CBA provided a 3Q18 trading update and the result was soft and reflected declining bad debt charges are no longer offsetting softer revenues and higher operating expenses.
Historically, CBA traded on an average 11% premium to the other banks and we’re now seeing that narrow down to 4%.
CBA
WBC’s 1H18 NPAT of $4.25bn was a strong result and beat most analysts expectations.
Margin expansion and strong contributions from markets & treasury income, showed positive trends and helped to deliver total earnings growth of 4%; outperforming both ANZ and NAB.
We highlight the trend across all bank results where bad debt charges are lower than expected. Provisioning is at historical low levels and there is some early stage evidence of trends within 90+ BDD rising.
Investors should use any recovery from current levels in the banks to sell covered call options or to re-balance overweight holdings.
WBC
Lend Lease has filled the price gap to $18.50 and appears to have found price resistance.
Our initial downside target is the April 9th low of $17.05.
Lend lease
Last week on the blog we looked at the short signal on Orica leading into their earnings result.
1H18 earnings were announced yesterday and they disappointed, with a 37% drop on the same time last year.
NPAT of $124m where as consensus was looking for $149m.
The share price dropped over 5% and reached an intra-day low of $18.70 before recovering to $19.00.
This was a very popular “short” CFD trade on our SAXO Go trading platform; we suggest taking profits on the short ORI position near the $19.00 area.
Orica
The S&P/ASX 200 Index finished the week to Friday up 1.8%.
The best performer was the Information Technology sector, up 4.1% and the worst performer was the Energy sector, up 0.4%.
Resistance for the XJO is 6150.
The NAB result was subdued with revenue growth deteriorating. 1H18 NPAT $2.75bn down 17%, EPS 99cps and Div 99cps.
“looks like a dividend cut is imminent”
1H18 revenue rose just 0.7%, whilst Net Interest Income fell and loan growth was anemic at +1%.
In both the ANZ and NAB results, we’ve seen early signs of bad and doubtful debts, (for 90 days+), beginning to rise from very low historical levels.
Lower loan growth, no revenue growth, increased costs associated with restructuring, competition from technology disruptions, increasing bad debts, wafer-thin bad loan provisioning are reasons to “sell the rally” in the banking shares.
6100 – 6200 on the XJO Index should be a level to review bank holdings.
NAB
We’ve been recent buyers of Medibank following the Algo Engine buy signal at $2.80.
With the stock now trading over $3.00 we recommend investors look to add a covered call option into December at the $3.10 strike price.
The addition of the option premium combined with the September dividend is generating an annualized cash-flow of almost 12%. The strategy also allows for 10% capital growth, should the call option get exercised at expiry.
Medibank goes ex-div $0.30 on the 21st of September.
Our Algo Engine triggered a recent buy signal in CIMIC and we’ve been highlighting the buying support at $44.50.
The upside price range is $48 to $51.
CIMIC goes ex-div $0.75 on the 13th June.
CIM
We recommend the short side of Orica heading into 2H18 earnings announcement on 7th May.
The market is looking for significantly stronger 2H performance and is likely to be disappointed. Orica is trading on stretched valuations and offers a 2.6% forward yield.
Look to sell within the range displayed below.
Orica
IPL reports 1H18 earnings on 9 May.
A key focus in the upcoming result will be the production performance at key locations & progress on formalising the Central Petroleum interim
gas agreement for Gibson Island and gas discovery JV.
IPL was added to our ASX50 model portfolio in May 2017.
Commodities are going through a topping pattern, or at least building resistance at the current level, we encourage investors to take profit in IPL.
2019 EPS $0.23, DPS $0.12 places IPL on a forward yield of 3%.
IPL
Level 17 Chifley Tower
2 Chifley Square
Sydney, NSW 2000
1300 614 002
Investor Signals Pty Ltd
ABN 44 143 555 453