ETF Update: OOO Is Tracking Crude Oil Higher

Prices of West Texas Intermediate (WTI) Crude Oil moved higher in New York trade, extending the recent rebound to a sixth straight session after a decline in US crude production eased concerns about deepening oversupply.

WTI futures settled up 19 cents at $44.93 per barrel after hitting a two-week high of $45.45 earlier in the day.

Supply disruptions in the Gulf of Mexico from Hurricane Cindy, as well as, increased demand for gasoline in front of the long July 4th weekend have also supported the move higher in Crude.

On June 23, we posted a report suggesting Crude Oil prices had become technically oversold and a reversion higher was likely. We are still looking for a extension of the move higher into the $46.50 area.

Investors looking to profit from higher Crude Oil prices can look to buy the BetaShare ETF with the symbol: OOO.

We started adding OOO to client portfolios in the $12.30 area.

We calculate that when WTI trades back to $46.50, the price of OOO will be near the $14.60 level, which is a reasonable area to take profits.

BetaShare ETF: OOO





US Banks Expand Share Buy-Back Plans

A week after the FED announced that 33 of 34 major US banks had passed their financial stress-tests, the banks have released their revised share buyback and dividend plans.

Analysts had estimated that positive stress-test results would open the way for banks to boost dividends and share buybacks by up to 25%, which could translate to about $30 billion back to shareholders through higher dividends and share prices.

Some of the specific plans include Citi-Group buying back up to $15 billion in shares and increasing their dividend to 32 cents per share, and JP Morgan buying back up to $19 billion in shares and lifting their dividend from 50 cents to 56 cents.

While these announcements were bullish for the share prices today, a longer-term valuation question is: How are the major US banks going to maintain these share and dividend levels?

Against a back drop of lower loan creation, thinner margins and increased bad loan provisions, we’ll track the recent price action and see if the bounce from the recent lows will be sustainable.

JP Morgan






Insurance Australia

IAG expects to see elevated reserve releases in FY17 of ~5% of NEP, and has
upgraded insurance margin guidance to 13.5-15.5%.

We think IAG is now expensive for a general insurer, trading on 18x  FY18 earnings.

Given the current tailwinds, any pullback in price will be moderate and at $6.50 the stock is well supported by a 5% dividend yield.

IAG remains an attractive buy-write.



Rotation Out Of Banking Stocks

Since Treasurer Scott Morrison announced a banking levy in the May 9th budget, banking stocks have been sold off across the board.

It’s become clear that a fair percentage of this investment flow has rotated into the local Insurance names with IAG and Suncorp both posting material gains since early May.

We hold both of these stocks in client portfolios and they are now up 12% and 8% since mid-May, respectfully.

With respect to the re-valuation in the banking shares, NAB has posted a fresh low at 29.00 in early trade today.

Both WBC and ANZ are approaching the lows posted in early June, while MQG and CBA have held up better but are still pointing lower.

On balance, we continue to expect to see rotation out of the banking names to the benefit of the insurance stocks.




Tabcorp – 2019 Earnings Outlook

There are encouraging trends in the core Tabcorp wagering business and the pending merger with Tatts remains an attractive investment case.

Following the Tatts merger, we look at the earnings profile of Tabcorp in 2019 and assess the forward yield and EPS growth.

We estimate Tabcorp could see EPS increase by 15% by FY19, helping to underpin a forward yield of 6%.

Chart – TAH