Suncorp – Chart Review
Suncorp has created a negative pricing structure and we may see a sell-off from the current $13.75 lower high formation.
The Algo Engine generated a short signal at $14.00 in late December and then again in early January.
Banks – Chart Update
US banks, (see chart below of JP Morgan), are breaking to the upside of their recent consolidation range, and this is likely driving the rebound in the share price of the Australian banks.
NAB reported a 1% fall in earnings following weak revenue growth and a pickup in expense growth. Bendigo Bank failed to deliver growth at the top or bottom line.
CBA reported slightly ahead of expectations with underlying profit growth of 2.8% or $4.9b for the half. ANZ’s quarterly update, (released Friday), reported a 31% rise in profits to $2b for the 3 months to December.
Across all banking results, the NIM or net interest margins, remain under pressure, as does top line revenue growth. These are the same concerns which caused the 10% sell off in banks at the start of this year.
We’ll watch with interest how prices behaves in both the XJO and our major banks this week, as we commence trading with price levels similar to the peak of early January.
XJO – Chart Update
On the 7th of February the XJO index created a new higher low formation as buying support returned and the index rallied from the 5582 low, back to retest the trend high on Friday, when the index closed at 5805.
Currently, ASX 200 stocks which have reported, show an average revenue growth of 3.2% and underlying earnings per share growth of 6.5%. This is the first return to earnings growth in 3 years.
Dow Jones – Chart Update
The Dow Jones index has broken to the upside of the recent 20,000 consolidation range.
Sydney Airports FY16 Earnings
SYD’s FY16 results were in line with market forecasts.
EBITDA of $1.1b and DPS at $0.31. The company has flagged a
higher than expected FY17 distribution of $0.33
FY18 we assume EBITDA increasing to $1.2 billion and based on DPS of $0.35 the stock trades on a forward yield of 5.6%.
Our preference remains TCL over SYD.
Wesfarmers – Selling Call Options
WES has reported a slightly better-than-expected 1H17 result, with EBIT of $2.4b.
Coles’ earnings were disappointing, declining by 2.6% on headline basis or 6% after adjusting for one-off property sales. At a group level, the strong result from the industrial division and Bunnings off set the weakness in Coles.
With Coles accounting for 40% of earnings, we believe group earnings growth will be moderate (3 – 4%) and full value for the stock is $40 – $43.
FY18 we assume revenue of $71.b, EBITDA of $5.9b, Net Profit $3.1b, EPS of $2.70 and DPS of $2.10 placing the stock on a forward yield of 5.5%
With the above in mind, we are selling covered calls over WES and a combination of the dividend and option premium is generating 10 – 12% annualized cash flow.
Treasury Wine Estates – 1H17 Earnings
TWE has reported its 1H17 EBITS of $227m, underlying NPAT was $136m and an interim dividend of$0.13
Assuming 2H17 is in-line with the first half, we expect a full year result slightly above consensus, which currently sits at $440m
FY18 revenue $2.6b, EBIT $490m, EPS $0.42 and DPS of $0.28, places the stock on a forward yield of 2.4%
General Trade Update
SCG and WFD went ex-dividend yesterday at $0.105 and $0.125, respectively. With both names we’ve added tight covered calls to boost the cash flow to 10 – 12% on an annualised basis.
Ansell is a relatively new addition to portfolios and yesterday’s earnings result was slightly disappointing. Again, we’ve been aggressive with the covered calls so we’re not looking for too much on the upside with ANN and we collected between $0.80 to $1.20 for the covered calls. We will look to exit on a rally back towards $23 by April/May.
Amcor reported a terrific earnings result with underlying growth running ahead of market expectations at 5%. This could accelerate up to 8 – 10% in the second half. This supports our $15.50 price target.
CBA’s earnings result tomorrow will be key for the banks. Thus far NAB and BEN have failed to deliver growth on the revenue and profit lines. We shorted BEN from $13.00 and we’ve been aggressive with selling call options over the top 4 banking names.
AZJ reported earnings in-line with market expectations. We remain cautious of the group’s high payout ratio with almost 100% of earnings being paid in dividends. This looks unsustainable in the medium term.
Tomorrow we will be focused on the earnings results for BLD, CBA, CPU, CSL, SHL and WES.
JB Hi-Fi 1H17 Result
JB Hi-Fi 1H17 earnings results beat expectations driven by strong sales and gross margin expansion.
1H17 underlying NPAT of $125 million represented growth of 32%. Assuming FY17 EPS of $1.87, it places the stock on a forward yield of 4.1%.
Our Algo Engine generated a buy signal in both retail names back in December.
Newcrest 1H FY17 results
NCM has reported first half underlying NPAT of US$273m and declared a US7.5cps interim dividend.
Group profit was as expected, yet cash flow was weaker. NCM reported first half EBITDA of US$783m, slightly ahead of forecasts due to lower corporate costs and exploration expenses.
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