The Australian market appears to have found some buying interest in the last few days, and the correlation with the Australian Dollar appears to remain in place short term. Heavy currency selling remains associated with offshore groups exiting Australian assets (shares), while the rallies appear to be linked to market buying. The rise in oil last night of over 5%, and RBA comments on seeing no urgency around rate cuts, saw buying interest in the Australian Dollar (last at 71.60 cents). We still maintain the oil price is likely to see further support in the coming months, as supply begins to reduce and geo-political tension in the Middle East build. Key energy plays remain OOO Oil ETF and Woodside. We see emerging value in Santos and Origin after recent price falls but would prefer to see the capital raisings out of the way first.
At the portfolio level we have added a new holding in Perpetual (PPT) to our core portfolio, at $40.50 the stock is trading at a 20% discount to our fair value. PPT has had a Return on Equity of 32.16% p.a. since 2006, and we expect roughly 22.50% p.a. in the next 3 years, while providing investors with a forecast yield of 6.13% (100% franked). The cost out story in wealth management stocks of this style remains strong, as innovation and staff replacement gathers pace. Other new additions to our Growth Portfolio are Xero below $14.50, with a target price of $20.00+. The cloud account software group continue to grow offshore, albeit at a slower place, and we see the current price weakness as an opportunity. Also Qube logistics is starting to exhibit reasonable value, and any weakness below $2.00 sees us move this stock to a growth buy.
Figure 1 – 12 Year Crude Oil
