Daily Report
James Gerrish

The weakness across the market persisted again today with the ASX 200 testing and breaking through support and closing on the lows of the session – hard to find a bright spot across the market, and the MM portfolios for that matter. The only stock we hold that managed to breakeven was Healius (HLS) which has some corporate appeal at the moment. While US futures were lower during our time zone, they did tick marginally higher into our close however that seemed to correspond with further selling of aussie stocks. During May, the ASX outperformed strongly v other global markets and it seemed like futures traders were starting to unwind that bet today. That outperformance was largely on the back of expectations around lower interest rates, with the first test of that thesis coming when the RBA meet tomorrow. The front page of the AFR this afternoon running with the headline 3 Reasons Why the RBA may not Cut! That certainly didn’t help the cause today.

Around Asia, markets were mixed however they didn’t experience the selling we did – Hong Kong down -0.10%, China off by -0.41% at time of writing after the Caixin PMI Data (manufacturing) came in slightly ahead of expectations.

At a sector level, the property stocks performed well as did the gold sector while energy was again the biggest laggard.

Overall today, the ASX 200 fell -76 points or -1.19% to 6320. Dow Futures are trading down -139pts / -0.56%.

ASX 200 Chart

ASX 200 Chart

CATCHING OUR EYE;

Eclipx (ECX) 19.64%; the leasing business topped the boards for the second straight session, with today’s move taking the two day rally to a total of 55%. The company which provides fleet management and asset finance announced their first half results on Friday morning which has sent investors into a frenzy despite posting an EBITDA loss of nearly $10m. Eclipx has put a number of its non-core businesses up for sale, or simply dissolve them following downgrading guidance and calling off a merger with McMillan Shakespeare (MMS) back in March. This includes online marketplace GraysOnline, car loan business Right2Drive and its commercial equipment leasing company, all three of which contributed negatively to EBITDA in the half with the proceeds set to be used to pay down debts

The market clearly liked the approach and rewarded the stock with the underlying business performing reasonably well. Eclipx expect the asset review and any subsequent sales to be completed within 4 months. Hard to fight the tape at the moment with the strong momentum, but not one for us at this stage preferring to review on a pullback towards $1.10

Eclipx (ECX) Chart

Boral (BLD) -2.21%; construction materials name struggled today, giving back a portion of Friday’s rally as investors grapple with the company’s investor presentation. Shares initially moved higher, but are struggling today with market commentators stuck on one key aspect of the presentation. The company that the second half is “broadly in range of our expectations …. as always we need a strong June to finish the year.” The company also noted that infrastructure activity growth had begun to slow while residential work remained weak.

So despite maintaining guidance, the FY19 result will come down to the wire, and only stumble over the line if June is strong. We see this as unlikely to hit the target, with a lack of construction activity around Australia Boral is unlikely to see the strong month it needs to meet or beat at the full year result. We see construction growth as nearing the bottom of the cycle, and Boral should benefit from an improving macro outlook when it does.

Boral (BLD) Chart

Broker moves:

· Iluka Downgraded to Hold at Morningstar

· Eclipx Upgraded to Outperform at Credit Suisse; PT A$1.40

· AGL Energy Downgraded to Neutral at Goldman; PT A$22.20

· Boral Downgraded to Underperform at Credit Suisse; PT A$4.40

· St Barbara Upgraded to Neutral at Credit Suisse; PT A$2.72

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