Long AMC.ASX (update)
Amcor is now trading $15.75 or +10% from our buy range indicated in June. The nimble or leveraged trader should consider taking profit now, the investor may prefer to sell the $16.00 November call options for 50 -60 cent credit and keep exposure to the upcoming September dividend of approximately 28 cents.
US Macro
In the days following the June 23rd UK referendum, many FX market forecasters suggested the Sterling would fall sharply, perhaps even breaking below the 1.2000 handle against the USD. While these predictions may turn out to be correct, the GBP/USD has pretty much gone vertical since posting a 1.2850 low on Monday.
And even though the consensus for the Bank of England (BoE) to cut rates yesterday was just slightly above 50/50, the GBP/USD traded sharply higher after the after the BoE voted 9 to 0 to leave rates unchanged. However, with most policymakers seeing a rate cut in August, the Sterling remains a sell into this recent reversion.
The Sterling’s reaction to yesterday’s BoE pause at .50% was an illustration of misplaced Central Bank expectations. The financial media was calling for a cut down to .25%, many FX traders believed them and when the BoE kept rates unchanged, the GBP/USD soared from 1.3250 to 1.3475 in less than five minutes……and then faded as the session progressed.
According to the minutes from the meeting, the BoE has been satisfied with how UK financial markets have functioned post-referendum but there are some indications that businesses are delaying investment and hiring so economic aggregates are likely to be depressed in the near term. It’s worth noting that in addition to cutting rates, the BoE minutes discussed a “range of possible stimulus measures.” We interpret this to mean a possible increase to Quantitative Easing in August.
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Earnings CTX.ASX
First half 16 EBIT $340 million is well above the $265 million in first half 15. Underlying forecast growth tracks at around 7% and forecast FY17 dividend of $1.03 (up from $0.94 in FY16) puts CTX on a forward yield of 3.3%.
Continue to maintain long position with $34 target + covered call.
Earnings IPL.ASX
First half 2016 underlying profit of AUD$137 million is down 6% of the same time last year. Full 2016 earnings should be around $360 million down 10% on Fy15.
Start up of new Louisiana plant in 2017 should create support for future earnings and we’re probably looking at the low point in the cycle for IPL.
FY17 forecast for $430 million profit on $0.25 EPS and $0.127 in dividends. No buy rec at this stage, waiting for the next bullish signal.
Earnings RIO.ASX
Starting at the top: Top line revenue flat, EBIT down 19%, dividend flat at $1.07 and trading on a 3.3% yield. Sell call options at $55 into November 16.
Note: 19th July – June quarter production numbers will be announced.
Long TCL.ASX
TCL reported 4Q16 traffic – trend remains positive for NSW, some softening is emerging in Melbourne and Brisbane. FY16 Proportional revenue across Australian roads was $1.7 billion. Look for FY17 dividend to increase from $0.45 in FY16 to $0.50 in FY17. This places TCL on a forward yield of 4.2%.
TCL is close to full value short term (12 month outlook) and should be complemented with a $12.70 covered call into March. We’ve collected an additional $0.50 for this call option and we expect to remain exposed to the $0.22 cent dividend in December. This trade allows for some capital gain if exercised. If TCL trades sideways, a combination of the dividend and the call option income creates approximately 10% cash flow on a stand still basis.
Earning JPM.NYS
JPMorgan – solid second quarter earnings signal improved health for US financials. This is bullish for upcoming bank earnings results in general. Analysts had generally lowered expectations for bank earnings this quarter due to low global growth. Our outlook on JPM and the major index is for mostly sideways consolidation with solid support at the lower range of the band.
JPMorgan Q2 earnings beat on both top and bottom line at $1.55 a share and on revenue of $25.2 billion.
Rally in Resources
As discussed in the July video market update report, I forecast that money was in the early stages of rotating back towards the banks and resources. We’re now seeing this reflected in strong momentum within BHP and RIO. It’s likely that this trend will help lift the energy names as well.
Short WBA.NAS
Take short exposure in Walgreen with a stop loss above the $85 level. Look for a move down to $72 over the next 2 – 4 months.
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