Weekly Market Review
Written and accurate as at: Nov 28, 2017 Current Stats & Facts
An uptick in commodity prices saw resources lead the S&P/ASX 300 +0.4% higher last week. Copper gained 3% and iron ore was up 8%, propelling the S&P/ASX 300 Metals & Mining index up +2.4%. Meanwhile, the oil price continued its recent rally, up +2% ahead of the bi-annual meeting of oil-producing nations. Given Brent crude’s 20% gain over the last three months, this may be a case of “buy the rumour, sell the fact” if, as expected, the existing controls on production by OPEC and Russia are extended.
Elsewhere, the S&P/ASX 200 AREIT index gained +1.0%, with US bond yields remaining flat and Australian bond yields falling by 6bps. The Australian dollar bounced back to just above 76c US.
ALS’s (ALQ) results disappointed a market which was expecting to see a greater degree of operational leverage in its mineral testing segment to a pick up in mining activity. At the same time, its less cyclical food testing business also disappointed. The stock had been trading on a relatively high multiple, and fell -9.8% for the week to be among the market’s worst performers. A weak east coast grain crop compared to last year dragged on Graincorp’s (GNC) (-8.7%) result and it was likewise a standout underperformer.
Flight Center (FLT) gave back -5.3% following a strong run, while a stronger oil price also weighed on Qantas (QAN) (-4.6%). We remain mindful that if oil prices remain elevated for a sustained period, it can begin to feed through into increased costs and remove some of the expected upside from here. That said, we remain some time away from that point and QAN’s hedging immunises it against a significant surge in fuel costs in the near term.
The market expressed scepticism at Coca Cola Amatil’s (CCL) (-4.3%) investor day in Indonesia. The stock remains unloved given a plethora of structural issues, not least changes in consumer tastes, and there seems to have been little emerging from the investor day to give the market much hope of an imminent solution to the challenges it faces. Meanwhile QBE Insurance (QBE) fell -3.3% as evidence of a pick up in global insurance premium pricing has been slower than expected to emerge, in the wake of the devastating North American hurricane season. Tabcorp (TAH) (-2.8%) gave back a little of the strong run it has enjoyed in anticipation of approval for its merger with erstwhile rival Tatts Group (TTS). The forces of consolidation which are looking likely to improve returns in wagering are possibly spilling over into online gaming, with speculation of upcoming M&A activity there.
A stronger oil price saw Origin Energy (ORG) gain +4.9%, although Santos (STO), our preferred exposure to the LNG sector, with the recent talk of a takeover – even if it does not eventuate – reminding the market of the intrinsic value of STO’s assets. Broader commodity price improvements meant that BHP (BHP) (+3.1%) and South32 (S32) (+3.6%) were among the market’s best performers.
Carsales.com (CAR) strengthened +4.4% as it announced the acquisition of the remaining 50.1% of its South Korean JV business (Encar.com) from SK Holdings. Encar.com is a solid business with good management in an under-penetrated market, and this move allows CAR greater strategic control over its development and provides a modest improvement to near-term earnings. Elsewhere Caltex Australia (CTX) (+3.1%) made gains on the back of robust refining margins, while Amcor (AMC) (+3.1%) bounced back from its weakness of the previous week.