Are Ramsay Shares Ready To Rally?

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After posting a 6-month low of $61.05, shares of RHC rebounded Friday afternoon to close the week at $61.85.

RHC shares traded as high $76.15 on August 22nd and have dropped almost 20% over the last month.

While  there’s no guarantee that the $61.00 level is the medium-term turning point, we believe that value investors will do very well to start scaling into long positions at the current share price.

Core earnings per share are expected to grow by 8% to 10% in FY 2018, and the company’s global footprint now extends to 25,000 hospital beds and 1,150 operating theatres across its 221 hospitals and 13 health care and treatment facilities.

Further, as the company generates over 40% of its revenue outside of Australia, when the AUD/USD resumes its down trend, RHC is well placed to benefit from favorable currency movements.

Ramsay Health Care

Will the Tatts/Tabcorp Merger Get Over The Line?

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Shares of Tabcorp have been under pressure this week as the $11 billion merger with Tatts hit another legal hurdle.

On Wednesday, the lengthy merger talks were thrown into uncertainty with the Federal court finding in favor of arguments from the ACCC about why the deal should be reviewed further.

The combination of Tabcorp and Tatts is expected to deliver at least $130 million per year from synergies and business improvements, so shareholders are anxious to get the deal completed.

From the government’s perspective, it’s clear that they would like to continue consolidating corporate bookmakers to tighten up the regulatory aspect of the industry. It’s our base case that his merger will be completed in within a month.

However, we see scope for negative headlines to push the shares back into the low $4.00 support area. After the the merger is completed, we would expect to see TAH shares trade back into the $5.10/25 area.

   Tabcorp

 

CBA Offloads Its Insurance Arm

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Shares of CBA opened higher in early trade on the news that the bank has sold its troubled insurance business to the Chinese owned AIA Group for $3.8 billion.

The sale of Comminsure Life was largely considered a fire sale considering several problems involving denying payments to policyholders and pressuring medical assessors to reject client’s claims.

Our ALGO engine gave a sell signal in CBA on July 4th at $84.00. We consider this bounce in price as corrective and still see scope for CBA shares to return to the low $70.00 handle.

Commonwealth Bank

 

ALGO Update: Stay long CWN

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Our ALGO engine triggered a buy signal on CWN at $11.43 on August 11th.

With the current price around $11.77, the trade has been slow to develop but we still prefer the long side.

CWN will go ex-dividend tomorrow and pay shareholders 30 cents, with 60% franking.

Looking across the gaming sector, we see improving conditions for CWN, SGR and Tabcorp. Seasonal growth in tourist numbers will benefit all three of these names.

We see scope to reach upside targets of $12.80 in CWN, $5.10 in TAH and $5.75 in SGR over the medium-term. 

Crown Resorts

Tabcorp

Star Entertainment

Newcrest Goes Ex-Dividend Today

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Shares of Newcrest are trading lower in early trade as the company went ex-dividend today.

Shareholders will be paid a 9.5 cent dividend, fully-franked, which we expect to increase over the next 6-month period.

The share price has found good buying support in the $22.00 area in recent sessions and we consider the $21.80 to $22.00 levels a reasonable buy zone.

In addition, we have noticed a “higher low” pattern in Evolution Mining (EVN). Our ALGO engine has not yet triggered a buy signal and we will update when that happens.

With a positive base case for spot gold moving higher, we would look for the domestic gold mining sector to improve into year end.

Newcrest Mining

Evolution Mining

Stay Short BOQ

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In a recent analyst review, the forward pricing on BoQ has been gauged at 12% overvalued and  adjusted lower from current levels to $11.50 over the medium-term

The note focused on the bank’s balance sheet being skewed towards residential mortgages  and that a rise in bad debts will put downside pressure on operating margins.

We agree with the initial downside target of $11.50 and see scope for some range extension into the low $11.00 handle.

Bank of Queensland 

 

 

ALGO Update: Sell Pilbara Minerals

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The ALGO engine triggered a sell signal in Pilbara Minerals at 56 cents on the ASX close on Friday.

Shares of the WA-based lithium producer jumped over 40% last week following a report that China plans to ban new petrol and diesel engines by 2030.

We don’t believe this timetable is realistic and that some form of clarification of the policy is likely to be forthcoming from the Chinese government.

In the meantime, investors holding shares in PLS should look to take profits on long positions and look to re-enter back in the 40 cent area.

Pilbara Minerals