Catalyst hunting through AGM season

About the author:

Author name:

By Tom Sartor

Job title:

Senior Analyst

Date posted:

07 October 2015, 8:19 AM

Sectors Covered:

Junior (Emerging) Resources, Bulk Materials

• October marks the start of AGM season and the reporting period for key financials stocks including most of the major banks.
• We're watching key AGMs that will offer key insights into the health of the economy.
• We also nominate the best catalysts that we think will drive key High Conviction (QAN and CTD) and Model Portfolio stocks (BTT and DMP).

Markets await fresh signals

As per our latest Equity Strategy update, negative earnings momentum and increasing short interest implies that the market is braced for further volatility, contributing to our cautious stance.

No doubt the US Fed's aversion to the current volatility has contributed to a fickle market as investors wait for clearer signals on the growth outlook. The lift-off in US rates – still expected before end 2015 – should offer markets an important vote of confidence in this regard.

Why this AGM season is so important

This AGM season shapes as the most important in recent memory. Several are worth a close look for insights into the health of the domestic economy. Of particular interest is the property construction cycle (relevant to banks, developers, and building materials) and the consumer (consumer discretionary and financials).

Outlook commentary from the August reporting season was relatively vague due to uncertainties in the domestic economy. If trading conditions and outlook statements are now more optimistic, then we think this has the potential to trigger a broader relief rally in sectors that have borne the brunt of recent weakness, most notably the major banks. 

Opportunity to reposition during market weakness

We think that current market weakness offers an opportune time to re-balance portfolios into high quality stocks while the broader market thinks it's unfashionable to do so.

We detail several catalysts through October-November among several stocks which we think have the potential to pique market interest:

Upcoming catalysts for High Conviction / Model Portfolio stocks

• BT Investment Management (BTT) – We expect BTT to report further positive momentum via both its quarterly FUM update (October 14) and its FY15 result (October 29). Higher liquidity post the Westpac sell-down has assisted in BTT's steady re-rating, which we expect to continue.
• Qantas (QAN) – We expect QAN to report strong monthly traffic momentum and a solid outlook at its AGM on October 23. The 23c capital return will be finalised on November 6, which should serve as a reminder as to upside risks to QAN’s earnings and dividends.
• Corporate Travel (CTD) – In conjunction with its AGM, CTD will host a detailed Investor Day in Sydney on October 27. Group managers from each of CTD's offshore divisions will be in attendance, assisting CTD to comfort the market around recent cashflow conversion, which has concerned investors post the FY15 result.
• Domino's Pizza (DMP) – We're expecting a positive trading update at the AGM on November 4 but we don't see risk of an earnings upgrade until closer to the 1H result. Given the success of DMP’s previous acquisitions, any update on the potential purchase of another offshore franchise via the AGM is likely to see DMP react strongly.

For assertive investors

Three stocks look particularly interesting to us as potential trades for investors with higher risk appetites in the coming months:

• Oil Search – We believe there is solid upside risk in the potential for Woodside to offer a higher takeover offer for Oil Search after last month's failed approach. We have added OSH to our Active Opportunities list for assertive traders.
• Slater & Gordon – A positive ASIC review of SGH’s accounts (pending) would help to alleviate aggressive short selling pressure in our view. The UK investor tour (30 October) and the AGM (20 November) would help to slowly rebuild investor confidence in SGH.
• Impedimed – In the near term, we expect the full US commercial launch of IPD's L-Dex technology and the publishing of US national guidelines to include, for the first time, lyphodema as a complication to breast cancer. We see strong potential for this new newsflow to drive IPD higher.

More information

Morgans clients can access the full Equity Strategy report by logging in. If you would like more information, please contact your nearest Morgans office.

Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.