Australian Stock Market Report – Rio Tinto, CarSales.com, AGL shares & more

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.

Conclusion

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.

australian stock market weekly report 

 

Stocks to report next week to keep an eye on are:

stocks to report

Next Week

In Australia:

  • 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.

 

Disclaimer: This publication has been prepared solely for the information of the particular person to whom it was supplied by Phillip Capital Limited (“PhillipCapital”) AFSL 246827.  This publication contains general financial product advice.  In preparing the advice, PhillipCapital has not taken into account the investment objectives, financial situation and particular needs of any particular person.  Before making an investment decision on the basis of this advice, you need to consider, with or without the assistance of an adviser, whether the advice in this publication is appropriate in light of your particular investment needs, objectives and financial situation.  PhillipCapital and its associates within the meaning of the Corporations Act may hold securities in the companies referred to in this publication.  PhillipCapital believes that the advice and information herein is accurate and reliable, but no warranties of accuracy, reliability or completeness are given (except insofar as liability under any statute cannot be excluded). No responsibility for any errors or omissions or any negligence is accepted by PhillipCapital or any of its directors, employees or agents. This publication must not to be distributed to retail investors outside of Australia. 

 

About Michael Heffernan

+61 (3) 8633 9925 Email Profile

Michael Heffernan has over 30 years’ experience in the finance and securities industry and is currently a Senior Client Advisor and Economist with a leading Australian Sharebroker Phillip Capital after having been Chief Economist/Lawyer with the Australian Stock Exchange for 13 years, and an Economist with Commonwealth Department of Employment and Industrial Relations for 11 years.
Most recently Michael topped the poll of the Australian Newspaper's Criterion column of his expert tipsters for 2014 with an average increase of 26% over the year. Also Michael was named Stock Picker of the year 2013 and 2016 at the Australian Stockbrokers Foundation Annual Awards Charity Dinner.

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