Algo Update – Harvey Norman & JB Hi Fi
We’ve been highlighting the Algo Engine short signal set-up in Harvey Norman and JB Hi-Fi.
Selling in both names started to picked up yesterday, following the FY17 earnings release by Harvey Norman.
HVN
Ramsey Healthcare – FY17 Earnings
Ramsey reported FY17 NPAT in line with guidance at A$543 million, up +12.7% on the same time last year. Revenue was also in line at A$8.7 billion.
All divisions contributed to earnings growth with Australia & Asia as the standout.
Assuming underlying EPS growth of 15% into FY18, we have Ramsey on a 2.2% forward yield, as dividends increase to $1.45 per share.
We view Ramsey as a strong buying opportunity on the next higher low formation, or Algo Engine buy signal.
Housing & Construction – BLD, JHX & CSR
Boral reported FY17 results that were inline with market expectations, with underlying EBIT of $460m NPAT of $343m. A final dividend of $0.12 per share (50% franked) was declared, taking the full-year dividend to $0.24, up 7% on FY16 and representing a payout ratio of 82%.
FY18 forward dividend yield, based on $0.26, is 3.5%.
The investment case for Boral is the strength of Australian infrastructure and US housing, however, the trends within the housing and construction stocks look less than favorable.
Algo Buy Signal – AMP & SUN
We continue to take a very cautious approach to the market, especially when we look at potential negative events over the next 8 weeks. Also, realizing that we approach this juncture at peak valuations for many global equity markets.
With the above in mind, Investors could be forgiven for wanting to sit on the sideline or only hold the highest of quality names. Traders on the other hand, will continue to remain active and apply stop-losses as a way of mitigating risk.
The Algo Engine has recently flagged buy signals in AMP and SUN. Both of these are reasonable prospects for a bounce from the oversold conditions, although stop losses should be established below the recent pivot point.
Algo Update – GNC
Following a number of analysts upgrading the outlook for Graincorp, the stock rallied over 5% in yesterday’s session.
We’ve been tracking this name, waiting for a reversal with increased volume and conviction. With the stock closing yesterday at $8.64, we now consider the $8.16 low as new support and look for a base to build at or near $8.50, with upside potential to $9.00.
ALGO Update: Stay Short BOQ and BEN
The ALGO engine triggered a sell signal for BOQ on July 25th at $12.00, and for BEN on August 18th at $12.49.
Over the last two weeks, shares of these two regional banks have sold off less than the shares of the 5 larger domestic banking names.
Over the near-term, we see that divergence fading and expect the downside momentum in BEN and BOQ to pick up pace going into September.
We have adjusted our target prices to $11.15 in BEN and $12.05 for BOQ.
Bank Of Queensland
Bendigo Bank
Caltex – 1H17 Earnings
CTX’s 1H17 group NPAT was A$307 million vs guidance of A$290-310 million.
EBIT of A$470 million was also inline with company guidance of $450- 480 million.
FY18 EBIT will remain flat as the company works to reduce costs to off-set losses from the lost WOW supply agreement.
We have Caltex trading on a forward yield of 3.8%.
Gold Jumps On North Korean Missile Launch
Earlier this morning, North Korea launched a ballistic missile that flew over the Northern part of Japan and landed in the Pacific near Hokkaido.
The missile was fired from the Sunan region around 7:30 am, Sydney time, and flew approximately 2,700 km at an altitude of about 550 km.
Both South Korea and Japan responded with a strong statement denouncing Pyongyang’s sharp escalation of tensions in the region.
Gold was already $12.00 higher after the US session and added another $8.00 after the news broke this morning. As illustrated on the chart below, spot Gold broke above a 7-year downtrend line and reached a high of $1324.50.
In an environment of global economic uncertainty and heighten geo-political tensions, we still prefer the long side of Gold and see the next resistance level at $1340.00
We still see scope for more upside in the local Gold names. Both Newcrest and Evolution are trading over 2.5% higher in early trade. We consider an upside target of $23.60 in NCM and $2.95 in EVN as reasonable price targets.
Spot Gold
Newcrest Mining
Evolution Mining
More Troubles For The CBA
Shares of CBA have posted a new low for the year at $76.55 as APRA announced that they will be setting up an inquiry after a series of problems prompted concerns about the bank’s culture, leadership and accountability.
This is not a good addition to CBA’s current AML allegations from AUSTRAC and a class action suit filed on the behalf of shareholders.
On balance, we don’t see any obvious catalyst to drive any of the domestic banking names higher and CBA now has the weakest technical structure.
The next key price support for CBA will be found near the October 2016 area near $75.00.
Commonwealth Bank
AZJ – Stay on the Short Side
We continue to believe AZJ will come under selling pressure as the company moves to lower the future dividend payout ratio.
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