Australian Stock Market Report – Telstra, A2Milk, Bank stocks and more
Market Commentary and Stock Tips - 1 June 2018
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 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.
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
- 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.
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