What Mattered Today

James Gerrish

Market Matters

Another day that saw buyers happy to bid up stocks fairly strongly in early trade before sellers took hold around midday – and the index drifted lower throughout the session – the mkt just seems to struggle massively above the 6000 level – seems to feel very strange trading above it. we suspect that it will give way, and we’ll trade happily above at some stage, probably sooner rather than later, however a move lower beforehand feels like the path of least resistance for now.

On the positive side,  IOOF (IFL) got upgraded by Morgan Stanley and ran hard on the back of it, Webjet (WEB) spoke at a Goldman’s tech conference this am and the market also pushed that higher, while on the flipside, Fortescue (FMG) traded to a 5 month low sub $4.60 and a BIG $400m line of Telstra changed hands at $3.36 near today’s low of $3.34, with what looked like 1 seller and multiple buyers – about 1% of the company.

The only single holder I can see that would offload that amount is Capital Research and Management Company, which is a massive privately owned US domiciled asset manager – more on this below. Elsewhere, Bitcoin is getting more airtime after breaking $10,000 today, we wrote about in our AM report today for something different while the AFR was probing the announcement this morning from Aurora funds, which has apparently had $1m stolen from a $10m managed fund – astonishing!

On the mkt today, most buying was focussed in the Utilities sector while the Telcos saw some selling – A range on the mkt today of +/-  28 points, a high of 6004, a low of 5976 and a close of 5984,   off -4.5pts or -0.08%.

ASX 200 Intra-Day Chart

ASX 200 Daily Chart


1. Telstra (TLS) - Was hit fairly hard today on uncertainty around what the NBN delays will mean, however most analysts agree that the earnings impact will be limited. Still, that did nothing to stop 1% of the company changing hands today at $3.36 and it looks (only speculation) to be Capital Research and Management Company, which is a massive privately owned US domiciled asset manager – they’re the biggest holders of TLS stock outside Index Funds and it makes sense that they’re a seller – but I stress, we haven’t confirmed this. Clearly, it takes a lot to get a line of stock away of that size without spooking the stock beforehand….and history shows that big lines of stock often transact at / near the low.

Source; IRESS

For those with good memories, you’ll recall that in Feb 2007, the Future Fund received 2.1 billion Telstra shares (about 16.4% of the company) with the shares trading around $5. In 2009 they sold about 684 million TLS shares (representing around 34% of its holding at the time) at a price of $3.47. TLS continued to slide, probably helped by the mkts new found knowledge that the biggest holder was clearly on the offer, then in October 2010, the fund sold another 113.6 million Telstra shares, this time at an average price of $2.66, reducing its holding to around 10%. In Q1 of 2011 as the shares ticked around the lows, they announced it had sold about 50% of its remaining holding, or 620 million shares, taking its holding in Telstra to just 5% of the company. As the shares bounced around $3 they continued to sell, pretty much cleaning out their holding by the end of 2011.

On the market today, TLS hit a low of $3.34 after the big line triggered sell orders, but a decent bounce in to the close. The stock closing down -1.73% to $3.40 – one to watch tomorrow with the overhang gone.

Telstra Daily Chart

2. IOOF (IFL) – had a good day up 2.29% to $11.17 after a number of broker upgrades with analysts taking into consideration the ANZ Wealth acquisition. Near term, the capital raising is dilutive however the purchase is expected to add ~20% per year in FY19 and FY20  to earnings  and that got brokers excited today. Morgan Stanley in particular reckon that $65mil cost synergies will be conservative – we own the stock after buying into the recent cap raising induced weakness.  

IFL consensus...consensus pricing upside of ~10%

IOOF Daily Chart  

3. Fortescue Metals (FMG) – traded down to a 5 month low today which corresponds with a reasonable technical region for a stock that has clearly been unloved. The main issue is around their lower quality ore and the decision by Chinese policy makers to reduce omissions in steel making. Lower ore requires more coking coal and therefore is dirtier to produce, and the Chinese powers are pushing back on it at the moment. Reports are that FMG is copping a 29% discount on their product with 58.3 per cent iron content, which is up from 25.5% in November and just 8.5% in Jan while their lower grade 56.7% product was stable at a 40% discount for December delivery, but up from 16% at the start of this year. The stock closed down -2.98% to $4.56.

A quick look at FMG versus the Iron Ore price

And now versus RIO, who mine higher grade Ore + have a BIG buy back in place, BUT surely the gap is getting too wide?

Fortescue Metals Daily Chart

4. Webjet (WEB) – had a good session (+2.81% to $9.51) after presenting at the Goldman Sachs emerging Technology forum this morning….the main takeout is around growth and on 21x the recent weakness looks to be an opportunity here.

Webjet (WEB) Daily Chart

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Have a great night

James & The Market Matters Team

Market Matters Disclaimer Prices as at 28/11/2017

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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