the best & worst of asx reporting season including the top 10 asx stocks
TRANSCRIPT
1
This week…
• Highlights for ASX reporting season
• How did the top 10 stocks fair?
• Which stocks disappointed?
22Invast.com.au 1800 468 278
General Advice & Risk Warning
Please note that any advice given by Invast staff is deemed to be GENERAL advice, as the information or advice given
does not take into account your particular objectives, financial situation or needs.
Therefore at all times you should consider the appropriateness of the advice before you act further.
CFDs and Forex are leveraged products and carry a high level of risk and are not suitable for everyone. You can lose
more than your initial deposit so you should ensure CFD and Forex trading meets your investment objectives. We
recommend you seek independent advice. Strategies and charts used in this presentation are for example only. You are
reminded that past performance is not indicative of future performance.
Invast Financial Services is regulated by ASIC. It's important for you to read and consider the relevant Product
Disclosure Statement and Financial Services Guide which contains details of our fees and charges before you decide
whether or not to acquire any financial products. These documents are available at www.invast.com.au
Invast Financial Services Pty Ltd ABN: 48 162 400 035. Australian Financial Services Licence No.438 283
33Invast.com.au 1800 468 278
This week we look at the following topics:
• Highlights for ASX reporting season
• How did the top 10 stocks fair?
• Which stocks disappointed?
44Invast.com.au 1800 468 278
Dear Readers,
We published our 2015 Outlook Guide last month,looking at global markets and touching briefly on ASXlisted shares in the last section. February is aninteresting and eventful month for the Australianshare market. We aim to dedicate the next four weeksto Australian shares and this is made more exciting bythe rollout of Invast’s DMA CFD offering, which meansmany large global shares can now be traded – eitherlong or short.
55Invast.com.au 1800 468 278
February sees many companies who have a 30 June financial year end date reportingtheir interim results. Some companies will be reporting their full year results, so it is avery busy time in the markets. Our analysis will be broken up as follows:
Week commencing 2 February 2015: Outlook for Australian banksWeek commencing 9 February 2015: Mining companies likely to remain losersWeek commencing 16 February 2015: Our six key picks & further analysis
Week commencing 23 February 2015: Result review & upcoming dividends
66Invast.com.au 1800 468 278
Last week we touched on the stock names which we think are high quality and havethe ability to perform well, as part of a very well diversified portfolio. We firstintroduced our list of top performers in January through the 2015 Outlook Guidespecial report. Our key selections were Aurizon Holdings, Coca Cola Amatil, MedibankPrivate, Primary Healthcare, Toll Holdings and Woolworths.
On Toll, we wrote the following “Now above $6 per share, Toll is finally starting to findfavour with the market. Earnings will be released on 18 February and there will be highhopes, particularly as fuel prices fall and Australians enjoy record low interest rates.The issue to note here is that the December balance date results will not contain thefull benefits of lower fuel costs and so the onus will be on management to try andarticulate how large these impacts are on future earnings…”
77Invast.com.au 1800 468 278
While the market was surprised at the takeover offer from Japanese investors, we feltsomewhat vindicated in our thinking. We wrote last week that “…the main reason welike Toll Holdings is because of its large scale, brand and network benefits. The currentreturn on assets is inadequate, which to us means that earnings can continue to risewithout much new investment. The perfect mix is low interest rates and low fuel costs.Activity and volume are the ultimate drivers and so any significant rise inunemployment is a threat, so the responsibility is on management to capitalise on theopportunities and manage the risks…”
The Japanese obviously agree. We were pleased to see a 47% rise in the share price onthe day of the announcement, but also slightly disappointed that this quality exposurewill now disappear from the market. Still, a profit is welcome under any circumstance.
88Invast.com.au 1800 468 278
Screenshot excerpt from Toll’s market statement last week, reaffirming Invast’s view
99Invast.com.au 1800 468 278
Our focus this week is on analysing the earnings performance for the top names on themarket. We do this by looking at the ASX200 Index and focusing on the top 10 indexconstituents, as measured by Standard & Poor’s. As we have written previously, theAustralian market is very heavily focused and skewed towards the top 10 names. Thesemake up more than half of the market and so where the ASX200 goes to from here isreally dependent on the top 10 names.
1010Invast.com.au 1800 468 278
Company Name & Weight: Commonwealth Bank of Australia – 10.03%
Dividend Ex-Date: 17 February 2015
Commentary:
Really can’t fault this result at all. Another record result and it’s good to see that thecountry’s largest bank is generating income growth from across a range of differentbusiness units. At the end of the day though, investors need to ensure they don’tbecome complacent. CBA is likely to remain in favour for as long as interest rates arefalling.
1111Invast.com.au 1800 468 278
The thing to watch is that most industrial companies have actually reported solidearnings and more confidence this reporting season, which suggests that interest ratesmight be a rock bottom. When this changes, there will be a major move out of thebanks and CBA will suffer from this. A Sell at current prices, not because of quality butbecause of valuation and the risk/reward ratio on offer. Just not good or high enough.
1313Invast.com.au 1800 468 278
Company Name & Weight: Westpac Banking Corp –8.03%
Dividend Ex-Date: March balance date, sometime in May.
Commentary:
Hasn’t yet reported because of the different balance date. Similar comments to CBAabove, but we actually feel that Westpac might surprise a bit more on the upsidegiven its leverage to the Australian residential mortgage market. It doesn’t haveoffshore operations to drag it down – like NAB and ANZ – and doesn’t have thepremium priced in like CBA, so not a bad trade into the result.
1414Invast.com.au 1800 468 278
However, be careful when rates start to reverse. Westpac is among the biggest losersin this scenario. Keep in mind it almost collapse around 20 years ago.
The thing to watch is that most industrial companies have actually reported solidearnings and more confidence this reporting season, which suggests that interest ratesmight be a rock bottom. Short term Buy opportunity into the result but only withstrong risk management.
1616Invast.com.au 1800 468 278
Company Name & Weight: BHP Billiton Ltd – 7.08%
Dividend Ex-Date: Sometime in March TBA
Commentary:
Hasn’t yet reported as of the time of writing but those who read our reports and blogposts know exactly what we think of BHP – don’t touch it. The focus for us will be onthe balance sheet, not necessarily the earnings base. One of the reasons why we thinkthe ASX200 rally will be capped at 6000 is because of BHP.
1717Invast.com.au 1800 468 278
We don’t feel confident about it at all. Stay clear, don’t be tempted by any short termcapital management if announced, like Rio Tinto. This will be for no other reason thanto distort and because BHP’s board is held in such high regard, any attempt to fool themarket with capital management or higher dividends will be seen as a red flag by thesmart global money managers who will dictate BHP’s success.
1919Invast.com.au 1800 468 278
Company Name & Weight: Australia & New Zealand Bank – 6.56%
Dividend Ex-Date: March balance date, sometime in May.
Commentary:
Still has issues to sort out on Asia and we aren’t completely convinced that ANZ is ontop of things. We have written about the stock many times in recent years with a $28target buy level. That might sound outrageous, given the way bank shares have ralliedin recent months, but to us it is sensible. The thing to watch is that most industrialcompanies have actually reported solid earnings and more confidence this reportingseason, which suggests that interest rates might be a rock bottom.
2020Invast.com.au 1800 468 278
ANZ could find itself in a double whammy situation – a shift out of banks when therate cycle turns and problems in Asia which can’t go away quickly. Let’s wait for theupcoming result.
2222Invast.com.au 1800 468 278
Company Name & Weight: National Australia Bank –6.18%
Dividend Ex-Date: March balance date, sometime in May.
Commentary:
The thing to watch is that most industrial companies have actually reported solidearnings and more confidence this reporting season, which suggests that interestrates might be a rock bottom.
2424Invast.com.au 1800 468 278
Company Name & Weight: Telstra Corporation – 5.48%
Dividend Ex-Date: 25 February 2015
Commentary:
Nice, good, clean result. There is a joke among traders that there are three certaintiesin life: death, taxes and a strong dividend from Telstra. One of the most attractiveparts of Telstra’s business has been the offshore expansion into the technology space.But this could also become one of the largest risks. We feel unsettled about thesudden change in leadership and think that perhaps more to it than meets the eye.This is only our first impression, we are writing this note on the same day that thetransition was announced.
2525Invast.com.au 1800 468 278
Australian companies have a long history of mismanaging offshore acquisitions and wehope that there isn’t another case of being sold a lemon overseas. We like Telstra, butwe want to sleep at night, so for now take profits following the ex-dividend date androtate back into our 2015 top stock picks.
2727Invast.com.au 1800 468 278
Company Name & Weight: Wesfarmers Limited –3.45%
Dividend Ex-Date: 24 February 2015
Commentary:
Good result given the circumstances. We think Wesfarmers management is among thebest in Australia. The only problem is that we don’t think they own the best qualityassets at this point in time. They do have a very long term horizon but eventuallyshareholder returns will be dictated by strong management and high quality assets.
2828Invast.com.au 1800 468 278
We think Wesfarmers needs to work hard at acquiring and developing higher qualityassets and we just hope that they don’t overpay for this. We don’t they will fall into atrap of paying too much and we want to be ready to buy the stock on any gamechanging announcement. Hold for now.
3030Invast.com.au 1800 468 278
Company Name & Weight: CSL Limited – 2.86%
Dividend Ex-Date: 16 March 2015
Commentary:
One word – disappointing. Shares slumped for a very good reason – the numberswere just not good enough. Current trading conditions weren’t necessarily bad, thebusiness is still growing by double digits – it’s just that the rate of earnings growth wassubstantially below what the market was expecting. This is the problem with stockswhich trade on a high price to earnings ratio. They become a victim of their ownsuccess.
3131Invast.com.au 1800 468 278
CSL must now articulate to the market its growth profile in a clearer way, the marketwill need to see confidence and trust return before rewarding the company with thesame type of premium which was previously demanded. Not yet one of our stock picksbut if things don’t pick up for the rest of 2015, it could be on our list next year. A longtime away, but that’s our style. It also explains why our annual stock picks haveperformed so well to date.
3333Invast.com.au 1800 468 278
Company Name & Weight: Woolworths Limited –2.82%
Dividend Ex-Date: Sometime in March TBA
Commentary:
Quality name and one of our key 2015 stock picks. The stock has bounced nicely sinceearly January and we wrote last week that problems in Masters are minor. The authorof this report walked into Masters the very next day, to purchase some paint, and wasshocked at the lack of activity. This was in a Sydney metro site.
3434Invast.com.au 1800 468 278
So there might be a little more bad news around Masters in the upcoming set ofnumbers BUT, Woolworths is the highest quality retailer in Australia and any result thatis reasonable with dividend commitment will be very well supported. The challenge forWoolworths is how to grow – supermarkets are mature and new business divisionsaren’t exactly working out. Dick Smith was a perfect example. There needs to be somesoul searching in the coming years, in the meantime, the supermarket businessremains the key powerhouse driver. Buy.
3636Invast.com.au 1800 468 278
Company Name & Weight: Rio Tinto – 1.88%
Dividend Ex-Date: 4 March 2015
Commentary:
As per our notes on BHP above, Rio masked it an awful result with capitalmanagement. Eventually, this is unsustainable. The current board of directors has a lotto answer for. First there was the huge error of acquiring Alcan going into the GFC,then the funding problems, followed by expensive expansion into iron ore only to seethe iron ore price collapse. It is somewhat a wonder to us that the market can stillprice the stock at the current price.
3737Invast.com.au 1800 468 278
For us, we wouldn’t be going anywhere near Rio Tinto because track record andhistory are two of the most fundamental qualities when assessing any investment andbuying Rio Tinto shares should not be treated any differently. An Avoid for 2015,regardless of where the share price goes from here.
3939Invast.com.au 1800 468 278
Top 10 Weight: 54.37%
4040Invast.com.au 1800 468 278
Which Shares to Buy? ASX Reporting Season Webinar
Invast Insights chief editor and contributing author Peter Esho will summarise hisoutlook on Australian shares during February reporting season. Esho will document hisfindings based on the performance of key stocks and where he believes the bigopportunities lie next year. His presentation will focus on the following 5 themes:
Performance and outlook of the Australian banksPerformance of mining companies and which to avoidHis 6 key stock picks for 2015Key performance result highlights
4141Invast.com.au 1800 468 278
Esho is a regular contributor on CNBC, Bloomberg and host of ‘Your Money YourCall’. His webinar will cover both the fundamental and technical outlook on thesekey themes and a basic introduction to Invast’s new DMA CFD product offeringwhich complements MT4 and other services. This webinar is expected to fill fast.Q&A will be open straight after the presentation. Register now by CLICKING HERE.
4242Invast.com.au 1800 468 278
Go to www.invast.com.au/insights to get a complimentary 4 week trial and receive the latest insights as they are published to our live clients.
4343Invast.com.au 1800 468 278
DisclaimerPlease note that you are receiving this report complimentary from Invast Financial Services Pty Ltd(AFSL 438 283). Invast staff members may from time to time purchase securities which areincluded in this or future reports. The authors of this report may or may not be holding a positionin the securities mentioned. Please note that the information contained in this report and Invast'swebsite is of a general nature only, and does not take into account your personal circumstances,financial situation or needs. You are strongly recommended to seek professional advice beforeopening an account with us.
General Disclaimer: This newsletter contains confidential information and is intended only for theperson who downloaded it. You should not disseminate, distribute or copy this newsletter. Invastdoes not accept liability for any errors or omissions in the contents of this newsletter which ariseas a result of downloading this newsletter. This newsletter is provided for informational purposesand should not be construed as a solicitation or offer to buy or sell any financial product. InvastFinancial Services Pty Ltd is regulated by ASIC (AFSL 438 283 | ABN 48 162 400 035).
4444Invast.com.au 1800 468 278
Risk Warning: It's important for you to read and consider the relevant Product DisclosureStatement, and any other relevant Invast Financial Services Pty Ltd documents before you decidewhether or not to acquire any financial products listed in this email. Our Financial Services Guidecontains details of our fees and charges. All these documents are available here on our website, oryou can call us on +612 8036 7555. CFDs and Foreign Exchange are leveraged products and carry ahigh level of risk and you can lose more than your initial deposit so you should ensure CFD andForeign Exchange trading meets your personal circumstances.
General Advice Warning: Being general advice, this newsletter does not take account of yourobjectives, financial situation or needs. Before acting on this general advice you should thereforeconsider the appropriateness of the advice having regard to your situation. We recommend youobtain financial, legal and taxation advice before making any financial investment decision.
45