1H EBITDA to around 50% below last year’s 1st half, and 30% below consensus. Each of the geographies are experiencing earnings pressure with a mix of prices, competition or input costs tightening margins. The company is looking for operations to rebound into the second half, but a big 20/80 skew was already baked in prior to this announcement. If the same skew was overlayed on a first half EBITDA of $60, Nufarm might be able to edge $300m for the full year, 37% below current consensus. Looks to be stuck in a downgrade cycle, not for us.

Nufarm (NUF) Chart

Sectors this week:

Stocks this week:


· Magellan Financial Cut to Underperform at Macquarie; PT A$55 **Trading on 27x this does look overdone

· Perseus Raised to Outperform at Macquarie; PT A$1.20

· Perseus Cut to Underperform at Credit Suisse

· Platinum Asset Cut to Underperform at Macquarie; PT A$4.30

· Alumina Rated New Underperform at Jefferies; PT A$1.95

· Woodside Cut to Neutral at Evans & Partners Pty Ltd; PT A$36 ** lots of downgrades flowing through for WPL after yesterday’s update **

· AMA Group Raised to Buy at Goldman; PT A$1.15

· IMF Bentham Cut to Hold at Baillieu Ltd; PT A$4.85

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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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