What Mattered Today; Stocks lower but some buying the dip obvious

James Gerrish

Market Matters

A positive move for US Futures during our time zone helped to support our market today with the S&P up 0.81% (+21pts) at time of writing. The ASX obviously opened lower – hit hard after the US market was sold heavily on Friday however buyers stepped in early, the mkt bounced from the lows (-41pts on the ASX 200) and we grinded sideways to mildly higher throughout the day…not a bad effort really. Looking at relative performances, the S&P 500 has now corrected 7.7% since the mid-March high while the ASX 200 is down -3.43% from the same level. The same happened in early Feb when Us stocks dropped ~10% we were down about half that amount, so the outperformance locally is becoming a theme. One supportive factor this week will be the big flow of dividends finding their way into bank accounts – about ~$10b being paid out with a portion no doubt finding its way back in to the market – for some context the mkt traded ~$6bn total today so clearly, dividend payments should provide some support for stocks in the next week or so – as long at the US behaves.

We wrote in the weekend report on Sunday that we’re now 50-50 the market at the moment – as much as we hate fence sitting sometimes it’s hard to throw a leg one way or another – at least until the wind blows hard in one direction. Today’s trade helped the bulls – no doubt about it and if the market can trade back up above 5830 in the first instance that’s a more bullish technical picture.

So after the initial sell off the market tried to pull itself out of its rut and did a reasonable job of it. By the close, the ASX 200 had lost -30pts or -0.52% to settle at 5790 – Golds (unsurprisingly) were the strongest on the boards with Resolute Mining +2.8%; Northern Star Resources +2.7%; Regis Resources +2%.

ASX 200 Chart

ASX 200 Chart


Malcolm Turnbull; A lot written today about 1. The Aussie Cricket Team (not sure what to say about that other than ‘idiots’) and 2. Turnbull  losing his 29th opinion poll. Bloomberg put a good chart out looking at the two party preferred since he took the reins and it highlights why we should be concerned about Labour’s franking credit revolution. When Malcolm Turnbull successfully challenged Tony Abbott to become PM in 2015, he said…. “We have lost 30 Newspolls in a row,” he said. “It is clear that the people have made up their mind about Mr. Abbott’s leadership.”

Kathmandu (KMD) $2.27 /-8.84%; The stock was hit hard today after the shares from their recent capital raise were issued. These were issued at $2.16 with the company closing today at $2.27. This is an interesting stock and one firmly on our radar at the moment for a buy in the Income Portfolio at some point. We covered it in an afternoon report on the 20th March saying….

Kathmandu reported half year numbers this morning which were okay however they announced an acquisition and $60m capital raising at $2.16 per share + SPP at the same level. We haven’t looked closely at KMD for some time however the announcement today – buying a manufacturer / wholesale distributor of footwear (Oboz)  + other outdoor accessories mainly targeted to the North American mkt makes a lot of sense in our view. Retail is clearly tough domestically, however those businesses that are focussed (like Nick Scali) have continued to do okay.

In the case of KMD, they trade on 12x and a 6% yield which is about the average they’ve traded at last year, however in 2016 they had an average PE of 15x, so we’ve seen a decline in earnings + a re-rate on the multiple. The acquisition announced today, while not huge is a step in the right direction. It will be EPS accretive by mid-single digits by FY19 and is a clear move in the right direction which could underpin a multiple re-rate and see the stock price rally back reasonably hard.

The stock will likely get hit when it comes out of the halt however this is a stock worth a look – some more work at least as an income play that has a very low correlation to the market

Kathmandu (KMD) Chart

Have a great night

James & the Market Matters Team


Market Matters may hold stocks mentioned in this report. Subscribers can view a full list of holdings on the website by clicking here. Positions are updated each Friday, or after the session when positions are traded.


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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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