What Worked Australia - 23 Jun 2017 - Value Punished & Profitability still strong

What Worked

Value, in all its forms that we cover, was sold off this week. Of the Value signals, PBR was hit the hardest. In what has been a solid month of outperformance for the most expensive names in the market on a PBR basis, it was the cheaper side of the market that underperformed this week. Amongst the cheapest names on a PBR basis that finished lower was Santos Limited (STO, -3.5%), Myer Holdings (MYR, -4.39%) and Aveo Group (AOG, -4.2%). High Dividend Yield names were also hit this week, amongst the highest in the market that finished lower was Cromwell Property (CMW, -2.4%), Harvey Norman Holdings (HVN, -4.4%) and Retail Food Group (RFG, -9.7%), only making them more attractive on a pure yield basis.

The profitability measures also returned strong numbers this week. While ROE was the clear outperformer on the back of a sell-off in PBR, ROIC has managed to continue along for another week in the positive. The big difference this week, however, was in the quintile performance. While last week saw low ROIC names being sold off, this week saw a surge into High ROIC names, while the low ROIC basket remained flat to the market. High ROIC names doing well this week include the names that managed market outperformance last week despite a flat result for High ROIC names. Bellamy’s Australia (BAL, +8.9%), a2 Milk (A2M, +5.4%) and St. Barbara (SBM, +4.2%).

Who Moved

Some good volumes this week, with almost 10% of the benchmark moving on significantly higher than normal volumes. On the positive side Navitas (NVT, +6.1%), Regis Resources (RRL, +5.2%) and Sydney Airport (SYD, +3.1%) all finished the week positive despite a down market. On the other side, QBE Insurance (QBE, -10.2%), Vicinity Centres (VCX, -5.7%) and Tassal Group (TGR, -5.3%) all finished lower on the back of strong volume.

Summary

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What Worked Australia - 16 Jun 2017 - Profitability rules this week

What Worked

Profitability metrics stood out this week, in large part driven by underperformance of Australia’s least profitable names. This week saw the strongest week for ROIC in 9 months, and it has been steadily climbing over the last 3 weeks. One thing to be wary of though is that seems to be about the limit for this factor, with some serious negative performance potential in the next couple of weeks. Low ROIC names doing poorly this week included Iluka Resources (ILU, -3.3%), Ardent Leisure Group (AAD, -0.9%) and Santos Limited (STO, -2.6%). High ROIC names also did well, although as a group was largely in line with the benchmark. High ROIC names that really outperformed included Bellamy’s Australia (BAL, +15.2%), a2 Milk (A2M, +2.8%) and St. Barbara (SBM, +3.1%).

There was also a reasonably strong reversal in the short term momentum names. This Rank IC number, however, is not reflected in the top and bottom quintiles and is in large part being driven by names in the middle 60% of the market. Short term momentum has been working as a positive signal for the best part of the last month, and has finally hit its snapping point and has flipped back to being a contrarian signal – names down over the last month that bounced hard this week include Sigma Healthcare (SIG, +3.6%), Sirtex Medical (SRX, +5.8%) and Mayne Pharma (MYX, +5.5%).

Who Moved

13 names in the benchmark index moved this week on significantly higher than normal volumes. For the most part, these moves were positive. On the downside, Galaxy Resources (GXY, -23.6%), Medibank Private (MPL, -2.5%) and BHP Billiton (BHP, -2.3%) all finished the week lower. On the positive side of things, Acconex (ACX, +10.8%), Mineral Resources (MIN, +8.4%) and Ansell Limited (ANN, +7.6%) all finished the week higher.

Summary

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What Worked Australia - 02 Jun 2017 - Earnings Revisions strong, Low Sales Growth working

What Worked

Not a lot of colour in the market this week, with the only factors showing any real movement was EPS Revisions. 1 Month EPS revisions had their strongest week so far this year, almost doubling the closest week in terms of Rank IC. Names with good EPS revisions over the last month that finished up for the week included James Hardie (JHX, +2.8%), Fischer & Paykel Healthcare (FPH, +4.0%) and Aristocrat Leisure (ALL, +3.0%), while names with earnings downgrades over the last month finished down. Among these were Ardent Leisure (AAD, -2.8%), Vocus Group (VOC, -6.1%) and Nanosonics (NAN, -2.5%).

Forward Sales growth positive negative results for the week, but largely on the back of names with poor sales growth outperforming the index, rather than high growth names underperforming. Low forecast Sales Growth names that did well this week included Alumina Limited (AWC, +3.5%), IOOF Holdings (IFL, +1.2%) and Cromwell Property Group (CMW, +2.3%).

Who Moved

18 Names managed to move this week on volume, with a good spread across the sectors, and for the most part finishing up. On the positive side, Sigma Pharma (SIG, +10.2%), Flexigroup (FXL, +8.1%) and Fischer & Paykel Healthcare (FPH, +4.0%) rounded out the best performers on volume, while Domino’s Pizza (DMP, -7.1%), Galaxy Resources (GXY, -4.5%) and Wesfarmers Limited (WES, -1.6%) all finished the week down.

Summary

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What Worked Australia - 12 May 2017 - Disastrous week for Div Yield, Size hurt

What Worked

This week saw the worst week in our tracked history for Dividend Yield, after having spent the last month in positive territory. While the higher yielding names stayed largely in line with the market, it was low div yield names that jumped significantly, with the bottom quintile (i.e. 20%) of the market measured by Div. Yield provided +3.9% of outperformance. Australian Agricultural Company (AAC, +12.6%), Galaxy Resources (GXY, +17.1%) and Syrah Resources (SYR, +10.1%) all finished up in a big way this week, and all with forecast FY1 dividend yields of zero. The other side of that trade saw some of the higher yielding names underperform, including Genworth Mortgage Insurance (GMA, -1.3%), Harvey Norman Holdings (HVN, -8.5%) and Myer Holdings (MYR, -14.9%) all finishing well off the benchmark.

Size was also hurt this week, in large part caused by a rally in the smaller end of the market. The larger end of the market was all but flat to the benchmark (as one would expect from a cap-weighted index), while small cap names surged +2.4% higher than the ASX 200. The smallest names in the benchmark this week included iSentia (ISD, +0.3%), OFX Group (OFX, +0.3%) and Virtus Health (VRT, +0.7%), all-in-all only 8 names from the smallest 20% of the market posted losses this week. The larger end of town was a mixed bag however, and the losses seemed to be focused on the banks. Commonwealth Bank (CBA, -3.4%), Westpac (WBC, -3.9%) and ANZ (ANZ, -4.9%) all finished the week lower.

Who Moved

With most of the Asia Pac region having holidays in one form or another this week, Australia seemed to pick up a little of slack in trading volumes. 21 names from the benchmark index moved on significantly higher than normal volumes this week. On the positive side, Qantas Airways (QAN, +4.2%), ARB Corp (ARB, +3.9%) and CSR Limited (CSR, +3.7%) all finished the week higher backed by volume, while Mayne Pharma (MYX, -11.5%), Independence Group (IGO, -8.0%) and Alumina Limited (AWC, -7.3%) all finished lower.

Summary

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What Worked Australia - 05 May 2017 - Short term momentum hurts value and growth alike

What Worked

Value, growth – did not matter this week as a swing into short term momentum hit both value and high growth names alike. While names like Bellamy’s (BAL, +12.3%), Flight Centre Travel (FLT, +9.7%) and BT Investment (BTT, +1.8%) are among the best performing names over the last month that added to gains once again this week. On the other side however, Vocus Group (VOC, -29.4%), Fortescue Metal (FMG, -6.4%) and Mayne Pharma Group (MYX, -11.5%) all underperformers for the month that closed the week lower.

While momentum ran, Value took a dive – cheap names on a forward PER basis such as Resolute Mining (RSG, -6.2%), Flexigroup (FXL, -12.4%) and Mineral Resources (MIN, -9.1%) all names that are trading at less than 10x forward earnings, and all were hit hard this week. On the other side of that trade saw NextDC (NXT, +3.8%), Sydney Airport (SYD, +3.5%) and APA Group (APA, +3.2%) all becoming more expensive. Looking over history, using forward PER as the sole basis for a strategy would have yielded almost the same return whether you bought the cheapest or the most expensive group over the last 2 years.

Who Moved

With most of the Asia Pac region having holidays in one form or another this week, Australia seemed to pick up a little of slack in trading volumes. 21 names from the benchmark index moved on significantly higher than normal volumes this week. On the positive side, Qantas Airways (QAN, +4.2%), ARB Corp (ARB, +3.9%) and CSR Limited (CSR, +3.7%) all finished the week higher backed by volume, while Mayne Pharma (MYX, -11.5%), Independence Group (IGO, -8.0%) and Alumina Limited (AWC, -7.3%) all finished lower.

Summary

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What Worked Australia - 28 Apr 2017 - Worst week for PBR in over a year

What Worked

Yet another poor week for value this week in the Aussie market, and a slight reversal in short term momentum, all leading to a swing into more profitable names. PBR had its worst week in over a year, with names cheaper on a PBR basis finishing up with a -22% IC, and a long/short spread of -1.8% vs. the benchmark being up over 1.0%. With the Australian Government’s announcement of an Energy Security policy, naturally the Energy space was hit pretty hard, and this is where a lot of cheap names on a PBR basis are sitting. Santos Limited (STO, -4.4%), OZ Minerals (OZL, -5.8%) and Whitehaven Coal (WHC, -2.1%) all off this week, and all the more less expensive on a PBR basis for it. Hard sell though with the potential uncertainty facing the energy market…

On a positive note, ROE names benefitted from the move away from value, and saw Amcor Limited (AMC, +2.3%), Platinum Asset Management (PTM, +2.9%) and Magellan Financial (MFG, +2.4%) all up and amongst the more profitable names in the index on a forward ROE basis. On the other side of that trade however Syrah Resources (SYR, -6.5%), Japara Healthcare (JHC, -2.4%) and Western Areas (WSA, -3.6%) all finished the week down.

Who Moved

Not a strong week for volumes, not even in the energy space. Only four names moved on volume this week, and only one of those managed to outperform the index. Sirtex Medical (SRX, -10.5%) and Coca-Cola Amatil (CCL, -2.7%) both finished lower on significantly higher than normal volumes, while Australian Pharmaceuticals Limited (API, +6.8) finished over the benchmark for the week.

Summary

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What Worked Australia - 21 Apr 2017 - Two shortened weeks, Value hurt in both

What Worked

At the end of two shortened weeks in the Aussie market, Value, and growth for that matter, have lost out two in a row. Cheap names on a forward PER basis have been sold off in droves over the last two weeks, while the more expensive end of the market has remained relatively flat to the benchmark. Metals and Mining names where made up a good portion of the value names sold off, among them Resolute Mining (RSG, -9.4%), Whitehaven Coal (WHC, -4.5%) and Saracen Mineral Holdings (SAR, -11.8%) where among the worst affected, and continue to look cheaper on a forward PER basis. These names are also among the biggest growth names in the market, but at the same time are seeing some of the biggest downgrades from the sell-side.

On a positive note, Dividend Yield is showing some promise. This week saw names with bottom of the market dividend yields dropping over -2% compared to the market by mid-Friday, although ended almost flat for the week. In the meantime, higher yielding names were flat up until the middle of today, and closed much higher as a group in the end. Names hurt in particular included Infigen Energy (IFN, -3.6%), Syrah Resources (SYR, -2.4%) and Oil Search Limited (OSH, -3.8%).

Who Moved

As might be expected, volumes are a little off given the much shorter weeks. Only one name managed to move on volume this week, namely TPG Telecom (TPM, -9.4%). On the other side, there were 30 names that made significant moves on very light volumes. GWA Group (GWA, +2.7%), SIMS Metal management (SGM, +2.5%) and Carsales (CAR, +2.1%) all ended up strong for the week on very weak volumes, while Woodside Petroleum (WPL, -3.2%), Sigma Pharmaceutical (SIP, -2.0%) and Westfield (WFD, -1.9%) all finished weaker on very poor volume.

Summary

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What Worked Australia - 04 Apr 2017 - Some short term reversal, and Low Div names rebound

What Worked

This week was all about a reversal in short term gains (and losses), as one week and one month momentum signals saw highly negative numbers. Names like Galaxy Resources (GXY, +4.4%), Bellamy’s Australia (BAL, +4.8%) and OZ Minerals (OZL, +7.8%) where among the lowest performing names last week that rebounded very strongly this week, while the other end of the market saw the better performing names from last week come off. This group saw Aconex (ACX, -1.5%), Mantra Group (MTR, -0.3%) and Seven West Media (SWM, -7.6%) all trim back gains made over the last week, and indeed the last month.

Dividend Yield as a signal was also hurt this week, but not due to a sell-off in the higher yielding names, but rather some buying into the lower yielding names. Among these were Orocobre (ORE, +4.7%), Infinigen Energy (IFN, +4.1%) and Nanosonics (NAN, +1.3%) all posting higher, and among the lowest yield names in the market.

Who Moved

Volumes backed off yet again this week, with only 5 names moving on higher than normal volumes. On the positive side, Whitehaven Coal (WHC, +11.0%), Spark New Zealand (SPK, +5.3%) and Fairfax Media (FXJ, +3.4%) all finishing up, while the only name down on volume was Fletcher Building Limited (FBU, -1.3%).

Summary

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What Worked Australia - 31 Mar 2017 - Value and Beta works, while Momentum down yet again

What Worked

Value, namely Trailing PER and Dividend Yield, swung back into positive territory this week, although not with quite the same ferocity of the back and forth swings of the last month. The move in value was in large part driven by the more expensive names in the market coming off, although the cheaper names also managed to just outperform the benchmark. Names with bottom of the market forward dividend yields that came off this week included Galaxy Resources (GXY, -10.0%), Bellamy’s Australia (BAL, -9.1%) and Resolute Mining (RSG, -3.7%). The other side of this trade, the names in the market with higher forecast Dividend Yields, saw names such as Genworth Mortgage Insurance (GMA, +7.1%), Alumina Limited (AWC, +1.4%) and Seven West Media (SWM, +9.7%) all seeing good returns for the week.

While 12-month momentum was off yet again, this was in large part driven by a sell-off in the better performing names over the last 12 months, while the underperformers got a bit of a reprieve and came through largely in line with the market. OZ Minerals (OZL, -5.0%), Australian Agricultural Company (AAC, -0.3%) and Viva Energy REIT (VVR, -1.2%) were among those best performers over the last 12 months most impacted.

Who Moved

Names moving on significantly higher than normal volumes dropped this week, with only 14 names from the benchmark generating higher than normal volumes. On the positive side, Myer Holdings (MYR, +14.8%), Brickworks (BKW, +3.8%) and Bank Of Queensland (BOQ, +5.7%) all outperformed this week back by volume, while G8 Education (GEM, -2.2%), Trade Me Group (TME, -1.3%) and Nufarm Limited (NUF, -0.7%) all; finished the week lower and well off the benchmark.

Summary

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What Worked Australia - 24 Mar 2017 - Beta and all momentum hurt

What Worked

This week saw a swing away from Beta and low Quality names, and a move away from Momentum, both price and earnings revisions. In terms of “What Worked”, well, nothing did. Not a single factor managed to post a Rank IC above our working threshold of 10%. While Value signals were also off, this was largely due to the reversal in momentum, with more expensive names becoming more expensive, while the cheaper end of the market remained relatively flat. While the higher beta names stayed in line with the benchmark, it was the low beta names that really rocketed this week. Among these were ResMed (RMD, +1.3%), Viva Energy REIT (VVR, +2.5%) and Growthpoint Properties (GOZ, +2.5%).

Lower Quality names, measured by higher Debt-To-Equity, came off this week. Names hurt included Navitas Limited (NVT, -0.7%), Telstra (TLS, -3.5%) and James Hardie Industries (JHX, -0.1%). In terms of Sectors, Finance names took a beating this week, with most of the banks down compared to last week.

Who Moved

22 names managed to move on volume this week, and the spikes were distributed across the sectors. On the negative side of things, Fletcher Building (FBN, -11.5%), Evolution Mining (EVN, -8.9%) and Harvey Norman (HVN, -7.9%) were amongst the hardest hit, while Spotless Group (SPO, +46.6%), Blackmores Limited (BKL, +19.4%) and SKY Network Television (SKT, +7.8%) rounded off this week's winners end up on significant volume.

Summary

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