What Mattered Today; Amazon who?

James Gerrish

A very interesting day for some sectors on the Aussie bourse with the much anticipated launch of the Amazon retail platform in Australia met with very strong buying across the Aussie retail complexJB Hi Fi (JBH) the best of them adding 6.76% to close at $25.73 while Harvey Norman (HVN), which we own with a 4% allocation in our Income Portfolio, clipped its heals adding +6.25% to $4.25. Clearly the Amazon pricing and the delivery terms not as aggressive as some thought + the product offering was not as broad. More on this later.

Other standouts included Telstra (TLS) which put on +3.14%, and Magellan (MFG) which is clearly enjoying the limelight of the Ashes series, a deal worth around ~$20m for 3 years, + they also got upgraded by UBS with the investment bank slapping a $30 PT on the stock, versus todays open of $25.25 - they closed up 6.24% to $26.72 – overcoming the big exit from US tech that we saw overnight. On the flipside, the high PE growth stocks took it on the chin, the things that have done exceptionally well in recent times however the trend we saw in the States overnight has started to flow down under – the likes of BWX Limited (BWX) , a story we like but the stock is too rich and it fell 4.84% today, while A2 Milk (A2M) lost 2.94%, Xero (XRO) fell -3.55% and Hub24 (HUB) was off by -4.67%.

The mkt got bid up on open today, but sellers came out of the woodwork around midday – the 6000 level continues to provide a strong point of resistance. I think we need the mkt to unwind back down to the ~5900 region before having another good crack at 6000 or beyond. Overall, Telco’s the shining light for a change led by Telstra which closed on its highs - the IT stocks were the weakest link following the weak lead from the NASDAQ overnight. An overall range today of +/- 37 points, a high of 5985, a low of 5948 and a close of 5971, off -14pts or -0.23%.

Our Income Report will be out tomorrow, we currently have Harvey Norman (HVN) & Nick Scali (NCK) in the portfolio. CLICK HERE to get tomorrows report which will outline our targets for these 2 stocks.

ASX 200 Intra-Day Chart

ASX 200 Daily Chart

TOP MOVERS

1. Retailers - Pretty sick of talking about Amazon to be honest, and their launch today is a welcome development. I’ve often mused that the reality of the behemoth would prove to be a fraction of what the hype has been during the build-up and the reaction today was interesting, and more or less proved that point. A good note went around our desk today, written by one of the instos and it highlights a few interesting aspects, the bulk of which we had ‘thought’ but now know. Amazon is about convenience, variety and price.

Convenience; Normally would mean same day delivery but Amazon have started with 2 days standard delivery on all products which is NOT that convenient + it costs between $5.99 & $9.99. Priority delivery will cost $9.99 & $11.99 in major metropolitan areas

Variety; Here Amazon does well, but only in individual product categories. E.g search Headphones and you will get 24 pages of results with totalling 783 products in the category, however for now, they lack many key product categories, for example when you search fridge they don’t have your regular run of the mill products, its mostly parts or camping (portable) fridges. When you search TV, you get nothing, only cables. The categories they do have are rich in variety (for the most part), the issue at launch is that they are missing massive categories like TV, Whitegoods, Furniture

Price; A vast majority of stock is from amazon market place, (other retailers use amazon like ebay to sell their goods). Because of this there isn’t the margin for Amazon to be cheaper, so apart from a few headline grabbers in terms of price (some very cheap rice cookers! ) across the board it didn’t excite me.

To give some context here about the spate of Amophobia that has cast it’s shadow over the Aussie retail sector in the last 12 months, stocks have re-rated hard, particularly those that are most exposed to what Amazon offers. Bear in mind that the sector rallied strongly today so that sugar coats some of the moves, however Harvey Norman still down 17% in 12 months, Super Retail down 20% (although Decathlon is also coming here), while JB has done OK in a comparative sense, but still its underperformed the mkt by a big quantum with a massive PE re-rating from 18’s to 12’s on a forward basis. As I said, we own HVN in the Income Focussed portfolio and the move today was strong. This could easily see a re-rate +20% higher.

12 month performance of select retailers

Source; Bloomberg

We also saw a better print in terms of retail sales today, +0.5% versus +0.3% expected and up from the weak print last month of +0.0%.

Harvey Norman Daily Chart

JB Hi Fi Daily Chart

2. Telstra (TLS) – Worth at least a mention this afternoon being up +3.15% on the day, being the 13th best stock in the 200 following broker upgrades yesterday! As we’ve written recently, BIG lines of stock like the one that crossed on the 28th Nov – we wrote about it here, often happen at the low point. In that instance, they crossed at $3.36 – about 100m shares, the daily low was $3.34 and the stock closed today $3.61. We hold TLS in both the income and platinum portfolios, looking to trim into strength, but not yet.

Telstra Daily Chart

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Have a great night James & The Market Matters Team

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Prices as at 05/12/17


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