Tabcorp Trades Lower On Weaker H1 Earnings

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Shares of Tabcorp have dropped over 5% in early trade as H1 results were dampened by Tatts acquisition costs and weaker earnings from their UK start-up, Sun Bets.

The wagering giant posted a statutory net profit of $102 million, which was down 16% from a year ago. This included a $25.5 million charge in significant items related to the Tatts merger costs.

All together, the Tatts acquisition costs represented a one-off $59.3 million drag to the bottom line.

The company announced a fully franked interim dividend of 11¢ cents per share, payable on March 13.

We expected a much better H1 result for TAH and still believe the merger will prove profitable this year.

As such, we see value in the stock in the $4.80 area and expect the previous high price of $5.70 to be challenged over the medium-term.

Tabcorp

 

WES continues To Fall On UK Bunnings Venture

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Shares of Wesfarmers have lost over 7% this month and posted a six-month low of $40.50 yesterday.

The main drag to the share price has been the growing losses and poor outlook for their UK-based Bunnings hardware stores.

After writing off close to $1 billion on Monday, analysts have estimated that WES may have to invest another $540 million into the venture for a chance to break-even by 2022.

Over the last three years, the share price has traded in a broad range with resistance near $45.00 and investor support coming in near $39.00.

In the January 9th daily blog, we suggested selling a $45.00 June call for $1.02 to increase cash flow and keep exposure to the $1.03 dividend on February 20th.

WES has been in our ASX Top 50 model portfolio since January 2016 from $39.05. We continue to view WES as a range-bound stock and will use the derivative overlay strategy to enhance returns.

Wesfarmers

 

 

 

 

CBA Slips On Top-Line Profit Miss

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Shares of CBA  have traded in a wide range today as the bank’s cash profit, including provisions, was posted at $4.87 billion on expectations of $5.2 billion.

The bank announced that it would set aside $575 million to address the AUSTRAC AML accusations and costs related to the Banking Royal commission.

Our ALGO engine triggered a sell signal on CBA at $80.90 on November 13th.

Considering the headwinds facing the domestic banking industry in general, we see the next key support level for CBA at $75.80.

Commonwealth Bank

 

 

Buy And Hold Telstra

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Over the course of the last six months, TLS shares have been beaten down as the company purges its liabilities to the NBN and re-calibrates other assets.

As part of that process, the telecom giant announced that it will be writing down the value of its Ooyala video streaming firm to zero.

This will result in an impairment charge of $273 million in the half year numbers.

Technically, TLS shares have been building a solid base in the $3.50 to $3.60 area and we expect to see the stock trade back into the $4.00 handle over the medium-term.

With an annual dividend yield just under 8%, we suggest investors look to accumulate TLS shares in this price area.

Telstra

 

 

US Payroll Data Triggers Wall Street Rout

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U.S. stocks fell sharply on Friday after a stronger-than-expected Non-farm payroll report pushed interest rates higher.

The U.S. economy added 200,000 new jobs in January versus expected growth of 180,000. Weekly average earnings rose 2.9% on an annualized basis and the unemployment rate was unchanged at 4.1%.

The Dow 30 index dropped 665.75 points (2.8%) to close at 25,520, which is the index’s sixth-largest points decline ever.

The broad-based SP 500  fell 2.1% and finished at 2,762, with energy as the worst-performing sector.

The NASDAQ 100 plunged 1.96% to 7,240 as declines in Apple and Alphabet offset a strong gain in Amazon shares.

The combination of extreme valuations and increased leverage in the market could see US equities extend today’s losses into next week.

We suggest cutting high PE names from portfolios and looking for “stock specific” opportunities on the long side. SP 500 Index

 

 

Look For A Pull Back In TWE

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Since hitting an intra-day low of $14.55 on January 16th, shares of TWE have rallied over 20% to a high of $17.75 yesterday.

Upgrades from several analysts combined with lower tax rates in the USA have given the shares a strong boost.

However, in a recent preview to their half-yearly results, CEO Mike Clarke suggested that there will be a major overhaul to their US distribution network.

Early estimates are that these changes could lower earning by $47 million to $655 million in 2018.

In addition, internal momentum indicators are now showing an overbought condition above $17.00.

We suggest looking to buy TWE on a pull back into the $15.30 area.

Treasury Wine

 

 

 

Stay Long TabCorp

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After reaching a 6-year high of $5.75 on December 27th, shares of TabCorp dropped over 10% to post an intra-day low of $5.10 on January 25th.

In our January 10th blog, we suggested that investors could look to buy TAH in the $5.20 area for a move back above $5.70 over the medium-term.

TAH will go ex-dividend for 12.5 cents per share on February 7th and report their first-half results the next day.

This will be the first look at the company’s results since the merger with Tatts Group and could show impressive growth guidance, as well as cost savings.

At the current price, the 12.5 cent dividend reflects a 4.7% annual yield.

We believe it’s reasonable to expect the TAH share price to firm into next week’s results with initial resistance in the $5.70 area.

TabCorp

 

 

 

 

Newcrest Posts Steady Q2 Production

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The production numbers announced by NCM were broadly inline with market expectations and the correlation with Spot Gold remains intact.

The mining giant reported Q2 gold production of 613,000 ounces, which is a 17% increase quarter-on-quarter. The cost of production slipped slightly to US 830.00 per ounce.

We added NCM to our Top 50 Model Portfolio on December 13th at $22.10.

Technically, the share price remains tightly correlated to the price of Spot Gold.

As such, we estimate that investors will be able to buy NCM at $22.00 if the price of Spot Gold drifts back to $1320.00

Newcrest Mining

Spot Gold

Fortescue Firms On Lower Production Costs

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Shares of Fortescue Metals are trading over 3% higher in early trade after the release of their Quarterly production results.

The report showed that Iron Ore shipments were down 4% to 40.5 million tons and the cost of production fell 4% to US $12.05 per ton, which is a record low overhead cost for the company.

With the mining and processing parts of the report as expected, the stock is firming on the lower cost of production, as well as the prospects that production costs could continue to decline.

FMG is part of our Top 50 Model Portfolio and our ALGO engine triggered a buy signal at $4.70 on May 15th.

Daily charts are showing stiff resistance in the $5.60 area. We suggest that investors who are long FMG work a sell-stop order at $4.95.

Fortesque Metals Group

 

 

Commonwealth Bank Announces New CEO

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Shares of CBA have started the week with a firm tone as Australia’s biggest bank announced a replacement for outgoing CEO Ian Narev.

The current chief of Retail Banking, Matt Comyn, will take over as CEO on April 9th.

It’s worth noting that the retail section of the business has been hit with a series of problems, including Anti money laundering allegations which totalled close to $1 billion over 5 years.

The bank will announce its results for the half year ended 31 December 2017 on Wednesday, 7 February 2018.

Our ALGO engine triggered a sell signal for CBA on November 15th at $81.50.

With uncertainty growing in the domestic banking industry in general, we prefer a short bias for CBA and see price resistance in the $79.35 area and  the next downside support level near $77.20.

CBA