Coles – Where is Fair Value?

Posted on | by Leon Hinde

Coles has under invested in the supply chain and online platform vs Woolworths and therefore, investors need to be prepared for lower returns as Coles steps up capital expenditure over the coming years.

If we assume 3 – 5% EPS growth, (half that of WOW), Coles will offer a 5.4% dividend yield into FY20, based on earnings per share of $0.80

Coles trades on 18x FY19 earnings and with little upside to the share price, we recommend investors add a covered call to enhance the income return.

 

S32 – Production Result Was Solid

Posted on | by Leon Hinde

S32 reported their Dec quarter production numbers which came in above market consensus. The strong numbers increase the likelihood of capital return to shareholders, later this year.

We have S32 trading on 5% forward yield with relatively flat EPS growth.

We note the current Algo Engine sell signals across most resource names, (excluding the energy complex).

 

 

Carsales.com – Algo Update

Posted on | by Leon Hinde

Carsales.com has bounced from the $11 support level and is now trading at $11.95.

Carsales now has businesses in Mexico, Chile, Argentina, Brazil and South Korea and international business contributes 20 per cent of the company’s revenue.

CAR goes ex-div $0.205 on the 22nd of March.

We expect the upcoming earnings release to show 8 – 10% EPS growth, which will support the 4.5% dividend yield.

 

XJO – Lower High

Posted on | by Leon Hinde

The XJO is the first of the major global equity indices to form a lower high formation and display an Algo engine “sell signal”.

We suggest investors stay alert and watch the short term momentum indicators for a rollover.

 

 

Healthscope – Takeover Offer

Posted on | by Leon Hinde

Healthscope has been one of our “high conviction” buy ideas.

Brookfield Capital Partners are finalising due diligence and we expect to see their offer formalised in the coming weeks.

The price gap is now closing, (all cash offer $2.44), as HSO trades at $2.40 today.

S&P500 – Rebound Nearing 50% Retracement

Posted on | by Leon Hinde

A very mild word of caution… US equities have rebounded from the December sell-off and we’re now approaching the 50% retracement mark.

As US earnings get underway for the Dec quarter, we’ve seen bank earnings in-line with consensus.  Towards the end of next week, we’ll begin to see large multinational industrial companies report.  It seems plausible, that markets could see some level of resistance begin to build.

The graph below shows the 2 year history of the S&P500.

Treasury Wines – Buy

Posted on | by Leon Hinde

TWE reiterated its forecast for 25% EBIT growth in FY19. This is in-line with market consensus and is positive for the share price.

TWE is likely to consolidate within the $14.50 to $15.50 price range. At the upper end of the range, we suggest investors look to add a “covered call”.

Example – April $15.50 call is collecting 55 cents per share. TWE also goes ex- div 15 cents on the 7th of March.

 

Our Buy XJO & Oil Strategy

Posted on | by Leon Hinde

In the first few days of 2019 our market positioning was “buy the XJO” and for added leverage to a recovery we advocated “buy oil”.

Two weeks into the New Year and hopes for renewed U.S. – China talks to resolve trade tensions are boosting world stock markets and oil prices.

STW is up 7% and OOO ETFs are 10%.

Chart above: STW ASX200 ETF

Chart above: OOO Oil ETF

Strategy Update: As we near a new “lower high” formation across many markets, we’ll soon look to a more cautious positioning.