Australian equities increased by 4% in October with IT up 9.3%, Energy 5.8% and Healthcare 5.5%.
We’ve been allocating towards ORG, WPL, RHC & RMD to help capture these returns. There are incremental further gains in resources and energy, we’re cautious on banks and financials and forecast sideways to lower price consolidation.
High PE companies with US dollar earnings should now run into resistance. Examples being JHX, BLD, RMD, and CPU.
AMC has identified challenging conditions going into 1H18 at its 1Q trading
update and AGM.
Profit headwinds relate largely to Asia and Latin America, along with rising raw material costs. AMC has guided to flat 1H EBIT, yet maintained FY18 guidance of around 5% EPS growth.
AMC trades on a forward yield of 3.6%, based on FY18 EBITDA of $1.6b.
We see the current sell-off as a buying opportunity and recommend investors cover with a $15.50 call option into June 2017, whilst keeping exposure to the February dividend.
CSR lifted their H1 profit by 3.7% as the building products supplier benefited from the firm residential housing market.
However, the market was expecting a better result as CSR shares are down over 5% at $4.48 in early trade.
Our ALGO engine has triggered three sell signals in CSR in the $4.80 to $4.95 range over the last two weeks.
With the internal momentum indicators in “overbought” territory on the daily charts, we now see scope for a move back to the low $4.00 handle.
CSR
Shares in BEN dropped close to 5% yesterday after CEO Mike Hirst told investors at the AGM that APRA’s lending limits had dampened growth momentum and made it harder to compete.
He also said that APRA’s caps on interest-only lending had forced the bank to “slam on the brakes” on these types of loans. Further, he expects total balance sheet growth to be relatively flat during 2018.
Our ALGO engine triggered a sell signal on BEN on August 16th at $12.50. This level has never been challenged during the recent correction higher and we now look at the June 23rd low of $10.50 as the next key support level.
It’s worth noting that yesterday’s sharp drop in the share price was on very heavy volume of 4.2 million shares. The average daily volume over the last three months in BEN has been in the 1.4 million share range.
Bendigo
Domestic banking system lending growth was 2.9%, with positive growth
seen in housing (2.6%) and corporate (2.8%) but negative growth in cards
(-2.9%) and other personal (-2.2%).
ANZ’s lending growth (2.3%)
NAB’s lending growth (2.7%)
WBC’s lending growth (3.5%)
BEN’s subdued lending growth (0.1%)
We forecast that headwinds to Banks’ margins will re-emerge in 2018.
We continue to like WOW as a low risk income play in client portfolios. Our Algo Engine generated a recent buy signal in Woolworths and the stock is held in our top 20 and top 50 model.
Price target of $27. Investors may choose to add a covered call to boost the cash flow.
1Q18 sales update today shows growth in customer transactions driving Australian Food comparable sales growth for the quarter of 4.9%.
Strong double-digit online sales growth in both Australian and New Zealand Food assisted by the rollout of Pick up to all Woolworths and Countdown supermarkets.
Solid sales growth in Endeavour Drinks, with the sales performance of BWS a particular highlight.
Our ALGO engine triggered a buy signal on Crown Resorts on September 28th at $11.10.
Since then the share price has traded in a range between $11.80 and $10.90.
We are seeing an improved technical picture on the stock with buy-side support increasing in the $11.10/20 range.
Over the medium-term, we see the $11.80 level broken to the upside with a potential range extension up to $12.60.
Crown Resorts
Despite the lower quarterly production, and sideways trade in Spot Gold, shares of NCM have gained about 4% from $21.50 to $22.30 over the last six trading sessions.
One of the reasons for this is last week’s 2% slide in the AUD/USD.
NCM sells its Gold on the international market which is priced in US Dollars. As the AUD/USD trades lower, the profit margin on a fixed ounce of Gold increases.
The technical picture has also improved on the stock and we see price resistance near the mid-September level at $23.20. A rally back over $1300 in Spot Gold would likely extend the price range to $23.70.
Newcrest Mining
AUD/ USD
We feel Woolworths provides further upside potential heading into tomorrow’s quarterly trading update.
Price target $27.00
We’ve been buyers of WPL and ORG following the recent Algo Engine buy signals.
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