The Match Out: ASX closes flat, Crown gets a lifeline, Barrenjoey initiates on banks

James Gerrish

Market Matters

The ASX opened higher this morning but the best of it was seen early and the market tracked lower throughout the day. Positive trends in the tech pace overnight flowed through into our market today, Tech stocks up 1.34% while the Utility sector was the biggest drag. Overall, it was a weak session and the market looks tired in the short-term as we approach the end of October.

  • The ASX 200 added 2 points /+0.03% to 7443.
  • IT and Consumer Discretionary stocks were well bid

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  • Crown Resorts (ASX: CWN) +8.70% has kept its Casino licence in Victoria (just) – more on that below.
  • Gold miner Regis Resources (ASX: RRL) -6.14% announced a weak quarter of production today, it had been flagged and management has maintained full-year guidance, but it was weak nonetheless

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  • Mineral Resources (ASX: MIN) -7.04% was also out with production numbers that had a really soft underbelly. The stock rallied around 9% yesterday on a good Lithium announcement, we covered it today in the morning note but today's scorecard for Iron Ore was very weak on higher costs and weak realised pricing due to a bunch of factors. The stock deserved to be down around 7% today, and the metrics outlined today show how important higher Iron Ore prices are for Australia’s fifth-largest producer.
  • Pilbara Minerals (ASX: PLS) +8.13% back online, with a good announcement – more below

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  • China is still talking about capping coal prices and that’s had negative ramifications for coal stocks including Whitehaven Coal (ASX: WHC) -4.23% and Coronado Coal (ASX: CRN) -3.58% - we own both

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  • The ASX’s biggest listing this year – global fund manager GQG Partners (ASX: GQG) – closed today at $1.95 versus the $2 listing. It hit a high of $2.13 in early trade. Management said the $1.19 billion book was covered at $2.10, but, decided to price it at $2.00 to give IPO investors upside. That didn’t play out today

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  • Smart Group (ASX: SIQ) -3.23% upgraded by Credit Suisse and Morgans today

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  • Gold was higher in Asia, +$US11 to $US1804, Iron Ore Futures were +3%.
  • Asian markets were mixed, Japan up 1.8%, Hong Kong -0.51% while China added -0.18%.
  • US Futures are trading higher, the NASDAQ the best of them.

ASX 200 chart

Crown Resorts (ASX: CWN) $10.50

CWN +8.70%: The embattled casino and property company was thrown a lifeline today, retaining its Victorian casino licence under a regime of strict conditions. While it’s clearly positive, the conditions will be tough and the effect on earnings is hard to quantify at this stage. We estimate that Crown’s property portfolio has a value of between $8 and $8.50 a share, and the Casino is now worth around $6.00 in our view, making it around 40% cheap. Star Entertainment (ASX: SGR) also rallied ~5% on the news. Given the remediation required across both Crown and Star following recent revelations, a tie-up to reduce the increased cost of compliance would make excellent sense.

MM is bullish CWN.

Crown Resorts (ASX: CWN)

Banks

Barrenjoey initiated on the banks today with banking analyst Jono Mott leading the coverage. At Shaw, we have a research partnership with UBS, which is where Jono worked previously. While I only had lunch with him once, he’s an exceptional analyst, the best articulator of key themes I’ve come across. The Barrenjoey calls in the banks today were interesting, essentially they are:

  • Bullish National Australia Bank (ASX: NAB) and Bank of Queensland (ASX: BOQ)
  • Neutral Commonwealth Bank (ASX: CBA) and Bendigo Bank (ASX: BEN)

  • Bearish ANZ Bank (ASX: ANZ) and Westpac (ASX: WBC).

Barrenjoey banking calls (Source: Bloomberg

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Pilbara Minerals (ASX: PLS) $2.26

PLS +8.13%: Pilbara emerged from its trading halt today with an announcement around plans to build a lithium processing facility, which sent the stock higher. Pilbara has teamed up with POSCO to build a downstream plant in South Korea. Pilbara will own 18% of the joint venture and supply 315ktpa of lithium spodumene that will be processed into 45ktpa of lithium hydroxide monohydrate (LHM), ready to be used in batteries. Pilbara gets an upfront injection of US$25 million to fund the ramp-up of operations and working capital and will also have the option to increase its stake to 30% in the next few years.

MM remains bullish PLS & long in the Emerging Companies portfolio

Pilbara Minerals

Broker moves

  • Cashrewards was Cut to Accumulate at Ord Minnett; PT A$1.30

  • Sims Raised to Buy at UBS

  • SmartGroup Raised to Outperform at Credit Suisse; PT A$8.90

  • SmartGroup Raised to Add at Morgans Financial Limited; PT A$8.80

  • ANZ Bank Rated New Underweight at Barrenjoey; PT A$27

  • NAB Rated New Overweight at Barrenjoey; PT A$30

  • CBA Rated New Equal-Weight at Barrenjoey; PT A$105

  • Westpac Rated New Underweight at Barrenjoey; PT A$25

  • Bank of Queensland Rated New Overweight at Barrenjoey

  • Bendigo & Adelaide Rated New Equal-Weight at Barrenjoey

Major movers today

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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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