What Mattered Today; The travel stocks take flight

James Gerrish

The ASX was strong in early trade today before some selling kicked in and we traded down ~20pts from the highs, however when considering that S&P Futures in the US were trading -0.32% during our afternoon, we fared well in a relative sense. A similar story played out yesterday, and again overnight in our futures market with US weakness failing the inflict pain on local stocks. Seems like a big player may be liquidating US holdings and investing elsewhere, Australia copping some of the flow it would seem! Again, a day of big moves for companies that reported results – more big winners than big losers with a few stocks within our portfolio doing well, Webjet (WEB) which put on 16.04% & Oz Minerals (OZL) which added 5.39% - the two standouts.

On the broader market, the Consumer Discretionary sector outperformed, adding 1.12%, while weakness was obvious amongst the Utilities stocks, an overall gain for the ASX 200 of 7 points or 0.12%.

ASX 200 Intra-Day Chart

ASX 200 Daily Chart

Reporting today….

Alumina (AWC) – a reasonable result, highlighted by the big dividend beat, ~30% bigger than expectations. The stock ran early before finishing nearly unchanged today. More on this below. Stock ended up 0.43% to $2.31

Bellamy’s (BAL) – Profit tripled from last year’s first half numbers, volumes and the addition of Camperdown Powder helped move the needle. The revenue figure came in at $175mil, in line with market expectations but it wasn’t enough with BAL being sold off 5.93% to finish at $14.90.

Kogan (KGN) – The online retailer surged today, continuing a stellar 12 months for the company. Sales rose almost 50% to $209.6Mill, about 2% above estimates while the number of active customers also Jumped 40%. KGN finished 18.95% to $8.60.

Flight Centre (FLT) – First half profit up 37%, driven mostly by US tax changes, and a lift in guidance helped FLT jump briefly to all-time highs today. The stock finished up 10.37% to $55.26.

Nine Entertainment (NEC) – A solid net profit line of $174mil was a great result for Nine today, even if about a third of the figure came from the sale of Willoughby offices. It seems the hit that Nine took in last year’s first half result have helped turn the business around. NEC was the best on ground today, climbing 16.22%.

Oz Minerals (OZL) – beat expectations with a profit of $231.1m after tax for 2017 and surprising analysts with a 14c fully franked divided, higher than expected.

Perpetual (PPT) – reported a net profit of $68.1m lifting its 1H18 dividend up 4% to $1.35/share – this is one underperformer in the funds management space and we bought recently in the income portfolio - PPT closed 1.93% to $53.89.

Qantas (QAN) - reported a 1H18 net profit of ~$607m, up 18% from the year prior, beating market consensus. QAN rallied 5.88% to $5.58.

Webjet (WEB) - Investors welcomed its 1H18 result with a net profit of $18.4m despite being down 48% a year ago. With WEB re-iterating its FY18 EBITDA target of over $80m inclusive of its JacTravel acquisition costs, WEB rallied 16.04% to $12.01.

CATHCING OUR EYE

1. Oz Minerals (OZL) $9.39 / +5.39%; Another solid result from Oz today as they delivered their full year results booking beats on all key financial metrics - Sales, EBITDA (small) EBIT and NPAT. On top of that they delivered a 3rd year of higher copper prodn, extending asset life at existing operations (Prominent Hill) to 2029 – remember just a couple of years ago the market ascribed maybe 5-6 years life + in the background they are working up the Carrapateena project nicely. Oz is a company that highlights the amount of money being printed by Aussie miners at the moment – they have almost enough cash at $729m (and NO debt) to cover the capex required to complete the Carrapateena project ($808m) - and that is without talking into account free cash flow over the next 2 years. In the not too distant past, the market was concerned that Oz was ex-growth as they would struggle to fund Carapateena and Prominent Hill was supposedly done and dusted around 2023! We own Oz Minerals in the Platinum Portfolio.

Oz Minerals (OZL) Daily Chart

2. Webjet (WEB) $12.01/ +16.04%; The travel space seems to be hot at the moment with WEB, Flight Centre (FLT) and Qantas (QAN) all reporting strong numbers and rallying hard today. FLT added ~10%, Qantas put on ~6%, WEB up ~15%. The main kicker for WEB today was a significant uplift in revenue plus they guided very strongly. The cherry on the cake being the market positioning around the stock with shorts increasing heavily leading into the result - clearly some decent short covering today however the result was a good one – and shorts got walloped! We own this in the Platinum Portfolio targeting $13.50.

Source; shortman

Webjet (WEB) Daily Chart

3. Alumina (AWC) $2.31 / +0.43%; Seems the market was fixated on the HUGE dividend they announced and failed to appreciate the rest of the numbers – not that they were poor, just the mkt reaction this morning was a very bullish one with the stock trading up to a $2.42 high before tracking lower into the close. The market (we think) has underestimated the potential of cash flow in this business and that will drive strong dividends going forward – today was an entrée’ of what we expect in the future.. We own Alumina in the Platinum Portfolio targeting ~$2.65

Alumina (AWC) Daily Chart

4. Perpetual (PPT) $53.89 / +1.93%; This is a stock that the mkt hates at the moment – it’s in a similar position to that of Platinum (PTM) about 12 months ago as they battled poor performance and outflows. Quality fund managers with good track records go through tough periods, outflows happen and their stock gets hit hard as their multiple re-rates, that’s the time to buy them in my mind. If history is a guide the performance ‘flat spot’ will pass, FUM flow will then turn positive and then we get the added benefit of the stock re-rating back to a sector PE, so the moves on both the downside and upside can be big. The result today was good, about a 2% beat in terms of EBIT and importantly for us, the dividend of $1.35 fully franked is nice. We hold in the MM Income Portfolio

Perpetual (PPT) Daily Chart

REPORTING THIS WEEK

Have a great night

James & the Market Matters Team

The above is an extract from the Market Matters Afternoon Report. To gain access to all reports for the next 14 days, including our picks into the market drop, CLICK HERE

Disclaimer


James Gerrish

James is a Portfolio Manager within Shaw and Partners heading up a team that manages direct equity and option portfolios. He is also the Primary Contributor to Market Matters, a daily investment report that offers real market insight.

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