ASX Weekly Wrap 13/11 - 17/11
![](https://static.wixstatic.com/media/24dfe8_5c094e00bbd3484e861be9e6480b5cc3~mv2.jpg/v1/fill/w_748,h_140,al_c,q_80,enc_auto/24dfe8_5c094e00bbd3484e861be9e6480b5cc3~mv2.jpg)
![](https://static.wixstatic.com/media/24dfe8_9ee8726af4b548e4a894bfc8cca5554a~mv2.jpg/v1/fill/w_980,h_392,al_c,q_85,usm_0.66_1.00_0.01,enc_auto/24dfe8_9ee8726af4b548e4a894bfc8cca5554a~mv2.jpg)
We basically gave back all our previous week’s gains this week as the XJO fell 72.10 points or 1.20%. A few concerns lingered surrounding the tax plan in the US, ANZ & WBC going ex-div and lower commodity prices also weighed on our market during the week. Our high for the week was 6,028.30 on Monday and our low was 5,916.10 on Thursday.
The only major economic piece of data I will cover briefly this week will be the Australian jobs numbers for September, as again we have plenty of corporate news to cover. For the 13th straight month the Australian economy again added jobs. The economy only added 3.7k jobs in September versus the forecast of +18k, but the unemployment rate fell to its lowest level for some time at 5.4%. The lower rate was mainly due to the participation rate falling 0.1% to 65.1%. Digging deeper the numbers were more encouraging as 24.3k full time jobs were added whilst 20.7k part time jobs were lost. Overall the jobs market continues to be strong and we should see a pickup in October/November figures leading into Christmas.
![](https://static.wixstatic.com/media/24dfe8_ce181f78016c4eceb236f1da5ba0034c~mv2.jpg/v1/fill/w_980,h_393,al_c,q_85,usm_0.66_1.00_0.01,enc_auto/24dfe8_ce181f78016c4eceb236f1da5ba0034c~mv2.jpg)
The biggest news of the week came the way of Santos (STO) who revealed they received an unsolicited cash takeover offer of $4.55 per share, or $9.48bill, from Harbour Energy in August. It must be noted STO was trading around $3.30 at the time, thus the offer was at a significant premium. STO said it quickly rejected the offer as it grossly undervalued the company and its assets and is not in talks with the company about an acquisition. STO shares jumped 10%+ on the back of this news as it now seems Santos may be in play. Harbour Energy is known for coming back more aggressively with better offers. You all know I am bearish the oil & gas sector in the longer term and this may give long suffering STO holders a better price to exit if another offer is made.
Sticking with the oil & gas sector Shell revealed it had sold its $US2.7bill (13%+) stake in Woodside Petroleum (WPL) during the week. The sale went to a couple of investment funds, but as a consequence WPL shares fell 10%. In the long run this could be a blessing. Rumours surrounding the sale of Shell’s stake in WPL have lingered for several years and may have held the stock price back. At least now this cap is removed and WPL has no barriers on the upside. Once again I am not looking to enter WPL here, but I wouldn’t be surprised to see the stock outperform in the next 12-24 months.
![](https://static.wixstatic.com/media/24dfe8_4e3d3db20f284a5dabff9879cca9480b~mv2.jpg/v1/fill/w_980,h_393,al_c,q_85,usm_0.66_1.00_0.01,enc_auto/24dfe8_4e3d3db20f284a5dabff9879cca9480b~mv2.jpg)
A couple of weeks ago the Federal Court of Australia allowed Fairfax (FXJ) to divest and spin out its holding in Domain Property Group (DHG). As a result DHG listed last Thursday as shareholders received one DHG share for every 10 FXJ shares they held. FXJ has nominated to maintain a 60% controlling stake in DHG. On the day of listing DHG shares traded as high as $3.98 valuing the company at over $2.2bill and above forecasts. I have to look at DHG more closely before I can take a stance on it either way. However its biggest competitor in REA trades at very high multiples (40x) so I would expect DHG to do similar. There is a favourable outlook for DHG as long as the population continues to increase at 1-2%pa and there is no major downturn in the housing market.
![](https://static.wixstatic.com/media/24dfe8_a9b534daf262434f9c302782c0bdfb08~mv2.jpg/v1/fill/w_980,h_393,al_c,q_85,usm_0.66_1.00_0.01,enc_auto/24dfe8_a9b534daf262434f9c302782c0bdfb08~mv2.jpg)
The online retailer, and market darling, Kogan (KGN) released a trading update for 17/18 at its AGM last week. It revealed some impressive numbers with revenue figures +36.2%, EBITDA +58.3% and gross margins +18.4%. It also announced a partnership with Vodaphone to start offering NBN internet services and with Holland’s to start offering general insurance policies to further diversify its portfolio and revenue streams. These figures build on an already impressive first year of listing for KGN who easily beat prospectus forecasts. When asked about the possible impacts of Amazon on KGN they felt it would be positive for the company as it would encourage more people to shop online and it was another avenue for KGN to sell its own branded items. Based on last year’s figures KGN is trading on a massive PE of 115x, but with possible 50% increase in NPAT that will drop to roughly 50x at current prices. The market is obviously banking on KGN strategy continuing to be a success and growth to continue at rapid rates. I am interested in KGN as a speculative play but waiting for the charts to set up before I enter.
![](https://static.wixstatic.com/media/24dfe8_fc7ce4de9a4e4336bd3853e0677c787b~mv2.jpg/v1/fill/w_980,h_396,al_c,q_85,usm_0.66_1.00_0.01,enc_auto/24dfe8_fc7ce4de9a4e4336bd3853e0677c787b~mv2.jpg)
The final company we will cover this week is the explosive and fertilizer producer Incitec Pivot (IPL) who released their full year earnings report last week. NPAT was up 8% to $318.7mill for the year as it has solid growth in its explosives division in particular. Revenue also increased 8% whilst IPL will pay an end of year dividend of 4.9cps taking the full year pay out to 9.4cps. IPL have also decided to buy back up to $300mill of its own shares on market over the next 12 months. Overall the result was well received by the market as IPL have pushed to multi-year highs. IPL noted they expected strong growth again from its explosives and chemicals division as mining exploration/production ramps up. They noted that the US was particularly strong as well.
IPL trades on 21x earnings with a 2.3% yield at current prices. This only falls to 18.5x based on next year’s forecast so you are paying a high multiple for high single digit growth. I feel once ORI settles it will be much better value in the explosives sector, however will keep my eye on IPL.
![](https://static.wixstatic.com/media/24dfe8_38373aa4d5a8482fab081cf23edf9512~mv2.jpg/v1/fill/w_573,h_368,al_c,q_80,enc_auto/24dfe8_38373aa4d5a8482fab081cf23edf9512~mv2.jpg)
Was a sea of red on the XJO last week as only two sectors kept their head above water (IT & Retail). The resources sector copped it the hardest as losses exceeded 2% due to losses in commodity prices as the USD rose. The AUD also was sold off hard, which is generally positive for resources, as it entered the 0.7550 region. It really was a wide sell off across the XJO as I feel some profits were being taken off the table.
![](https://static.wixstatic.com/media/24dfe8_4100bc8d9ba74841995d2848f51d7b5c~mv2.jpg/v1/fill/w_980,h_468,al_c,q_85,usm_0.66_1.00_0.01,enc_auto/24dfe8_4100bc8d9ba74841995d2848f51d7b5c~mv2.jpg)
As I mentioned last week the XJO was always going to come back and test the break around the 5956 level, which it just happened to do. As long as we hold this area we should break higher in the coming weeks. Expect some more sideways movement before our inevitable ‘Santa Rally’ occurs.
Absolutely nothing on the radar economic data wise this week as the AGM season continues. We also have the US markets closed Thursday night and shutting early Friday night for the Thanksgiving Day celebrations. Only significant news scheduled is CYB releasing their full year results, but that’s about it. Expect a few more earnings updates as directors make their AGM presentations. Hope you all have a wonderful week. Please stay safe and I will speak to you all soon. Go Crows!
heath@hlminvestments.com.au
0413 799 315
Important Notice
Any advice in this article should be considered General Advice only and does not take into account your personal needs and objectives or your financial circumstances. You should therefore consider these matters yourself before deciding whether the advice is appropriate to you and whether you should act upon it. I am happy to assist you in this process. To do so, I will need to collect personal and financial details from you before providing my recommendations. Please note the author may own shares in the companies mentioned in the above blog.