Weekly market review - 3rd of December 2018
Written and accurate as at: Dec 03, 2018 Current Stats & Facts
The Australian market shed a little under 1% last week. Fed Chair Powell’s about-turn on rates - noting the rate which was “a long way from neutral” a few weeks ago is now “just below” neutral - provided some relief for those worried about numerous few interest rate increase which saw the US market up for the week. It certainly saw a surge in some of the Australian growth stocks, with the small-cap tech names making double-digit gains. However, resource-related weakness continued to drag on the market on fears over Chinese growth and uncertainty ahead of the Trump-Xi meeting over the weekend. The S&P/ASX 200 Resources index fell -2.7%, with Rio Tinto (RIO) down -4.6%, BHP (BHP) down -2.7% and Fortescue Metals (FMG) down -0.3%. REITs fell -2.0% in aggregate, while Financials gained 0.2%, with the ANZ (ANZ) up +1.8%, National Australia Bank (NAB) +0.7% and the remaining two big banks broadly flat. CYB Group (CYB), which owns Clydesdale Bank in the UK, bounced +6.2% following its fall the previous week.
Aristocrat Leisure (ALL, -8.8%) delivered a +9.6% gain in net profits for FY18. However, while its traditional gaming machine-based business remains solid, the market is wary about the outlook for its recent acquisitions in the digital space of social gaming and social casinos. The strategic intent behind this move is clear, as the demographic for ALL’s traditional customer base ages. However, the question is whether ALL can succeed in a business which is very different from its core. The margin in digital is very slim, with revenue driven by advertising which makes the number of users critical – and it was a softening of this trend which saw some worry over the outlook. Management have flagged investment over the next couple of years to bolster user numbers. The market will be looking for some success here to demonstrate that ALL can make the jump into the online world.
Coca Cola Amatil (CCL, -15.0%) held a strategy day. It had outperformed over the last few weeks as a relatively defensive consumer stock, however the market saw little in its update to maintain conviction and it gave back its outperformance. Carbonated drinks continue to face structural headwinds at a macro level, while higher input costs have weighed in the short-term. CCL is looking to offset the pressure on its core products by diversifying into other areas, however it is still early days. The key issue is that the company is having to spend an increasing amount just to stand still in terms of volumes, while at the same time retaining a demanding valuation.
RIO confirmed it is going ahead with previously flagged plans for new mines to maintain volumes as older sites are depleted, making the final investment decision (FID) on its Koodaideri mine in the Pilbara. This is good news for mining service companies such as Monadelphous (MND, +0.6%) and Seven Group (SVW, +1.3%) which are building multi-year pipelines of work on the back of the pick-up in mining capex and also the infrastructure pipeline on the east coast.