From Jonathan Bayes, Chief Investment Officer, Partners Wealth Group.
Genuine optimism emerging
It has been a red-letter week for the Australian economy, with another strong employment report and a jump in consumer confidence to a 4-year high.
Australia’s economic rebound is finally coming through.
This year we have put on 280,000 new full-time jobs, construction activity has steadied, and though retail sales remain in the doldrums, there is genuine reason for optimism.
This week’s NAB Business Confidence survey consolidated a touch, but within the data, forward orders and capital expenditure intentions improved.
I don’t think I’ve spoken in such glowing terms of the domestic economy in a long while, and though household debt remains a major drag, it’s really very hard not to see the cup as half full right now.
It makes for interesting times on the portfolio front, and to be honest, there’s a part of me that thinks it could be quite a busy summer making changes.
Asx200 to push higher, banks to join the fray in 2018
The market has pushed on 5-6% in recent months, driven by small & mid-cap shares, which is typical when economies start to improve. I would fully expect this to continue. But to see the ASX200 a further 10% higher, our market needs to see the banks kick into gear, and I have to say, I think the chances of that happening are starting to climb.
To be clear, I’m not turning into a bank bull. I’m simply removing my negativity.
I’ve spent the better part of the last 4-5 years beating up the Australian banks for many reasons, but most simply it’s because local investors have been far too concentrated in their ownership of the big-4.
Make no mistake, I’m not here to tell you that I’ve found religion and that the banks are now a must-buy, but what I am absolutely prepared to concede is that now, having underperformed the broader market all year, the banks look perfectly fine in a relative sense and could perhaps even push higher as the local economy improves.
With the strength in employment in 2017, the chances of a widespread bad debt crisis emerging in the Aussie banking system are diminishing by the day.
Structurally, the banks remain as pressured as ever, and in the years ahead I think they will be picked apart by new competitors in many of their most profitable business lines, but in a world of improving employment the banks might just be OK in 2018.
BT investment management (BTT) – a new buy
I’d direct everyone to BTT, and our thinking that this pullback provides a great opportunity to buy a high-quality name at sound and reasonable valuation.
Strip out BTT’s $200m in cash and $125m+ in seed investments and BTT is on a shade over 15x, which is dirt-cheap for a stock likely to post 10%+ EPS growth in the coming 2-3 years.
Please talk to your advisor on this one.
Crown resorts (cwn) – more horse-trading, a positive
CWN today disclosed a swathe of small, related-party transactions that have proven well-received.
CWN sold some Las Vegas property, some Packer family assets, 2 penthouse floors in the new Sydney development to James Packer himself and then flagged the likely sale of its online bookmaker to management for a price of $150m, bringing the potential proceeds on the lot to over $500m.
CWN shares are +5% on the news today and through $13.
Healthscope (HSO) – more takeover rumours
HSO is back up through $2.00 this week, aided by press reports that several Australian property groups had run the ruler over HSO’s assets with a view to splitting the property from the day-to-day healthcare operations.
The press article suggested a price of $2.40-2.50, and mooted interest in the hospital operations from several Asian groups.
We were early to the BUY, but really feel compelled by the long-term value in the assets, so we are encouraged that the shares are now moving higher.
Woolworths (WOW) – ACCC rules against the sale of their fuel business
Disappointingly for WOW, the ACCC this week finally ruled against the sale of its 531 service stations to BP for $1.8bn.
It’s not the end of the world, but it’s certainly a little frustrating given the long and drawn out process for sale.
The underlying food business is really kicking into gear, and we would expect potential earnings upgrades in 2018 to kick the stock up toward our $28+ target price.
Transurban (TCL) – raise $1.9bn in equity to fund west-gate tunnel
TCL announced their long-expected capital raising this week, raising $1.9bn by way of a 3 for 37 rights issue at $11.40.
TCL will contribute $4bn out of the $5.5bn capital cost, with the Victorian state government contributing the balance.
As a business, TCL is flying. Major expansion projects across Sydney, Brisbane and Melbourne are driving excellent cash-flow growth, but the share price more than adequately reflects this.
I think the stock is at least 10-15% overvalued for now, and at risk of increased selling should bond yields begin to rise in 2018 as I would expect.
Weekend election a big deal …
It’s a big weekend ahead with the Bennelong by-election on Saturday.
I’m really not sure what to expect, but if Kristina Keneally gets in on the weekend, then I would expect markets to take a hit come Monday’s open.
I recognize we are only 10 days from Christmas, but don’t be surprised if we have one or two more portfolio changes next week.
Again, everything is price dependent, and as much as I would like to ignore the market over the coming few weeks, I can’t.
There are at least 3 or 4 shares that are approaching interesting levels, both on the buy and sell, so forewarned is forearmed.
Have a great weekend.
Thursday Closing Values
|S&P / ASX 200||6011||+33||+0.6%|
|Property Trust Index||1462||+35||+2.5%|
Thursday Closing Values
|U.S. S&P 500||2652||+15||+0.6%|
Key Dates: Australian Companies
|Mon 18th December||
Div Ex-Date – NABPC
Div Pay-Date – ANZ (ANZ), SUNPC, SUNPF
|Tue 19th December||AGM – ANZ|
|Wed 20th December||
Div Pay-Date – ANZPG, ANZPH, NABPA, NABPE
|Thu 21st December||
Div Ex-Date – WBCPG
|Fri 22nd December||Div Pay-Date – Westpac (WBC), WBCPF|
For more information on the above please contact your Partners Wealth Group advisor directly or on 1800 333 143.