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Market Wraps

Morning Bell 26 August

Bell Direct

August 26, 2020

The Aussie share market opened 0.6% lower in the first 10 mins of trade, as the futures predicted. The market continued to fall in the first hour – with investors digesting weaker than expected financial year report cards, leaving the market sitting 1% lower at 11am.

On the downside:

Financial software and advice provider, Bravura (ASX:BVS) is one of the worst performers on the market today – its shares are down 15% dragging BVS almost back to its COVID-19 low. BVS reported a 22% jump in profit but the market is focused on the uncertainty of its new sales.
Whitehaven Coal (ASX:WHC) is down 8%, on the back of full year results that were largely in line with estimates.

On the upside:

Waste business, Cleanaway Waste Management (ASX:CWY) is the best performing stock so far this session up 8.5% after reporting its revenue rose 2% to $2.33 billion in the year, while all divisions made a profit, beating market expectations.
Fintech business, HUB24 (ASX:HUB) is up 6% to $16.26, after hitting a record all-time high earlier today – as Credit Suisse and Citi upgraded the stock overnight, Citi giving HUB a $17.40 target. HUB’s financial results were out yesterday, showing much stronger inflows into the financial platform than expected, something Credit Suisse expects will continue.
We are also seeing oil stocks like Oil Search (ASX:OSH) and Cooper Energy (ASX:COE) trading higher after the oil price rose to its highest level in five months US$42.45 on the back of storm-driven output cuts.

Trading ideas:

Ship builder, Austal (ASX:ASB) was upgraded by Citi after it handed down its full financial year results – showing an improvement in profitability. Citi upgraded ASB’s earnings estimates by 10%, has a buy rating on the stock and a target of $4.50.
Fortescue Metals (ASX:FMG) is now being sold around $18.50, as there’s downside risk to the iron ore price. FMG has strong free cash flows and is focused on returning surplus cash to shareholders.

Moving to overseas, sentiment is high, for two key reasons, (1) COVID-19 cases are continuing to fall over the month, and (2) the U.S. and Chinese officials reaffirmed the phase one trade deal is on track.

If you look at the U.S. futures – they’re indicating U.S. equities will mostly open positive, indicating the S&P500 and Nasdaq will rally off Tuesday’s record closes.

Thanks for your company, this Wednesday the 26th of August, I’m Jessica Amir, a market analyst with Bell Direct.

Well the Aussie share market is taking a bit of a step back today after gaining for the last two trading sessions. It opened about 0.6% lower, exactly as the futures expected, but then the market continued to fall in the first hour of trade. It’s now down about 1% with investors digesting mostly weaker than expected financial year results.

Some of those lacklustre report cards included from the worst performer today Bravura (ASX:BVS). Now they quickly swung about 15% lower, dragging BVS’s shares back to almost their COVID-19 lows. Now BVS did report positive news in way of a 22% jump in profit, reoccurring revenue up 7% despite superannuation withdrawals, but the key was the uncertainty in new sales and this is why it was dragged to the worst performing post today.

Another stock keeping the market underwater is Whitehaven Coal (ASX:WHC) they’re down about 8% on the back of handing down full-year results that were largely in line with what analysts were thinking but what spooked investors was that their debt levels actually increased, not what you want amid COVID-19 uncertainty and the company also guided for a weaker than expected FY21.

On the upside though positivity came from waste business, Cleanaway Waste Management (ASX:CWY) the best performer this session up almost 9% after reporting revenue rose 2% to $2.3b dollars in the 2020 financial year with all divisions making a profit, beating expectations. All in all net profit after tax for CWY rose 9% to about $153m and that beat UBS and market expectations, which is key and that’s what you want. However, despite the future of rubbish being certain it didn’t give forward-looking guidance for this financial year.

Another stock in the leader board today, fintech business HUB24 (ASX:HUB) up about 6% to $16.26 it was higher hitting a record all-time high earlier in the session today though now it comes as Credit Suisse and Citi both upgraded the stock overnight. Citi the most bullish giving HUB a $17.40 price target. HUB’s financial results out yesterday showed much stronger inflows into the financial platform than expected. This is something Credit Suisse thinks will continue for HUB24. We’re also seeing stocks like OSH and COE trade higher after we saw the oil price rise to its highest levels in five months overnight US$42.45 on the back of the storm-driven output cuts.

As for quick trading ideas for today, well ship builder Austal (ASX:ASB) is also making a front-running position today after it was upgraded by Citi after handing down better than expected financial results showing an improvement in profitability, particularly in the Philippines and Vietnam. But what about future growth for ASB. Well the Aussie Government is continuing to increase defence spending, which will provide further growth for ASB, Australia’s largest defence shipbuilder and ASB also looks like it’ll benefit from the U.S. government expanding its naval ship fleet. All reasons why Citi upgraded Austal’s earnings estimates by 10%, increasing its buy rating and target to $4.50.

Secondly, Bell Potter now recommends Fortescue Metals (ASX:FMG) be sold at a price of $18.50 as there’s downside risk for the iron ore price. Now FMG’s earnings per share (i.e. EPS) is expected to fall about 10% this financial year and 27% next financial year but its dividend yield will still remain attractive and above the market paying 7.8% this financial year and 4.8% the year after that still above market what the market is paying really as it’s got exceptionally strong free cash flows and is focused on returning capital to shareholders.

Turning overseas, sentiment is high for two key reasons (1) COVID-19 cases are continuing to fall and have done so over the past month and (2) the U.S. China trade deal is confirmed to be back on track so if you look at the U.S. futures, they’re indicating the S&P500 and the Nasdaq will rally off Tuesday’s record closes, so keep your eyes on that.

Grady Wulff

April 22, 2024