Australian Stock Market Report – BHP, Wesfarmers, Metcash shares & more
Market Commentary and Stock Tips - 7 June 2018
CBA dutifully takes its $700 million financial medicine – Online retailer young Master Kogan gets his dose of market reality – Metcash loses cash in South Australia – BHP looks to get cash back from its USA oil shale adventure – Wesfarmers also has cash for shareholders not for acquisitions
CBA ---its $700 million but CBA is contrite --- and share price responds
One ominous cloud that has dogged CBA of late has been what will the “fraud cop on the beat” Austrac mete out to it for its admitted contraventions of money laundering laws. – This unknown penalty was like a dead weight around the financial neck of CBA and its share price. Now that it’s been removed, investors can breathe more freely. The market reaction – CBA’s share price rose $1.70 in the aftermath of the announcement.
But what about its dividend?
$700 million will obviously impact last year’s $10 billion profit of CBA- it’s a setback but manageable. For investors, I believe it may well mean that the dividend to be announced in August will be OK at about $2.10 for the half year, (above February’s $2 but below last August $2.30) and that’s not too bad after all – And that translates to a fully franked dividend yield of about 6%. When it is all said and done, the fact that CBA’s share price is down about 16% over the year, and it still pays a very good dividend, it’s again worth considering.
BHP ---Au Revoir to American shale oil
Several years ago BHP paid, what I considered to be an unbelievable $19 billion for oil shale assets in North Carolina, it now looks like selling these shale assets for about $11-billion! It’s a bit like BHP has the late Lou Richards “Kiss of Death Syndrome” in almost religiously tipping losing AFL teams each week. For instance some may say that BHP has the knack of seemingly buying metaphorical lemons e.g., its aborted RIO take over; Canadian potash take-over misadventures; the Magma copper fiasco in the US and the hot briquette disaster in WA----Nevertheless $11 billion is a few billion dollars better than a few years ago. Now here’s the good part - the net result is that BHP’s current cash pile is just getting bigger with higher oil and iron ore prices. It’s also building up a sizeable franking war chest. For investors who want resources exposure in the current environment, BHP looks a winner -- with the possibility of off market buy-backs/special dividends.
Wesfarmers--- Au Revoir to Coles
The decision to cut the metaphorical umbilical cord with Coles sometime in the next financial year, looks to me like a good deal for both Wesfarmers and Coles. It allows both to concentrate on their knitting. It will provide cash for Wesfarmers on top of the benefit it will get for not bleeding cash on its ill-fated hardware experiment in the UK. Accordingly, Wesfarmers like BHP looks a good prospect and also pays a fully franked dividend of almost 5%. And when Coles lists sometime next financial year it may also be worth a hard look.
Stock tips and additional commentary reserved for clients of Michael at Phillip Capital
- Tuesday: NAB Business confidence and home loans;
- Wednesday: Westpac Consumer Confidence;
- Thursday: Employment and unemployment – should be strong set of numbers
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