Coles commenced trading on the ASX on 21 November 2018, after the spin-off from Wesfarmers was approved by the Supreme Court of WA.
Trading is initially on a deferred settlement basis, with the demerger expected to be implemented on 28 November 2018.
The ASX 300 Banks Index is testing primary support at 7000. Declining peaks on the Trend Index warn of selling pressure.
Breach of 7000 would signal another primary decline with a long-term target of 5000.
ASX 300 Metals & Mining Index continues to consolidate between 3500 and 4000. Breach of 3500 would be a bearish sign for the broad market ASX 200 index. Primary down-trends on its two biggest sectors would be likely to drag the overall index down.
On the ASX 200, Twiggs Money Flow is holding above zero, suggesting light volume on the declines. Breach of primary support at 5650, however, would confirm a primary down-trend.
Offering a target of 5000.
I have been cautious on Australian stocks, especially banks, for a while, and hold over 30% cash in the Australian Growth portfolio.
The ASX 200 displays a cautious rally, with short candles reflecting an absence of buyer enthusiasm. But bullish divergence on 21-day Twiggs Money Flow indicates longer-term confidence.
The monthly chart shows similar rising troughs on 13-week Twiggs Money Flow, reflecting buyer confidence. Recovery above 6000 would be bullish, suggesting another advance. Respect of resistance is less likely, but would warn of another test of primary support at 5650.
The ASX 300 Banks Index respected primary support at 7000, while bullish divergence on 13-week Trend Index indicates buying pressure. Expect a bear rally to test resistance at 8000. The primary trend, however, is down.
The ASX 300 Metals & Mining Index is consolidating above 3400 but rising iron ore prices are likely to lift the index. Recovery above 3800 would signal another advance.
The All Ordinaries Gold Index again respected resistance at 5500 and another test of primary support at 4500 is likely. Breach would warn of a primary down-trend with a target of 3500.
I remain cautious on Australian banks and hold over 30% cash in the Australian Growth portfolio.
The ASX 200 continues to find support, with the latest large red candle and subsequent doji, testing primary support at 5650, accompanied by strong volume (indicated by red on the volume chart). Similar buying pressure (accumulation) is evident on 11th and 12th October.
This is sometimes lost on the weekly chart but we can see Twiggs Money Flow troughs below have leveled out above the zero line, reflecting a mild bullish divergence (not as strong as rising Money Flow troughs but still a reflection of support). What is also evident on the daily chart (above) is how this week’s rally petered out, with shorter candles, awaiting further direction.
The ASX 300 Banks Index is testing primary support at 7000, the same level as its October 2009 peak. Declining peaks on the Trend Index warn of further weakness and breach of 7000 would offer a long-term target of 5000.
I have been cautious on Australian stocks, especially banks, for a while, and hold over 30% cash in the Australian Growth portfolio.
The ASX 200 is testing primary support at 5650. Declining Trend Index peaks warn of selling pressure and breach of 5650 would warn of a primary down-trend.
Banks are weighing on the index, with the ASX 300 Banks index testing support at 7000. Breach is likely and would offer a long-term target of 5000.
I have been cautious on Australian stocks, especially banks, for a while, and hold over 30% cash in the Australian Growth portfolio.
The ASX 200 found support around 5900, with a long tail indicating buying interest. Breakout of Twiggs Money Flow above the descending trendline would confirm. Breach of support at 5750 is unlikely but would warn of a primary down-trend.
Banks are weighing the index down, with the ASX 300 Banks index retracing to test resistance at its former primary support level of 7400. Respect would confirm another decline. Descending Trend Index peaks below zero warn of selling pressure.
I remain cautious on Australian stocks, especially banks, and hold over 30% cash in the Australian Growth portfolio.
The ASX 200 broke support at 6120/6150, signaling a correction. Expect support at the rising long-term trendline at 6000. Penetration of the trendline would warn that the primary up-trend is faltering.
Banks lead the decline, with ASX 300 Banks index headed for a test of primary support at 7300. A Trend Index peak below zero would warn of strong selling pressure. Breach of 7300 would signal another decline. Follow-through below 7000 would present a long-term target of 5000, the 2011 low.
I am cautious on Australian stocks, especially banks, and hold over 30% cash in the Australian Growth portfolio.
Stock: NEXTDC Limited
Symbol: NXT
Exchange: ASX
Latest Price: $6.13
Market cap: $2.1 billion
Currency: AUD
Financial Year: 30 June
Date: 8 October 2018
Sector: Technology
Industry: Data Storage
Investment Theme: Long-term Growth
Structural Trends: Rising connectivity and online services
NEXTDC is an Australia-based and Australia-focused technology company providing data center outsourcing solutions through a nationwide network of Tier III and Tier IV facilities.
NEXTDC provides enterprise-class colocation services to local and international organizations. Clients include:
NEXTDC shows steady revenue growth over the past 5 years as it expands its data centers across Australia.
Net assets expanded to $1.2 billion in FY 18 from $282 million in FY15, funded by a mix of new equity and debt. Further expansion is planned for FY19:
NEXTDC recently announced plans to acquire three new sites in Australia for additional data centres in Sydney, Melbourne and Perth: S3 80MW, M3 80MW and P2 20MW – these new facilities in Sydney and Melbourne will be the largest ever built in Australia. That takes NEXTDC’s total future capacity to over 300MW.
While revenue growth may appeal, return on assets is low at 0.64% in FY18 (FY17: 3.33%*). Return on equity is not much better at 0.95% for FY18 (FY17: 5.48%*). EBITDA/Total assets fell to 5.06% in FY18, from 5.75% in FY17.
Utility Origin Energy (ORG) earns similar rates of return at 0.88% (ROA), 1.88% (ROE) and 11.9% (EBITDA/TA).
*FY17 results were inflated by a $10.2 million tax credit.
Development of new and existing data centers is capital intensive and sometimes undertaken without pre-sales commitment from customers, and there is a risk that there is not enough demand to achieve a sufficient return on investment.
According to various recent industry cyber risk reports, cyber incidents and their financial impacts are increasing significantly year on year and cyber criminals are targeting small and large businesses alike. To mitigate these risks, NEXTDC has implemented an information security management system based on ISO 27001 as well as undertaken ongoing penetration and vulnerability tests.
Catastrophic failure or equipment malfunction at a data center could result in NEXTDC not being able to provide power and cooling to support customers’ equipment, thus breaching service agreements and incurring contractual liabilities. To address this risk, NEXTDC’s data centers are designed and built with significant redundancy in place.
Twiggs Momentum has declined to a still-respectable 67% but 50-week Trend Index crossed below zero after a bearish divergence, warning of strong selling pressure.
Do not buy. NEXTDC earns utility-level rates of return on assets and does not justify its current high forward price-earnings multiple of 78. Long-term revenue growth will require significant investment in new data centers, funded in part by new equity issues which dilute returns to existing shareholders.
Staff of The Patient Investor may directly or indirectly own shares in the above company.
The ASX 200 found support at 6120/6150, with a long tail indicating buying interest. Follow-through above 6250 would suggest another advance. Breach is now unlikely but would warn of a test of the rising long-term trendline at 6000.
A rally on resources stocks helped support the overall index. Expect the ASX 300 Metals & Mining index to test 4000.
Miners were helped by a weakening Aussie Dollar. Breach of support at 71 US cents offers a target of 69 cents. Trend Index peaks below zero warn of strong selling pressure.
Banks, on the other hand, are weakening. The ASX 300 Banks index broke support at 7700, with a declining Trend Index warning of selling pressure. Expect a test of primary support at 7300.
Falling broad money and credit growth warn of a contraction — unless an unlikely Chinese-led mining boom can keep the wolf from the door.
House prices are falling.
Returns on bank equity are declining due to increased capital requirements, lower credit growth and narrow margins.
I remain cautious on Australian stocks, holding over 30% cash in the Australian Growth portfolio.
Gold continues to find resistance at $1210/ounce. Trend Index peaks below zero warn of selling pressure. Respect of resistance would indicate another decline and a long-term target of the 2015 low at $1050/ounce.
The PBOC is supporting the Yuan at 14.5 US cents.
Support for the Yuan is driving down the Dollar. Dollar Index breach of support at 95 warns of a correction to test 91. Bearish divergence on the Trend Index warns of selling pressure. A falling Dollar is likely to boost demand for gold.
The Australian Dollar benefited from the weaker greenback, rallying to test resistance at 73/73.5 US cents. Trend Index peaks below zero continue to warn of long-term selling pressure. Respect of resistance is likely and would signal a test of the 2015/2016 low at 70 US cents.
Australian gold stocks rallied despite the strengthening Aussie Dollar. The All Ordinaries Gold Index (XGD) is likely to encounter stiff resistance between 4900 and 5100. A Trend Index peak below zero would warn of further selling pressure and continuation of the down-trend.
