Australian Market Summary (Issue 368) – 11 September 2015

Forgive my brevity this week, but the office is manic today. We have a video team in the office shooting some clips for our marketing and online offer, and I am wearing make-up.

I think that’s enough said.

Another wholly frustrating week.

The Australian market traded a 5% range again, displaying a volatility that frankly makes me want to continue to sit on my hands and wait things out.

Despite the wild swings, the ASX200 is going to close up the week just under 1% higher.

Banks stood out as the best sector, jumping 2.5%.

It’s all still a bit hard in truth, and so for that reason we are going to keep what remaining powder we have left dry.

OIL SEARCH

It was confirmed this week that Woodside (WPL) had tabled an informal bid for OSH shares, offering 1 WPL share for every 4 OSH shares.

At today’s WPL price, that equates to a bid of $7.18 per OSH share – a desultory opening gambit that is barely worth the paper it is written on.

That said, now WPL have opened up proceedings with this low-ball offer, we expect momentum to build with the potential for improved terms from either WPL, or perhaps even super-majors such as Exxon Mobil (OSH’s partner in PNGLNG) or Total (the operator of the rival Papua LNG project).

We are moderately pleased with this turn of events, but frankly must acknowledge the current OSH share price ($7.50) is only 4-5% higher than where we initiated client positions, so we really do believe there remains significant potential for upside.

I would be staggered to see OSH taken over for anything under $8.50 (minimum), and feel very confident this is where OSH is heading.

CROWN

This stock remains on the nose sadly, but all the same remains a share we think will come good (and in a big way) sooner than later.

Early September gaming revenue out of Macau seems to point to a stabilization and slow creep higher, adding to the steady performance seen through July and August. We are hopeful Macau gaming revenues have now found a natural floor, and that the undue pessimism reflected in CWN’s share price will alleviate.

The CWN Australian assets are now as cheap as they have been in 3+ years, and that in spite of strong domestic gaming performance – ironically driven by many of the same Chinese gamblers forgoing Macau.

It remains a core BUY for us.

WOOLWORTHS

It remains downtrodden, and this week after having gone ex-dividend, the stock is at a 3.5 year low.

I have to say, I am warming to this share.

They have a long row to hoe to turn their supermarket momentum around, but equally the quality of asset base is such that increasingly at 14x or less, and with the prospect of some pretty easy wins available to a new CEO in the form of divestments, WOW does look to be pricing in a significant amount of pessimism.

Let’s see where we end on this one in the coming week or three.

MAGELLAN – THE STOCK (MFG) & THE FUND (MAGELLAN GLOBAL)

So on Thursday a bunch of us went and saw Hamish Douglass from Magellan opine on markets and the global economy, and it was fantastic stuff.

In fact, it was one of the best presentations I have seen made in 20 years of doing this stuff, and being the grumpy old man I am fast becoming, I am not so easily impressed.

Simply put, I walked out of the presentation wondering how we go about repositioning ourselves in MFG shares (having bought at $12 and sold at $19) for the longer term, and how here in Australia, we have an individual and funds management group that not only can compete with the best the world has to offer, but arguably better them.

These guys are the real deal.

As we continue to rollout our international offering, Magellan’s Global Fund will likely be an anchor to that strategy.

I would encourage any of you interested to not only call your advisor or me direct (albeit you will be hearing from us officially on this front very shortly), or to go to the Magellan website at www.magellangroup.com.au to see what all the fuss is about.

Watch this space.

AUSTRALIAN ECONOMIC UPDATE

I have promised to send some charts through on a few occasions in the past month or so, and regrettably keep getting waylaid or distracted.

Apologies for that.

So this week I thought I would shoot through a quick few charts and comments on the Australian economy, with a very simple assessment you might be surprised and interested to hear.

As I have said on numerous occasions, things aren’t as bad out there as many believe.

The trouble I think for many of us is that things were SO GOOD for SO LONG, to recalibrate back to a state of normalcy (or to be fair, a little under), feels worse than maybe it really is.

The other thing to note, is that this recovery is one for labour, not for the financial asset owners.

The weak currency and share-market is undeniably a negative for those that have accumulated their wealth. Australia’s purchasing power on the world stage has diminished with the currency fall, and this certainly has a bearing on quality of life for many.

However, on the positive front, the falling Australian dollar is doing precisely what it should be doing, and that is assisting to fill capacity in our domestic economy.

The natural inclination is to think a weaker currency makes our export sector more competitive, and technically this is true. But the real boon felt from the weaker Australian dollar in 2015 is the manner in which it forces Australian’s to spend their money here, at home.

Instead of that foreign holiday, or that internet purchase from the US, Australians are holidaying at home and spending their hard-earned at the local shopping centre. When they do that, small-medium sized enterprises make more profit and hire more staff.

It might sound simple, but in a world that has been awash with excess capacity for much of the last decade, this downshift in the Australian dollar is providing a wonderful ballast to local economic activity.

Take a look at the three charts I picked out to share with you below. Each of these charts demonstrate an economy that is, like the ‘Little Engine That Could’, slowly making its way back up the hill.

I know there are still many economists calling for an additional rate cut, but I SIMPLY DON’T SEE IT.

Australian Industry Group – Blended Economic Activity Index (PRIME), 8 YEAR HIGH

Chart1_AUIndustry_11092015
ANZ Bank Internet Job Ad Index – STEADY IMPROVEMENT FOR THREE YEARS

Chart2_ANZBank_11092015
NAB Business Conditions Index – CREEPING UP

Chart3_nab_11092015

Regards,

Jon Bayes & Guy Silbert

Disclaimer The information contained in this presentation is for informational purposes only and is not intended to be exhaustive or complete. This information does NOT constitute financial advice and should NOT serve as the basis for any decision by you. The information does not take into account the objectives and circumstances of the individual investor and we recommend that you consult a financial adviser should you have questions regarding the information contained in this presentation.

SPEAK WITH US TODAY

A unique and personal service approach and support for all your business advisory and personal wealth management needs

Request a free consultation

A unique and personal service approach to support all your business advisory and personal wealth management needs.

Request a free consultation