Australian Market Summary (Issue 379) – 27 November 2015

Australian Market Summary, 27th November 2015

This was a week that did little to stand-out.

This could be a very short weekly.

The ASX200 itself is as good as flat on the week.

There was scant new information out, and today’s trading will be a non-event since the US were out for Thanksgiving early.

Thank goodness the monthly data-cycle recommences next week, and we will get the chance to process an up-to-date batch of economic reports in the lead up to Christmas.

RBA Governor tells us to ‘chill out’

Yeah, you read that right.

The RBA Governor Glenn Stevens spoke this week and gave yet more commentary supportive of NO CHANGE to RATES.

After next week’s December meeting, the RBA don’t sit until February. Governor Steven’s said ‘we’ve got Christmas, we should just chill out, come back and see what the data says’ then.

He further remarked to a reporter’s comments ‘you are making the case for us to sit still (on rates)… it is an idea I happen to agree with’.

The link to the speech is below, and I would encourage any of you interested in the bigger picture opinions of Australia’s leading economist to read the speech.

As a precise, the speech is entitled ‘The Long Run’ and in it Governor Stevens opines on the 5 or 6 major forces at play in driving our economy for the coming decades. It’s a good and worthy read.

BHP (BHP) – more dividend discussion.

BHP fell under $19 this week as more and more the ‘johnny come latelys’ entered the party with doom and gloom pertaining to BHP’s dividend.

BHP’s dividend is going to get cut. But in our opinion, it’s largely priced in to the shares here.

If you want an example for how pointless/impotent/ineffectual some in the finance industry can be, you’ll see the headlines later in the week about the downgrade to BHP from stock-broker JP Morgan.
On Wednesday JP Morgan downgraded BHP to a SELL. It’s a big headline, but what does it actually mean?

To me, and most I talk to, it means very little. JP Morgan had a HOLD recommendation for the last 2-3 years as BHP underperformed the ASX200 by nearly 50%. Geez thanks JP Morgan.

And more than that, they downgraded it to a SELL with a target price of $18 (it’s now at $19). Where were they when the stock was $35? OR $30? Or $25 only a month ago?

The point isn’t to pick on the recommendation, after-all, we all get things wrong. It’s just to rightly position its relevance, which to my mind is low.

We still think BHP is looking cheap here under $20, and though we still see significant long-term issues for the mining and oil sector, we do think it has very real potential to trade back above $25.

Woolworths (WOW) – little to take from the AGM

The WOW AGM didn’t provide much new information, and if anything was a bit of a wet blanket.

The new Chairman said it might take 3 years to turn the ship around, which though true, doesn’t convey a sense of much-needed urgency within the struggling retailer.

The company are well progressed on their interview process for the CEO role which is pleasing, but the market will be disappointed if they were expecting imminent news-flow on the Big W and Masters divisions.

We think change is afoot, and will be forced upon them if the going is too slow.

There were reports that private equity firms were running the ruler over a complete bid for WOW, and we think it is more plausible than many other rumours. WOW is a cash-flow juggernaut, and would appeal to private equity backers for that fact, alongside the very obvious turnaround story.

We feel very strongly WOW is a BUY here.

Other stuff…

As I said earlier, it truly was a dead week – unless you were an investor in Slater & Gordon (SGH), in which case your position is simply dead.

SGH is down 73% this week after the UK government announced proposals aimed at reducing cash compensation claims for minor road traffic accident soft tissue injuries. SGH make a significant proportion of their UK earnings from these small claims, and this move seems destined to cause material earnings downside for SGH.

We started to run the ruler over Flight Centre (FLT) again, given its pullback.

We are not buyers yet, but back at $36 we think there is increasing merit to re-consider buying this share again given its recent, confident remarks on the state of activity in its core Australian business.

The stock is cheap, has a superb record of growth, and exceptional cash flow generation. Its balance sheet is one of the best going around, with over $500m in net cash.

Watch this space guys.

There really is nothing else to report on, so I will close the remarks here.

Key Dates: Australian Companies

Mon 30th Nov 
Tue 1st Dec 
Wed 2nd Dec 
Div Ex-Date: CWNHA & NABPA
Thu 3rd Dec 
Div Ex-Date: CBAPC, CBAPD 
Fri 4th Dec 

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