The Australian Competition Tribunal has approved the proposed merger of TAH and Tatts Group (TTS), on the basis that they are satisfied that the merger will result in substantial public benefits and on the condition that TAH divests its Odyssey gaming business.
We see scope for upside in TAH share price as a result of synergy cost savings and the prospect of a large scale share buy back program in 2018.
The XJO has formed a minor lower high and lower low formation. 5836 now acts as resistance.
Australian banking names received a double-dose of bad news last night as the Parliament passed the $6.2 billion banking levy and Moody’s downgraded their long-term credit ratings citing risks associated with the local housing market.
Shares in all the major banks have opened lower today with Westpac half-a-percent lower. The banking stocks have posted a rebound over the last few sessions but now look poised to re-test the lower price levels seen in early June.
Our ongoing concern about the banking sector’s current valuations have been: limited growth in the loan generation area, as well as, deteriorating quality of their overall loan exposures.
The banking levy, which commences July 1st, and the prospects of higher funding costs due to the credit downgrade won’t improve the banking sector’s profitability over the longer-term.
ANZ
CBA
MQG
NAB
WBC
At 20x forward earnings and 2.5% dividend yield, we feel Computershare is overvalued.
The market is too bullish on the cost out story and anticipated earnings growth. The August earnings result will likely be a reality check.
Amcor has remained one of our preferred portfolio holdings. We see 8% EPS growth over the next 12 months and the stock trades on a forward yield of 3.8%.
The current price is beginning to approach full value and we recommend selling the $17 call options into December to enhance the return.
Prior to the market open on Friday, the US Commerce Department announced that Housing Starts fell fort a third straight month in May and has reached the lowest level of new home construction in eight months.
This development, along with a drop in Consumer Sentiment and Building permits, suggest that general construction has declined broadly during 2017 and could be a headwind to economic growth over the second quarter of the year.
This slowdown may have earnings implications for the US divisions of Boral and James Hardie.
We’ve been buying QBE and IAG over the past few weeks. further upside is likely to be limited from the current level and therefore, taking profit or selling covered call options is advised.
SHIBOR refers to the “Shanghai Interbank Offered Rate”. On Friday the one-month rate stood at 4.65%, the highest in over two years.
To put this in perspective, one-month rates in the US are at 0.85% and one-year rates in Australia stand at 1.63%.
And while Chinese central bank officials reject any suggestion that the tighter lending rates were a sign of instability or a source of increased financial risks, global financial markets have been acutely impacted by Chinese banking shocks in the past.
At this point, the one-month SHIBOR rate is now higher than the one-year Chinese Prime lending rate of 4.30%, which is unsustainable.
The knock-on effect is that a sharp contraction of Chinese capital flow will reduce Australian exports and could even distress local real estate markets.
We will watch this development with interest and how it could translate into the Australian share market.
Chinese SHIBOR
Recent price action in the local ASX market suggests we’ve entered a period of heightened volatility and potential for downside risk. Since posting the high for-the-year at 5945.00, the index for Australian shares has dropped almost 4%.
Looking across the spectrum of ASX top 100 stocks, we have found several names which can offer defensive value in a broadly sideways to lower share market.
These include: IPL, MPL, WOW, CTX, QBE, SHL, SYD, TCL, AMC, and IAG.
We consider these stocks to have the potential for moderate capital growth and, combined with a buy/write strategy, will offer 10 to 12% cash flow on an annualized basis.
ASX: XJO Index
The XJO has now created a “lower low and a lower high” formation. We remain cautious on the index unless the price action can trade back above 5850.
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