The Match Out: Stocks rally, RBA less hawkish than the market, Queensland coal hit by Palaszczuk

James Gerrish

Market Matters

The ASX bounced today with some optimism returning to the screens, particularly the index influences with both banks and the resource/energy stocks finding some form while the defensive areas saw profit-taking.

  • The ASX 200 finished up +90pts/ +1.41% at 6433.
  • The Energy sector was best on the ground (+2.80%) while Financials (+2.65%) & Staples (+1.95%) were also strong.
  • Healthcare (-0.92%) and Utilities (-0.92%) were the weakest links.
  • Coal stocks that operate in Queensland were sold off this afternoon after the Queensland Government tweaked the amount it will pay in royalties – more on that below.
  • Westpac (ASX: WBC) +2.71% launched a new Hybrid deal today with a likely margin of 3.40%, add that to bank bill swaps over the duration (6 years) and the return is near 8%. Good for income investors but it shows how funding costs are going up for the banks.
  • We met with George Frazis and his team today from Bank of Queensland (ASX: BOQ) +2.47% with key takeaways being the big push in technology for the bank to improve customer experience and lower cost to income, some concern/acknowledgment around rising funding costs, but a general optimism around the quality of their loan book. We own BOQ.
  • Aristocrat Leisure (ASX: ALL) +2.45% caught my eye today and looks very good on the charts – we added to our existing position in this recently but it looks like higher prices are very achievable short term. Technically / fundamentally strong.
  • Dexus (ASX: DXS) -1.72% announced that 177 of its 186 assets, comprising 34 office properties, 142 industrial properties and one healthcare property have been externally valued as of 30 June 2022 with an uplift of 2.2% or +$374m
  • PointsBet (ASX: PBH) +9.02% rallied for a second day on the positive funding news from SIG – funding very important when operating in the dollar-sapping US betting market.
  • Paladin (ASX: PDN) +8% on a bounce-back in Energy – this is really just a very leveraged play on the broader energy sector/transition.
  • We hosted a battery metals webinar last week at Market Matters, looking at the Energy transition – James was joined by Analysts Peter O’Connor & Michael Clark – Click Here to Watch
  • RBA Governor Lowe said a 25bps or 50bps hike will be discussed at the next meeting, not a 75bps hike like the US – the AUD fell on that commentary.
  • Iron Ore prices also weighed with Iron Ore down another ~2% - that didn’t help the AUD either.
  • Gold was down a touch trading at $US1835 at our close.
  • Asian stocks were okay, Hong Kong up +1.40%, Japan +1.75% while China was off -0.33%
  • US Futures are all up north of 1%.

ASX 200 chart

Queensland coal

A mid-afternoon announcement from the Queensland State Government sent coal names spiralling into the close. The Palaszczuk Government announced a new royalty scheme on coal miners in the state to kick in after the 10-year freeze on changes ends on 30 June. Coal miners will pay a 20% rate on prices above $175/t, all the way up to an incredible 40% royalty on prices above $300/t. The announcement saw Qld coal names tumble, with Coronado falling 15% from the intra-day high of $1.80 to close at $1.53. Junior miner Bowen Coking Coal (BCB) had it’s market cap cut in half this afternoon before staging a small recovery to close -39.13%.

Coronado (ASX: CRN)

New Westpac hybrid

Westpac today launched a new hybrid security as a roll-over of their existing WBCPE along with a new money offer, although it won’t be large. The new WBCPL will likely be priced at 3.40% over the bank bill swap rate which equates to an extraordinary yield to first call of 7.93% including franking. This is derived by adding the margin to the 6-year swap rate of 4.53%. The new security at 6.15 years is shorter-dated than the recent NAB note and in terms of comparables, the ANZPI (5.75 years) & ANZPJ (6.75 years) straddle the new 6.15-year WBCPL and are trading on respective margins of 3.38% and 3.37% - so there is not a lot of ‘cream’ in this new issue. i.e. normally a new issue will come to market at about a 20bps premium making it unlikely this note will open at a premium to the issue price all things being equal, however, we do expect 3.40% to look attractive through the cycle i.e when more sanity/less risk aversion prevails.

Existing comparable securities to the new WBCPL (Source: Shaw & Partners Income Strategies)

Broker moves

  • SCA Property Raised to Buy at Moelis & Company; PT A$2.97
  • Bega Cheese Cut to Hold at Bell Potter; PT A$4.20

Major movers today

Have a great night,

The Market Matters team.

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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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