Australian Stock Market Report – Rio Tinto, CarSales.com, AGL shares & more
Market Commentary and Stock Tips - 9th February 2018
They say it was a plunge – but it was more like a splash in the toddler’s pool
When I woke up on Tuesday morning to the sombre tones of the announcer on ABC New Radio 24, she described the decline in the Dow Jones index of 4.3% as a plunge. Now I have been around for a while and I can recall the 20th of October 1987 when the Australian Share market fell 25% in just one day following Dow Jones rout of 22% - Now they were plunges. So let’s have a cold shower --the Dow Jones rose 25% last year, while we could only manage a 7% lift--- the US was clearly in line for taking a breath. And that is precisely what happened. Now as the dust starts to settle and economic fundamentals retake centre stage “onwards and upwards” could well be the mantra for 2018. - However the US market may take more breaths, and do a bit of treading water in the toddler’s pool. But both economies (US and us) are still in fine fettle
A bird’s eye view
They’re a motley crew, but they’re a bunch of pretty sturdy sharemarket performers this week. And here I am talking about the Commonwealth Bank; RIO Tinto; CarSales.com; AGL; and infrastructure stock Cimic which all released either great results (RIO) or workmen like results (CBA).
We’re “fixing our mistakes’, moving on and “building a better bank”
To paraphrase Chief Teller Ian Narev in releasing the December half yearly results of the Commonwealth Bank. Even though, the bank is providing for a huge $575 million contingency for the cost of the Royal Commission and possible fines, the bank still managed a $4.8 million profit,--and if you take account at the above costs, the profit increase was actually 5.8% - not bad - and dividend was actually increased to $2 a share from 1.99 last year – no big deal you say, but give me an increase any day. At current prices, CBA looks an attractive investment proposition.
You can go to RIO and catch the dividend gravy train
Major Australian iron ore producer RIO Tinto delivered what can only be described as a super report this week. Underlying earnings (profits) were up 70% and dividend up 71% compared with last year. But not only that its debt was reduced by 60% and it’s gearing ratio (debt compared to earnings at 0.2%). In other words, RIO is flush with funds and the future for dividends, share price growth and demand for iron ore is most attractive.
AGL – still cooking with gas
Major energy producer and distributor AGL also delivered a most impressive result and it’s said that its future with profit growth is quite attractive, however. Investors might also consider Origin if they want to have involvement in Australia’s energy future.
Sausage sizzles work for Bunnings here, but the Poms haven’t acquired the taste
Wes farmers venture into the Old Dart looks like becoming an expensive adventure. They have written down the value of their investment by $795 million – in ordinary language this means they paid too much to buy British Home Base hardware stores. Given the Woolworths experiment with Masters, one would hope that if Bunnings UK can’t cut the mustard, then Wesfarmers may be better off quitting Bunnings in the UK.
It’s been what can only be described as a roller coaster market over the past week, but with the experience of previous market gyrations this was more like a “slow ride on the scenic railway”. Fact is the US market has outdone itself in recent times and a further retraction in their share prices (of about 6-10%) over the course of this year would not be unwelcomed – but this should have precious little impact on our share market. This is largely because the fundamentals underpinning our economy and sharemarket are robust. Economic activity increasing at around 3% per year, inflation still low at around 2% per year, unemployment rate steady and trending down, and interest rates likely to stay at their current low levels for at least 6months and then only touched up slightly.
NB Our share market still remains 14% lower than where we were 11 years ago, so we have a lot of catching up to do. In contrast the US market is actually up by about 70% over the same time!
Stock Tips- Contact Michael at PhillipCapital on 03 8633 9925
In this febrile (not necessarily volatile environment) there are some very sound stocks which have retreated in price, produced good reports and have a bright future, and these include: RIO; CBA; CAR; and CWN.
Stocks to report next week to keep an eye on are:
- Tuesday: NAB Business confidence
- Wednesday: Westpac Consumer Confidence
- Thursday: Employment / Unemployment
In the U.S.:
A range of data, most important: Inflation and Retail sales on Wednesday.
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