CIMIC – $44 Support Level
Our Algo Engine triggered a recent buy signal in CIMIC at $43.20 on April 12th.
The chart below highlights the buying support developing at the $44 price level.
Cimic
Aristocrat reports its 1H18 result on 24 May
Aristocrat reports 1H18 earnings on the 24th of May and we’re forecasting net profit after tax to be up 20%+ to $330 million.
Earnings growth is underpinned by strength in the North America and Digital businesses. If we assume year-over-year 20% EPS growth, ALL trades on FY20 dividend yield of 3%.
We consider ALL expensive, however, momentum continues to favour the long-side with investors advised to run a stop-loss below recent higher low formations.
Aristocrat
RIO – 1Q18 Fully Valued After Production Results
RIO reported mixed 1QY18 quarterly production results. Solid result from Pilbara iron ore, with production and shipments of 80+million tonnes in the quarter. This is equivalent to the top end of 330- 340 mt shipment guidance for the full year.
Copper production was largely in line and aluminium was mixed.
Capital management capacity remains high, with US$5bn in divestment
proceeds expected to settle in the next 12 months.
Resource market strength is likely in the last stages of the current rally and investors should look at selling call options or locking in outright gains.
Rio Tinto
Woodside Petroleum – 1Q18 production
1Q18 revenue for WPL was slightly softer than expected at US$1.169 billion.
Expansion of the WA-based LNG operations will provide longer-term growth, especially given the strength of fundamentals supporting LNG.
Post the acquisition of Exxon’s interest in Scarborough, WPL now holds a 75% stake with partner BHP holding 25%. We expect BHP to be a natural seller of its remaining interest.
Woodside Petroleum
Bank of Queensland – Earnings review
Our Algo Engine generated a sell signal back in February when BOQ was trading at $13.00. The stock closed yesterday at $10.66.
Bank of Queensland 1H18 earnings missed consensus by around 5%. Net profit after tax came in at $182 million and would have been much lower, if it was not for lower than expected bad and doubtful debt provisioning.
The result highlights quality concerns over underlying profitability.
With the stock trading on a 7%+ fully franked dividend, sell-offs will be met with some buying interest.
However, earnings headwinds and a down-turn in the credit cycle, suggests future “short” or sell signals from our Algo Engine are the preferred directional trades.
BoQ
Algo Update – Perpetual Ltd (Short Signal)
Over the past year, Perpetual has experienced $3 billion in net outflows from its Australian Equities funds, equivalent to -13% of assets under management (AUM).
With the stock price down over 20% following the recent ALGO sell signal, we look for the the $37 – $41 range as new buying support.
Transurban + 12% cash flow
Transurban has recently entered into a number of significant transactions, including the $4billion Westgate Tunnel Project, which will help underpin earnings growth of 10% over the next 3 years.
The EBIT growth will flow through to DPS growth of 10% and we see the FY18 DPS of $0.56 increasing to $0.70 in FY21, placing the stock on an attractive forward yield of 6%.
We recommend investors enhance the yield further, by selling a covered call option. A combination of the dividend and the option premium is generating 12% annualised cash flow.
Algo Update – CIMIC Group
Our Algo Engine triggered a recent buy signal in CIMIC Group and the price action is now finding renewed buying support near $44.
We’re comfortable with CIMIC’s s strong balance sheet, with $910 million of net cash on the balance sheet after the company added more than $500 millon in FY17.
CIMIC’s first-quarter FY18 result is due tomorrow and revenue growth is expected to be up 5 – 8% at $3.2 billion+ and profit growth up 10%.
CIMIC trades on a 3.8% forward yield into FY19
Algo Update – Medibank Buy Signal
Our Algo Engine triggered a recent buy signal in Medibank Private and we’re looking for price action to find support near the current $2.80 level.
Note: Technical price gap down to $2.67, lower bound of the support range.
S&P/ASX 200 Index & US Earnings
The S&P/ASX 200 Index finished the week up 0.7%. The best performer was the Materials sector, up 3.8% and worst performer was the Property Trusts sector, down 1.3%.
As the release of US quarterly earnings gets underway, the market is assessing if the expected 17% average EPS growth rate is being met. The bar is even higher for US banks, where the market is looking for earnings to increase 28% on the same time last year.
If you take out the capital markets business and the one-time events, JP Morgan, Wells Fargo and Citigroup have fallen short of expectations. Rising interest rates, market volatility and tax cuts have not produced stronger results and the banking sector sold-off overnight in new York trade.
Bank of America and Netflix will be key results during Monday’s session.
XJO
JP Morgan
Level 17 Chifley Tower
2 Chifley Square
Sydney, NSW 2000
1300 614 002
Investor Signals Pty Ltd
ABN 44 143 555 453