Class Action Claim Filed Against CBA

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After a month of speculation, law firm Maurice Blackburn filed a statement of claim in Federal Court yesterday saying the CBA board knew of potential AML breaches in 2015 and failed to tell shareholders.

It’s estimated that the class action could cost the bank hundreds of millions if the suit proves successful. This doesn’t include the AUSTRAC litigation which will begin in November.

Shares of CBA are down fractionally at $76.40  in early trade. Our ALGO engine triggered a sell signal for CBA at $84.20 on July 4th. Since then the shares have posted a low of $73.20 on September 8th.

It’s our base case that the recent recovery in the share price is corrective and that slower loan growth combined with the potential litigation will weigh on the shareprice

Technically, the next key support level is found at around the $71.00 level.

Commmonwealth Bank

 

RIO Extends Share Buyback Scheme

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Shares of RIO Tinto have reached a one-month high of $70.40 following their announcement that they will return a further USD 2.5 billion to shareholders following the sale of Coal and Allied.

This will lift the total shareholder returns to USD 8.2 billion ($4 billion in share buybacks and $4.2 billion in dividends).

Considering that the share buyback scheme will be done off-market, its likely that the shares could be priced 8 to 10% below market value.

Nevertheless, with RIO’s balance sheet getting a shot in the arm, we expect additional returns in dividends in February 2018.

Our longer-term target on RIO is in the $76.00 to $76.50 area.

Rio Tinto

Sonic Gets A Boost

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After trading as high as $24.50 on June 29th, shares of SHL dropped over 15% to post an intra-day low of $20.60 last Thursday.

The company got some good news last week when they won an exclusive contract to provide a pathology laboratory in two of London’s hospitals.

The contract has a term of 12 years and is expected to contribute over 12 million Sterling in revenue per year.

Looking at the internal momentum indicators, the share price is slightly oversold and has upside potential to the $22.70 area.

We consider SHL a reasonable buy/write stock which offers price appreciation and enhanced cash flow with the derivative overlay strategy.

Sonic Health

 

TWE Is Looking To Expand

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Treasury Wine Estates has been in acquisition  talks over the past week with premium winemaker, Robert Mondavi, in the United States

Robert Mondavi Wines, which celebrated its 50th anniversary last year, was bought by beverage giant Constellation Brands for about $US1 billion in 2004.

While it is unclear how progressed the talks with Treasury are, there’s no question that Robert Mondavi would be an excellent fit. The company has plenty of contracted grape supply in the ultra-premium Napa Valley wine region.

Shares of TWE found support just above $13.50 and closed the week 2.5% higher at $14.08.

We see scope for reasonable price appreciation in TWE above $14.50 and will look for an ALGO buy signal at lower levels.

Treasury Wine Estates

XJO UPDATE: Volatility Is On The Rise

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Trading  in the XJO 200 Index posted another week within the sideways “Flag” pattern bounded by the June 15th high of 5834 and the June 8th low of 5637.

It’s worth noting that 4 of the 5 trading sessions last week saw intra-day net changes of almost  1% from open to close (2 days higher, 2 days lower).

This increase in daily price volatility suggests a resolution to this 4-month indecision pattern may occur sooner, as opposed to later.

With the series of “lower highs” since the August high of 5810 still the dominant technical component, we believe the break will point to the downside with the next support level near 5570.

XJO 200 Index

Crude Slides Lower On Saudi Comments

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Spot Crude Oil prices dropped over 2% after comments from a Saudi official that the November OPEC meeting may not result in an extension to the current production cut agreement.

This announcement comes as the return of supply from Libya and increasing rig counts in the USA have kept prices under pressure.

For the week, the front month November Crude Oil contract fell close to 5%.

Technically, Friday’s settlement at $49.25 is the first close below the 200-day moving average since September 10th, which suggests near-term range extension to the downside.

Our ALGO engine triggered a sell signal in OSH on September 28th at $7.10, and a sell signal in STO on September 26th at $4.20.

These trades have been slow to develop but we maintain our downside targets of $6.30 in OSH and $3.35 in STO

Oil Search

Santos

Ansell Gets A Boost From The Lower Aussie

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Since posting an intra-day low of $20.30 on August 15th, shares of Ansell have traded 12% higher to reach $22.81 in early ASX trade today. 

The August low coincided with their FY17 earnings report. Part of that report focused on the level of earnings based in USD and how an stronger AUD could dampen results. 

The AUD/USD has now dropped over 5% since trading at .8125 on September 8th. As a result, ANN shares have pushed higher. 

We currently see ANN trading at 18X earnings and estimate FY18 EPS around USD .95 cents. 

As such, we consider ANN a good buy/write strategy up to $23.50 to increase cash flow and enhance portfolio returns. 

Ansell

 

Big Miss In Retail Sales

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Local economists had expected Australian retail sales to have grown by around 0.3% after a flat report in July.

Instead, retail sales fell by 0.6% in August, and, adding insult to injury, revised the July report to show a 0.2% decline. It is the first back-to-back decline in five years.

Retail names HVN and JBH have both seen their share prices drop over 15% since mid-August and yesterday’s report won’t likely give them a lift.

Over the medium-term, we see scope for HVN to trade back to $3.65 and JBH to slip to $21.70.

 

Harvey Norman

JB HiFi

 

Trade Update: Is Telstra Forming A Base?

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Shares of TLS have been on a protracted downtrend since mid-February when their shares traded as high as $5.22.

Earlier this week, TLS Chairman John Mullen met with institutional investors to assure them that the dividend is unlikely to be cut further.

Telstra announced in September that its 2018 full-year dividend would be reduced by 30% to 22 cents a share…..which Mr Mullen said is effectively the floor.

At the current price of $3.45, a 22 cent dividend pencils out to a 6.3% yield.

It’s our base case that most of the bad news about TLS is priced in and accumulating shares in this price range is a reasonable investment.

 

Telstra

 

Woolworths: Expect More Downside

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On August 23rd, shares of WOW traded as high as $27.75. The current price of $24.60 is over 11% lower in just over a month.

Yesterday the ACCC announced that it will delay its final decision on BP’s proposed $1.8 billion acquisition of WOW’s 527 petrol station sites.

This delay isn’t a bullish factor for the company, but we expect the deal to get over the line and support the share price.

Technically, there is a support level in the $24.20 area which dates back to January of this year. This support level could be tested in the near-term.

Woolworth’s