The Match Out: ‘Buy the dip’ alive and well, IT leads the way, Uranium remains hot

James Gerrish

Market Matters

While a 5 point gain at the index level implies a lacklustre session, there was a lot happening under the hood. It was a major turnaround from early weakness which had the market hit a 7,440 low before rallying unabated to close at 7,528, an 88 point turnaround as the wall of money buys weakness.

That is very typical of a strong market and while some will list all the entertaining reasons for a market top, the trend remains up and that’s all we need to focus on for now, plus of course backing the right ponies in the race.

  • The ASX 200 finished up 5 points / +0.07% to 7,528
  • Tech & Retailers did best while a delay in the DD timeline for the Santos (ASX: STO) and Oil Search (ASX: OSH) tie-up saw the energy sector lag
  • Materials were down 1% but Fortescue (ASX: FMG) declining around 11% didn’t help, a drop of $2.28 versus a fully franked dividend of $2.11 (equivalent to $3.01) – so it was actually a win for Fortescue shareholders today when all is said and done.
  • Uranium stocks up again, prices now near $US40/lb up from around US$30/lb which is putting a rocket under the sector, Paladin (ASX: PDN) gaining 5% and up around 60% in the last week – more on this below
  • There has been a military coup in Guinea – Guinea is the world’s largest exporter of bauxite, shipping about 85 million tonnes per annum – mainly to China. Given the importance of Chinese investment in Guinea, it’s unlikely that volumes will be materially impacted, although near term uncertainty may have positive implications for bauxite and alumina prices – Alumina (ASX: AWC) was up 3% today, speccy Bauxite miner Metro Mining (ASX: MMI) gained 27%
  • The HealthCo Healthcare & Wellness REIT listed today under code HCW, rallied 16% to close $2.32 v $2 listing, we had a few questions about this one over recent weeks
  • Gold was flat during Asian trade although it was coming off a solid session Friday – Gold around $US1827 at our close, Gold miners did well, Newcrest (ASX: NCM) up 2.5% today, a position I was losing patience with
  • Iron Ore Futures hit again in Asia. Currently down 4.5%, they were down more than 5% earlier on – we continue to remain very cautious Iron Ore prices for now.
  • Asian markets were all higher today, China +2% the best of them
  • US Futures are all up a touch
  • No trade tonight in the US, Labor Day Holiday

Image: ASX200 Index Daily Chart

Uranium – Beam me up Sprotty!

A catchy title for a sector report released over the weekend from Michael Clark at Shaw, he’s called the sector very well and has again re-cut his numbers upgrading his universe as a result. Below looks at his calls in order of preference. We hold Paladin (PDN) in our Emerging Companies Portfolio & for those that want more insight here, I did a ‘Deep Dive’ podcast on PDN a few months back with Clarky – Click Here to Listen to the Podcast . PDN put on ~4% today and is up ~60% in the last week.

Michael’s calls…

  1. Paladin Energy (Buy, A$1.00 PT from 0.56ps)
  2. Vimy Resources (Buy A$0.27ps PT from A$0.25ps PT)
  3. Peninsula Energy (Buy A$0.30ps PT from A$0.17ps)
  4. Boss Energy (Buy from Hold, A$0.30ps PT from A$0.17ps)
  5. Lotus Resources (Hold, A$0.29ps PT from A$0.16ps)
  6. Bannerman Resources (Hold, A$0.28ps PT from 0.14ps)

MM remains bullish (PDN)

Image: Paladin Energy (ASX:PDN) Weekly Chart

Aussie Broadband (ABB) $4.63

ABB +7.67: Rallied hard today after it was flagged in this morning’s BUY HOLD SELL on Livewire click here to view although a positive announcement on fibre might have helped a touch! The momentum in both the business and share price here is strong, the market now factoring in acquisitions that would further underpin growth into FY22 and beyond. We like the stock in the medium term, it’s just now run very hard in a short window.

MM remains bullish ABB

Image: Aussie Broadband (ASX:ABB Daily Chart

Strandline (STA) 18.5c

STA unch: pressing on with the construction of their WA mineral sands project Coburn. The company updated the market today to say that the build is progressing as planned with 90% of the scope contracted. Mineral sands markets have been strong with demand outpacing supply in recent months. Strandline plan to be producing out of Coburn by the December quarter next year, hopeful prices remain buoyant until then. It remains a cheap was to play Mineral Sands, so long as there are no delays or cost blow outs in construction, with shares trading around the support level seen over the last 12 months.

MM is neutral / marginally bullish STA

Image: Strandline (ASX:STA) Weekly Chart

Hansen (HSN) $5.60

HSN -9.24%: the software company struggled today after BGH walked from takeover talks. The private equity group had offered $6.50/sh for the utility billing software business in early June, which was a 25% premium to the prior close. The deal has fallen through following 3 months of due diligence, though the bidder did not cite a reason as to why a binding offer didn’t come through. Hansen recently posted a strong FY21 result and have today maintained the FY25 target of $500m revenue. It looks cheap here, on less than 15x forecast EV/EBITDA, though I suspect there may be some wash out to come following this deal falling through.

MM is bullish HSN

Image: Hansen (ASX:HSN) Daily Chart

Broker Moves

  • Amcor GDRs Cut to Underperform at Jefferies; PT A$15
  • Lendlease Cut to Underweight at Morgan Stanley; PT A$11.40
  • GUD Holdings Raised to Buy at Citi
  • Pro Medicus Cut to Sell at Goldman; PT A$54

Major Movers Today

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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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