Wesfarmers – Income Strategy

Posted on | by Leon Hinde

Wesfarmers has made a takeover bid for Lynas.

Lynas Corporation, Ltd. is an Australian rare-earths mining company, listed on the Australian Securities Exchange as a S&P/ASX 200 company.  It has two major operations: a mining and concentration plant at Mount Weld, Western Australia and a refining facility at Kuantan, Malaysia.

Wesfarmers at $33 provides a low risk entry level, short term growth is limited, we therefore suggest selling a covered call to enhance the income return.

Call our office on 1300 614 002 for more detail on the derivative strategy.

 

Woolworths – Valuation Review

Posted on | by Leon Hinde

Woolworths Group is under Algo Engine buy conditions and is a current holding in our ASX 100 model portfolio.

The company is conducting a $1.7 billion off-market buyback which is 7 to 8% earnings accretive on an after-tax basis. Australian superannuation funds on a 15% tax rate are set to benefit from the off-market buyback.

Woolworths is trading on 23x FY20 earnings, which partly reflects the value of the off-market share buyback. If we assume the buyback is creating up to $2.00 of added value, fair value post the buyback, is sub $30.

Even at $29 – $30, it places WOW on 21x FY20 earnings and 3.1% dividend yield.

This places the stock at a very high valuation relative to the long-term average.

JB Hi-Fi Short Sellers Retreat

Posted on | by Leon Hinde

JB Hi-Fi is under Algo Engine buy conditions and was added to the ASX 100 model in late 2017.

JBH was one of the top performers in March, rallying over 15%. Part of this strength can be attributed to short sellers buying back, or closing out their positions. This is reflected in the fall in data on “open shorts” in JBH.

 

 

 

Woodside – Higher Low

Posted on | by Leon Hinde

Woodside Petroleum is a current holding in our ASX 100 model portfolio.

Recent production guidance suggests 2019 will likely deliver relatively flat production growth.  WPL trades with an implied oil price of around US$55.

Upside in the share price still exists and we suggest adding a covered call option to enhance the income return.

A2 Milk – Valuation Review

Posted on | by Leon Hinde

The A2 Milk Company is under Algo Engine sell conditions and resistance is likely to build around the $13.50 level.

A quick look at the fundamentals puts into perspective the lofty expectations that are currently priced into the stock. 2018 EBIT was $280mn and no dividend was paid out. By 2020 the EBIT needs to double to $560mn to support the forecast 2.3% yield.

We’re skeptical of these consensus growth targets.

XJO – Sell Conditions

Posted on | by Leon Hinde

The S&P/ASX 200 is under Algo Engine sell conditions and the short-term technical indicators now also align. As a reference point, we suggest applying a 10 day moving average and monitoring the market closely, relative to it being above or below the average.

Below the average is a sign of continued weakness.