Yield Names Get A Boost From Lower US Rates

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As US 10-year bond yields pull back from recent highs, shares in local yield sensitive names have been lifted off their recent lows.

The inverse correlation between US interest rates and GPT, SYD and TCL  has been acute over the last 3-months.

Since January 1st, US 10-year yields have risen over 20%, climbing from 2.40% to reach a 4-year high of 2.95% last week.

During this same period, the share prices of GPT, SYD and TCL have all dropped by over 10%. However, both SYD and TCL gained over 2% on Friday.

It’s our base case that the US 10-yrs will find resistance at the 3% level and offer upside price action in the local yield names.

All three of the above names are included in our ASX Top 50 model portfolio.

We expect to see price appreciation in the 4% to 6% range over the near-term as US yields retrace lower.

 Sydney Airport

Transurban

 

NCM Down 3% On Dismal Earnings Report

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Shares Newcrest have dropped over 3% in early trade as their half-yearly results disappointed the market.

The mining giant announced that revenue was down 5% to $1.7 billion, EBIT fell 50% to $230 million and free cash flow was reduced by 48% to $134 million.

As awful as these headlines appear, there were some bright spots.

The balance sheet improved compared to June 2017 with cash equivalents increasing to $556 million from $492 million.

Net debt improved to $1.436 billion from $1.499 billion, with their net gearing reduced from 16.6% to 15.9%.

 

A dividend of USD 7.5 cents per share was declared with the report, which will be paid to shareholders on May 2nd.

NCM was added to the Top 50 Model Portfolio on December 13th at $22.10.

We will look to add NCM to client portfolios on a pull back below the $22.00 level.

Newcrest Mining

 

WPL Update: Rights Issue Pegged At $27.00

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Shares of Woodside Petroleum remain suspended today pending the final details of their $2.5 billion equity raising.

The company has been clear that the majority of the fresh equity will be used to increase their stake in the Scarborough gas field in WA.

Early reports from institutional brokers signal that the 1-for-9 rights issue at $27.00 is being filled without any hesitation.

As a point of reference, WTI crude oil closed $60.50 per barrel last night. The last time WPL shares traded at $27.00 per share, WTI was near $42.00.

Our ALGO engine triggered a buy signal for WPL on February 12th at $31.30. WPL was added to our Model Portfolio on June 6th at $31.05 per share.

WPL shares are expected to trade again on Monday the 19th.

Woodside Petroleum

 

 

ALGO UPDATE: WFD Is Technically Oversold

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Our ALGO engine triggered another buy signal for WFD at $8.51 into yesterday’s ASX close.

This additional technical buy signal references a “higher low” formation relative to the November lows near $8.15.

Looking at the daily price chart, the gap from the takeover announcement in December has been filled.

This is a key development and suggests the current oversold conditions will likely be met with new buying interest in the near -term

Fundamentally, Unibail-Rodamco, the French retail giant which effected the takeover bid for WFD, has posted a 7.2% increase in 2017 earnings and expects similar growth in 2018.

Since a percentage of the $10.01 takeover price is script, it’s reasonable to expect WFD to get a boost from their result.

WFD was added to our Top 20 Model Portfolio on February 7th at $8.89 per share.

We prefer the long side of WFD at current levels with a medium-term upside target of $9.70.

 

Westfields

 

Technical Update For CCL

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Since posting an intra-day low of $7.52 on November 24th, shares of CCL have been carving out an ascending flag formation.

This is a bullish continuation pattern and is bounded by support at $8.05 and resistance at $8.65. A break of the $8.65 level would point to a measured move targeting the June highs near $9.40.

CCL is due to report earnings next Wednesday, the 21st.

In late November, the company advised that profits for the 12 months to December were expected to be $13 million higher than the consensus of $405 million.

CCL is scheduled to pay a 25 cent dividend on February 27th. At the current price, that pencils out to an annual yield of 5.5%.

Technically, an ASX close above $8.45 would suggest range extension to the $8.65 level.

Coca Cola Amatil

 

 

 

 

 

IAG Posts New All-Time High On Stronger Guidance

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Shares of IAG have rallied over 2.5% in early trade, hitting an all-time high of $7.89, as the company lifted their earnings guidance for the year ahead.

The general insurer reported a 23 % increase in net profit after tax, which hit $551 million in the six months to December, helped by price rises in its consumer and commercial insurance products.

IAG also reported insurance margin widened to 17 %, compared with 13% a year earlier. Further, the company lifted its dividend by 1 cent to 14 cents, which will be fully franked and paid on the 29th of March.

IAG has been in our Top 50 Model Portfolio since January of last year.

We suggest investors can sell the 7.50 calls into June for 25 cents. This will increase cash flow into the portfolio and allow for the 14 cent dividend.

Insurance Australia Group