Softness For Housing Credit

Posted on | by Leon Hinde | Leave a Comment on Softness For Housing Credit

The Reserve Bank of Australia has released its financial aggregate data. Over the 12 months to May 2017, total credit provided to the private sector increased by 5.0%.

However, for the first time since 2011, the annual growth in dwelling loan approvals turned negative. This has also coincided with a slowdown in loan size growth.

We’re likely to see softer housing credit growth over the next 6 to 18 months.

The major banks  have responded to the lower housing loan growth by  announcing mortgage re-pricing starting with investor & interest only loans.

We believe the net-net impact on bank earnings will result in flat EPS growth over the next 12 – 24 months with the unknown risk being the potential pick-up in bad-debt provisioning.

Chart – MVB

 

 

 

 

 

Chart Update – XJO

Posted on | by Leon Hinde | Leave a Comment on Chart Update – XJO

The ASX200 finished the week up 0.1%. The materials sector was up 2.7% and the the worst performer was the Property Trusts sector, down 4.9% with Stockland down 5%.

The chart below shows a further “lower high” pattern in the index. Thursday’s top at 5820 is now the third counter trend rally that has failed, since the minor downtrend started on the 1st of May, after topping at 5956.

We view 5850 as a key market level and as long as the index trades below this level, caution for downside range extension is advised.

Chart – XJO

Insurance Australia

Posted on | by Leon Hinde | Leave a Comment on 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.

IAG

 

Tabcorp – 2019 Earnings Outlook

Posted on | by Leon Hinde | Leave a Comment on 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

 

 

RIO – $3bn Share Buy-Back

Posted on | by Leon Hinde | Leave a Comment on RIO – $3bn Share Buy-Back

RIO has confirmed that Yancoal remains the preferred bidder of Coal & Allied post a revised and improved offer from Yancoal yesterday.

We expect material free cash-flow (FCF) to be passed through to shareholders despite iron ore falling from its February peak.  In FY18, RIO could return up to $3billion  through share buy-backs.

We remain cautious on the outlook for spot iron ore prices. However, the low levels of debt, low cost of production and aggressive capital management undertaking by RIO will help to provide share price support.

FMG, RIO & BHP will likely see a minor rally from the current oversold conditions,  before turning lower.

Chart – RIO

Take Profit – Ramsey Healthcare

Posted on | by Leon Hinde | Leave a Comment on Take Profit – Ramsey Healthcare

After buying Ramsey Healthcare on the recent pullback to $68.50, we now look to take profit at today’s price levels.

Within the healthcare space, we continue to like SHL, RMD, CSL and Ramsey Healthcare. Although, they’re starting to look a little expensive from a PE perspective.

Trimming profits with a view to buying back in on a pullback makes sense, or selling tight covered call options at current price levels.

Chart – RHCASX:RHC

 

Algo Buy Signal – Origin

Posted on | by Leon Hinde | Leave a Comment on Algo Buy Signal – Origin

Our Algo Engine has flagged a second buy signal within the uptrend on Origin that started back in January 2016.

The first “buy on the dip” signal occurred  in March 2017 at $6.25 and now a new Algo Engine buy signal has been triggered at $6.90.

WPL, OSH and ORG are all likely to find support and trade higher from the current price levels.

Chart – ORG