What Mattered Today; RIO spewing lots of cash...

James Gerrish

The overnight lead from the US market was an optimistic one this morning – we were initially (sharply) higher on open, the ASX 200 hitting a 5938 as the match unwound only to see more selling tick in throughout the day – closing near the session lows at 5876 – some -62pts from the daily low. Still, a 43pts gain for the mkt is still what the Dr ordered after yesterday’s ~200pt decline with the stocks we bought yesterday, Macquarie, RIO, Oz Minerals, Janus Henderson & BHP all looking like good plays today. Janus was disappointing after being up +4% early only close +0.28% higher by the end of trade. RIO was particularly strong which was the case amongst most of the miner which makes sense in an inflationary environment.

At time of writing (4.50pm) US Futures are trading down 0.81% so looking at a negative lead in the US this evening (for now)

A lot of company reports through today;

Genworth (GMA) a bit light on and the stock fell -2.14% (we own for income but currently under review) BWP Trust (BWP) was reasonable with slight upgrades expected – the stock up +2.78% - we don’t own nor do we like the sector however would be interested around $2.80 Carsales (CAR) missed by around 4% in terms of earnings – the stocks was weak leading into the result and fell another 1.74% today – no interest at present Cimic (CIM) the old Leightons did well however they had been trollied the last few days by ~6% Nick Scali (NCK) which we own was better on most metrics bar sales growth, so the mkt sold it off slightly, we have Anthony Scali in shortly for a chat. Guidance of 5%-10% growth ok but mkt positioned slightly higher Janus Henderson (JHG) good result on first work through, earnings better than consensus but costs creeping up – mkt liked it early, opened up +4% but sold pretty quickly there after

RIO just out now….

(Bloomberg) -- Rio Tinto reported underlying profit for the full year that met the average analyst estimate.

  • FY underlying profit $8.63 billion, estimate $8.69 billion (range $8.04 billion to $10.06 billion) (Bloomberg data)
  • Final dividend per share $1.8000
  • FY cash flow from operations $13.88 billion
  • FY revenue $40.03 billion

ASX 200 Intra-Day Chart

ASX 200 Daily Chart

CATCHING OUR EYE

1.Commonwealth Bank (CBA) 76.78 / -0.79%: Reported first half 2018 numbers this morning and the headline result missed consensus however there was a lot of noise in relation to the $375m AUSTRAC provision for civil penalties + $200m expected regulatory, compliance and remediation costs which makes it hard to mark the result against market expectations. They also sold their Life Business during the period so have discontinued operations from that, so comparisons on a like for like basis are hard, but here goes;

- They reported NPAT $4,906m versus consensus of $5,195m - Cash NPAT came in at $4,871m versus consensus of $5,219m - Cash EPS 280cps versus consensus of 300cps - Interim dividend 200cps consensus 206cps - implying % payout ratio (fully franked, in line with guidance of 70% in any first half).

So these numbers are light on. In terms of net interest margin, they printed 2.16% which was strong, CET 1 capital was good at 10.4% and all else appeared okay. The weaker than consensus result seems to be due to AUSTRAC costs which were taken as cash items, and I bet most analysts thought they would be considered non-cash. Strip out AUSTRAC, the result seems fine and nothing of real concern. The outlook is a bit mixed with positive global and local growth trends offset by market volatility and low wage growth – however those comments were made following yesterday’s global moves!

Commonwealth Bank Daily Chart

2. Janus Henderson (JHG) $45.76 / +0.28%: I thought this was a good Q4 result, good in terms of earnings, as was the case with MQG performance fees the main driver however the mkt clearly had an issue with expense growth (12-14% yoy) + they will be taking the cost of investment research onto P&L as result of new European rules known as MiFID II, however they were rubbery on what it ‘could be’ – uncertainty not ideal however I understand their caution! Lucky MM is ahead of the curve here and simply charges a flat fee for our notes – something the investment bank / research world will soon be following!! We own JHG

Janus Henderson Daily Chart

REPORTING THIS WEEK

Another BIG day tomorrow

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

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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.

Expertise

ASX:RIO asx:gma ASX:CAR ASX:NCK ASXCBa ASX;CIM

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