ASX Weekly Wrap 10/12 - 14/12

It was a disappointing week for the XJO as it was dragged down by poor index performances in Asia and some soft economic data that came out of China. The XJO finished the week down 79.50 points or 1.4%. Our high 5,682.10 on Tuesday and our low was 5,549.30 on Monday. We are now down 7.64%, on an index level, for the year and probably still down 2-3% when you account for dividends. Investors are still hoping for a ‘Santa Rally’ to close out the year, which we generally see start around the 15th December when you look back at history.

Will be a really short wrap this week as the market is devoid of any really fresh news. The only meaningful economic data to come out last week was via China, which had its monthly retail sales, industrial production and fixed asset investment drop. Overall the data was soft and missed forecasts. Retail sales grew at +8.1% vs +8.8% expected and +8.6% read last month. Industrial production came in at +5.4% again below the +5.9% expected and +5.9% read last month. Finally fixed asset investment rose +5.9%, which was above the +5.8% expected and last month’s +5.7%. As you can see it was more of the same in November with a generally soft tone for Chinese economic data. The PBOC has stepped up to the plate in recent days to help ease concerns stating it will support the economy in 2019, most likely via rate cuts and added liquidity. You will also likely see some fiscal stimulus from the Chinese Government moving forward as well as it looks to stabilize the economy.

The only real important/relevant news to come out this week was via Sonic Healthcare (SHL). SHL announced it would acquire US pathology business Aurora for $US540mill. Aurora have 220 pathologists in 32 clinics across the US and last year processed 2.5mill accessions. They also produced $US310mill in revenue and $US59 EBITDA in the 12 months to September 30. It is expected that this acquisition will be approximately 3% EPS accretive in FY19.

To fund the acquisition SHL also announced a $700mill raising, with $600mill going to institutions and the rest to retail holders via a share purchase plan (SPP). The price of the SPP will be the lower of the institutional price ($19.50 per share) or a 2.5% discount to the VWAP 5 days prior to the closing of the SPP on the 4th February.

This acquisition by SHL keeps with the theme of adding bolt on pathology companies to expand their footprint overseas and further diversify their revenue streams. It significantly expands their footprint in the US which is a highly fragmented market. SHL also noted that the US side of their business, excluding Aurora, is tracking well ahead of expectations in FY19.

By now you all know I am bullish SHL longer term and have large exposure to it across client accounts. I believe this deal is beneficial to shareholders in the longer term. The raising at $19.50 also looks great value here considering the stock is now trading at approx. $22.50. If it can hold these levels then taking advantage of the SPP looks like a good move, however there is a long way to go as the SPP doesn’t close until the 4th of February so the share price could be vastly different then.

There is no real point in posting another technical chart for the XJO as it just keep grinding underneath that longer term up trend line I talked about last week, thus I will finish up this week’s wrap here. This will be my last ‘ASX Weekly Wrap’ for 2018 as Christmas rolls in next Tuesday. As usual the ASX opening hours are slightly altered during the festive period so I have posted a summary of them below:

· Monday 24th December- Early Close 2:10pm est

· Tuesday 25th December- Closed

· Wednesday 26th December- Closed

· Thursday 27th – 28th December – Normal Hours

· Monday 31st December- Early Close 2:10pm est

· Tuesday 1st January 2019- Closed

As for my movements, I will be available during all of the festive period when the markets are open. Outside of market hours I may be scarce and may not reply until the next day and obviously I’m not available on days the market is closed. Equity markets go really quiet with extremely low volumes during the holiday period so I won’t be returning with the wrap until mid to late January in 2019. This is, of course, when I do my big review of 2018 and look at 2019, so keep an eye out for that.

Personally Christmas keeps on getting that little more exciting every year when you have young children of your own. Our 2.5 year old now recognizes Christmas type icons such as Father Christmas, Christmas Trees, and Candy Canes etc. and gets very excited when seeing them. We took him for a walk on Saturday night to look at Christmas lights and he was beside himself with excitement. I can’t wait to see his face on Christmas morning when he is opening up his presents. Our youngest will turn one this Friday so won’t understand it all but he does feed off a lot of his brother’s excitement so I expect two very happy boys Christmas morning. This is easily my favourite time of the year and the kids only make it that more special. Add in the music, lights, food etc. and it really does warm the heart. Also spending extra time with loved ones during the holiday period is something I look forward to every year.

Lastly I wanted to thank you all very much for your support during 2018, it really means a lot to me and my family. I have a very special, unique and loyal bunch of clients, some who have been with me since the start in 2004, and without you I wouldn’t be able to do what I love every day. From my family to yours I wish you all a very Merry Christmas and a Happy & Safe New Year. Please come back to us all in one piece in 2019 and take this time to step back from financial markets and spend time with loved ones. Some things are greater than money and share prices and can’t be measured by financial wealth. By taking the time to appreciate these, and embracing them, you will find the rest becomes that little bit easier. Thus until we speak again in 2019 please stay safe and look after yourselves. 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.