Leon Hinde

Our Algo Engine triggered a buy signal on BHP back in May at $22.60. With Oil prices remaining well supported, we feel the outlook for BHP earnings has now improved, as to has the prospect for a better price for any divestment of their US energy portfolio.

BHP is currently in the top 20 and top 50 model portfolio’s. We recommend buying BHP and selling $29.50 covered calls into March.

A2  Milk Company continues to deliver increasing sales and margin expansion. Higher margin infant formula is helping to drive margin expansion from 20 to 30%.

Analysts are forecasting revenue to grow from NZ$550m in FY17 to $900m in FY18 and EBIT to increase from $140m to $250m. By 2020 EBIT is expected to increase to $440m.

These are big growth numbers and when we look at what it means for dividends, we’re a little less excited. If we assume these growth metrics are achieved, it places A2 on a 2020 PE of 21x earnings and a 1.5% yield.

The conclusion is, significant earnings growth is required to support a modest yield and high PE in 2 – 3 years time.

We last had an Algo Engine buy signal in A2 back in September 2016 when the stock was trading at $1.80

CYB, (UK bank asset that was owned by NAB & then spun-off into a separate listing), has reported FY17 underlying NPAT of £191m.

The result was better than market expectations, due mainly to a lower credit impairment charge.

Our Algo Engine created a buy signal in CYB back in June, when the stock was trading $4.53.  We’re encouraged by the prospect of increasing future dividend payments and look for the next buy signal on a high low formation.

Graincorp reported FY17 EBITDA  of $390m, up 53% on last year, but below market expectations. The market was looking for a stronger result given the largest east coast crop on record.

Storage & Logistics disappointed, as did the failed synergy targets from its’ Oils investment to date.

Looking out 12 months, we see FY18 earnings per share lower but the dividend remaining steady at $0.30 per share, placing the stock on a forward yield of 3.5%.

Our Algo Engine flagged a short signal under the lower high formation on the 9/11/2017, when GNC was trading at 8.76.

We hold Sonic Healthcare in our ASX 50 model portfolio, following recent Algo Engine buy signal.

FY18 net profit is likely to be around $470m  on $5.5b in revenue, if we assume 5% EPS growth in FY19 and FY20 we get to a forecast net profit of $520m in FY20.

The above growth will see dividends expand from the current $0.77 per share, to $0.86 in 2020.

Like many top 50 companies, we see Sonic as a defensive contributor to portfolios but hardly at compelling value.  It’s only when adding a covered call option that the risk return scenario starts to add up.

We allow moderate capital growth and look to sell $22.50 calls on the other-side of the March dividend, helping us to drive 10 – 12% cash flow from SHL on an annualised basis.

Our Algo Engine recently triggered a sell signal in GMA and we now expect to see price weakness below the recent $3.17 high.

SYD reported October 2017 traffic with total passenger growth of +3.8%. International growth was up +5.8%, while domestic growth was up 2.8%.

Strong international traffic growth should continue to underpin dividend per share growth of 2- 3%.

Sydney airport is trading near full value and investors should add a covered call option to enhance the yield.

We hold SYD in our ASX 50 model portfolio.

CBA has a lower high structure and we see price resistance near the current trading range.

We’ve been warning on the outlook for AZJ based on the high payout ratio and earnings headwinds. The Algo Engine recently triggered a sell signal at $5.25 and we’re now beginning to see the price action roll over.