Australian Stock Market Report – Telstra, A2Milk, Bank stocks and more

Australian Stock Market Report - Telstra, A2Milk, Bank stocks & more

Market Commentary and Stock Tips - 1 June 2018

Highlights

Wesfarmers shelves hardware in the UK – Our banks remain in the cross hairs – The Telstra conundrum continues – So who are the companies that are “cashed up’ – A2Milk  – is it coagulating or girding it loins.

The banks

The Royal Commission relentlessly powers ahead causing fragility in bank share prices in its wake. But you’d have to be Nostradamus to know what recommendations the commission will come up with--and then what a government in pre-election mode will do with the recommendations.  But we do know some facts.  First, bank share prices have fallen by up to 18% over the last 12 months; Second dividends by all the 4 major banks have been maintained.  Third their recent reports were OK and some certainty is likely to emerge when the CBA reports in early August. Indeed If CBA”s results are at least reasonable and dividend is maintained that may well represent a turning point. – For this report may well be a watershed for the future of bank profits, culture and share prices.

So who’s the English Patient now?

It is almost like the British curse.  Australian companies which have ventured to the Old Dart over the last few years have met with dismal fates.  National Bank lost plenty in its Clydesdale Bank venture; Slater and Gordon almost obliterated by its legal adventure over there; now we have Wesfarmers’ billion dollar debacle with its UK hardware chain experiment. Returning home will at least stop Wesfarmers’ multi-million dollar annual financial bleeding from its UK foray---staunching the blood flow should be particularly healthy for Wesfarmers.

Telstra --and the beeps go on – but who is going to pick up the phone

Following on from Telstra’s most underwhelming trading update a few weeks ago, which saw its share price sink below $3.00 – there are now murmurings that it may look now to cut a swathe through its costs. As I have been saying for the better part of a year now, trimming or selling Telstra and placing the funds in alternatives, such as: MQG, ASX; BHP; and RIO seem like sounder moves.  But I can’t see Nostradamus around – And so hanging up on Telstra and looking elsewhere seems a better option.

So what companies are cashed up?

In the current environment, companies which have cash in the bank or are likely to have more cash in the bank in the near term are certainly worth considering.  And so it’s ironic that amongst this group are our banks!-They have been off loading, or have plans to off-load their financial planning business, insurance, wealth management businesses and other non-core assets.  This leaves them flush with funds and should be of benefit and material sense to shareholders. Certainly giving money back to shareholders is a much better option than searching around for some suboptimal acquisition.  Also both BHP and RIO have cash coming out of their ears due to strengthened oil and iron ore prices, cost cutting exercises over the last couple of years and taking the foot off the capital investment accelerator. And now that Wesfarmers have off-loaded their money draining experiment in the UK, it is likely to materially assist their bottom line.

Stop Press

A2 Milk – delivered a most impressive report and looked ok to me , but not good enough for some.

After Pay Touch – Looking good after its expansion into the USA. And I have noticed that Jet Star is now a customer of APT.

Wisetech – Acquires a US transport facilities provider

Metcash – Loses the Drakes supermarket contract in South Australia

Stock tips- Reserved for clients- but I welcome viewer calls at Phillip Capital on 03 8633 9925

australian stock market weekly report

Next Week

In Australia:

  • Monday: Retail Trade, ANZ Job Advertisements
  • Tuesday: Reserve Bank Interest rate decision(no change expected)’;Australian Industry Group Services Survey; International Trade;
  • Wednesday: GDP
  • Thursday: Australian Industry Group Construction Survey; Wesfarmers Analyst briefing

In the U.S.A:

Usual range of data: - manufacturing and non-manufacturing information; productivity and costs; jobless figures, and Bloomberg consumer confidence. 

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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