What Mattered Today; A few of our stocks fly

James Gerrish

A positive start to a very busy week for markets with the Telco’s leading the charge higher today. CBA in focus with the announcement of a new CEO, an internal candidate and the stock ticked up as a result while Iluka (ILU) delivered a strong set of production numbers ahead of a busy week for the local miners – seven company scorecards (FMG, NCM, ILU, EVN, SFR, SYR, IGO) in the space of three days!! We talked about the $US this morning, but more comprehensively in the weekend report and this theme is getting a lot of airtime today. Most reckon the AUD is overvalued however the upside momentum is strong, while the flipside is true for the US currency. As mentioned this AM, we think the short term drop in the $US is nearing completion, a shorter term bounce likely with the catalyst being more hawkish comments from the outgoing Fed Reserve Chair Janet Yellen later in the week. For the day the S&P/ASX 200 index rose 25 points, or 0.4 per cent, to 6075 while the All Ordinaries climbed 22 points, or 0.4 per cent, to 6187. Currency traders continued to buy the Australian dollar, which traded at US80.96c late Monday as it continued to hover around multi-month highs against the greenback. Citi has become more bullish local equities upping their CY yearend target for the ASX to 6600 up from 6400 – bullish call on a bullish day!!

Elsewhere in the banking sector, Westpac climbed 0.6 per cent to $31.11 and NAB rose 0.7 per cent to $29.26 while CBA put on 0.7 per cent to $79.19. The Healthcare stocks were also good with CSL, up 1.6 per cent to $149.84, and ResMed, which lifted 2.6 per cent to $12.66.

In terms of stocks on our radar, Zip Co (Z1P) had a corker adding +22% to close at $1.16 on the back of a good quarterly report, Webjet (WEB) rallied 2.88% to $10.35 going against a recent tactical bearish note from Morgan Stanley saying that risks to earnings are high ahead of their Feb 22nd interim result (we disagree and own the stock from $9.54), Lithium names were again strong with Orocobre (ORE) up +5.66% to $7.28 while Kidman Resources (KDR) also saw some love late in the day following our alert. The stock did move quickly however a lot of shares were done around the $1.87 before it started to rally.

ASX 200 Intra-Day Chart – BIG Futures sell off on the close – index whacked 10pts

ASX 200 Daily Chart

1. Commonwealth Bank (CBA) $79.19 / +0.69%: A new CEO for Australia’s largest bank is always a big deal with lots of scrutiny, talking heads having their say and the market weighing up the pros and cons of the decision. Firstly, and this isn’t because I’m told we look alike, I’m sad to see Ian Narev leave. I’ve met lots of CEO’s over the years however have never met one that was as articulate & accurate, sharp and succinct in their communications, and one that has clearly done an exceptional job leading a hugely complicated organisation through a very difficult period – the bank is in better shape for his efforts. I certainly understand the issues with Financial Planning and the AUSTRAC investigation and feel for those that may have been impacted - these are the issues that dominated the media headlines towards the end of his tenure however he’s been responsible for some much more.

The news was dropping this morning as I was air for Sky Business

In terms of Matt Comyn, he’s reasonably young at 42 (as was the case with Narev) he’s smart, exceptional with numbers, he’s been with the bank ~20 years and has headed up the retail bank division very successfully. He was Narevs preferred hire and after a global search, he got the nod. In my view it would have been easier for the Board to appoint an external candidate and pin the blame to Narev. They didn’t do that and I think it’s a strong move giving the position to an internal candidate, a move that supports the view the CBA is a strong organisation despite the external pressure

CBA Daily Chart

2. Iluka Resources (ILU) $1110.17 / +4.85%: A good set of production numbers today with the company increasing production in a strong pricing environment. Strong free cash flow and lower debt while they were upbeat about future pricing .You’ve got to start taking it seriously when a company highlights “structural supply deficits”.

Zircon; Reference Price was increased to US$1,230 per tonne effective from 1 October for a six month period. It is understood that some competitors have increased prices by ~US$125 per tonne in the first quarter 2018; Iluka’s next pricing review will be effective from 1 April 2018.d and this has been well accepted by the market.

Minerals sands (high grade – rutile); Iluka has advised customers of an 8%, or US$70 per tonne, increase in the rutile price effective from 1 January 2018 to 30 June 2018, with contracts now in place for 60% of first half 2018 rutile production. In addition, similar to zircon, Iluka has received enquiries exceeding supply for rutile and will be allocating the remaining production on a spot basis over the year.

We like Iluka Iluka Daily Chart

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Have a great night

James & The Market Matters Team

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Rodney Forrest

Very good call on Z1P - truly undervalued - will be a $1b market cap company

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