Blog

The universe seemed to quieten down this week.

The recent disruption to longer term trends seemed to dissipate, and fortunately that meant that performance of our key recommendations, and the market in general, improved.

The market is up 2% for the week, and virtually flat on the month.

The Australian dollar resumed its downward move, and today is under 77c. Australian bonds also improved on the week, and 10-year yields are back down at 2.72% from a high of 3.05% a fortnight ago.

There was no explicit trigger for the resumption in longer-term macro trends, other than the broad realisation that in spite of the Budget cash-splash, the Australian economy is likely to remain mired in sub-par growth for much of the coming 12 months.

Lower growth means lower bond yields and a lower Australian dollar, and perversely it’s precisely this outcome that will ultimately enable Australia’s economy to turn the corner.

Trouble is it’s a slow burn, and not something I see happening until 2016 at the earliest.

So this week with the fall in the currency, and an improving bond market, many of our stock calls began to reassert themselves. AGL Energy (AGL), RESMED (RMD), Crown Resorts (CWN), IOOF (IFL) and Computershare (CPU) were all in the winner’s circle.

AGL was the pick of the bunch for us this week rising 7% after a confident strategy presentation on Tuesday. The new AGL CEO outlined a plan for $1bn in asset sales by 2017, improvements in working capital, cost and cap-ex plans. The CEO also confidently predicted 2015 underlying profits at the higher end of the guided range.

AGL has been a surprising success story for us, and has risen 20% in under a year since we recommended it. Competition in its retail energy business has moderated, and the likelihood of a more favourable Renewable Energy Target (RET) from the government have helped the share price.

This week’s news is simply a bonus.

For now we remain HOLDERS of AGL, but we are mindful of the strong run in the shares and that near $17 the stock looks far less attractive than it did in September 2014 at $13.60.

RESMED (RMD) has rebounded neatly too this week, jumping 7%. Again, we feel some relief in the rebound given that the stock had only weeks earlier plunged 18% in a single day in response to the unfavourable trial results it posted.

The falling AUD helps, and the company’s product momentum remains sound. For now again, we stay the course with RMD and aim for higher levels.

Crown Resorts (CWN) rose 6% on no particular news, IOOF (IFL) was up 4% and nearly at 8-year highs and Computershare (CPU) also jumped 4% on the week.

Having lagged the market this month, we think CPU looks poised for a run higher. The falling AUD naturally supports its offshore earnings, but more particularly underlying mergers & acquisition volumes are on the rise and this is great thing for a share registry business. This week alone will see 2 very large M&A deals in the semi-conductor space occur, and CPU is the share registrar on both sides of each transaction.

Falling back this week were several high-profile names worthy of attention. REA Group (REA) is down 7% and now back to over a 2-year low to the ASX200. REA has been quite an expensive share, and is now suffering from the perception of a peak in the housing market and an uptick in competition from a rejuvenated Domain.com brand.

We are eyeing REA with interest lest the opportunity arise to buy the share for value – remember REA have a substantial US opportunity above and beyond the core Australian real estate classifieds business.

South-32 (S32) fell back 7% this week after the strong gains it made the week before. There were no particular reasons for the fall other than to say that BHP’s brokers continue to sell shares on behalf of those that nominated for the selling facility.

Medibank Private (MPL) is another share on the slide, falling a further 2% this week and is now below the institutional placing price of $2.15. MPL has now underperformed the ASX200 since its IPO.

MYOB (MYO), the accounting software business that re-listed on the ASX earlier in May, is now back under its IPO price and nearly 15% down from its post-listing highs.

I can keep it simple this week. There is little further to share on our local market, however there are quite a few remarks of note I have left in the international notes section.

Have a great weekend.

Key Dates: Australian Companies

Mon 1st June
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Tue 2nd June 
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Wed 3rd June 
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Thu 4th June 
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Fri 5th June  
Div Ex-Date: NABHB