The S&P 500 was down by 1.09points or 0.05%on Tuesday to 2002.28. U.S. stocks ended mostly lower on Tuesday, retreating from records set the previous month, as falling crude oil prices dragged energy shares down and offset strong manufacturing data. U.S. factory activity rose to its highest in nearly 3-1/2 years in August, and construction spending rebounded strongly in July. Delta Airlines Inc. and Southwest Airlines Co. rallied at least 2.8 percent to lead carriers higher.

The U.S dollar climbed to multi month highs against most of its peers as fresh signs of strength in the US economy offered marked contrast to a disappointing round of global manufacturing surveys released on Monday. Weak manufacturing purchasing manager’s indices in the Eurozone, UK and China raised questions about the health of global demand. The probability of the European Central Bank undertaking outright quantitative easing has risen recently but it is still unlikely that any such programme will be announced this Thursday.


Southwest Airlines Daily Chart (Source – Thomson Reuters)

S&P ASX 200was up by 28.7points or 0.51 %on Tuesday and closed at 5658.5 points. Announcement of a significant discovery by Origin Energy and AWE helped the share price of both the stocks. Origin Energy was up by 3.1% and AWE was up by 3.5%. To read the latest report on AWE – Click Here.  AGL Energy dropped 49¢ to $13.73 after going ex-dividend.

Lynas Corporation (LYC)has been granted with a full operating license for the Lynas Advanced Materials Plant by Malaysia Atomic Energy Licensing Board (AELB). EMerchants (EML) announced their full year result with revenue up 3% over the previous corresponding period. The following stocks will trade ex-dividend today:

AMP Ltd, ASX Ltd, AVJennings, Austock, Australian United Investments, BHP Billiton, Beach Energy, Contango Microcap, Coventry Group,Decmil, Dick Smith, Diversified United Investments, Fiducian Portfolio, Iluka Resources, Jumbo Interactive, LifeHealthcare, MACA, Mermaid Marine, Mineral Resources, Nine Entertainment, Pacific Star Network, Pact Group, Qube, SKY Network, Saunders, Schaffer, SevenWest Media, Wellcom, WorleyParsons.


Origin Energy Daily Chart (Source – Thomson Reuters)

The top gainers on ASX 200 were:- 



Stock of the Day – Woolworths (WOW) 

Woolworths FY14 result was solid with the Australian supermarket business delivering similar 2H EBIT growth to Coles. Sales growth slowed in 4^th Quarter but margin strength more than made up for the shortfall. We were pleased that cost leverage drove some of the gain and while gross margin also contributed and increased prices may have been a factor, there are also credible reasons for improvement.


Australian Food & Liquor Sales Growth (Source – Company Reports)

Woolworths has reported FY14 NPAT of $2451.7m. The key Food, Liquor & Petrol division was the highlight delivering 7.2%EBIT growth. Fourth Quarter sales were slightly disappointing but margin expansion was very strong at 21 basis points in second half, slightly better than Coles. New Zealand showed improvement but Hotels and General Merchandise were worse than expected. Guidance was provided for 4-7% FY15 NAPT growth with commentary from management suggesting sales and continued margin improvement from the key Food, Liquor and Petrol division.


Online Sales Growth (Source – Company Reports)
 
The group expects trading conditions to remain challenging in FY15, reflected by the continued weakness in the consumer sentiment. As is usually the case at this time of the year management has provided a guidance range for NPAT growth in FY15. NPAT from continuing operations is expected to increase by 4-7% implying a range of $2,549 – 2,623m. The group also provided FY15 capex guidance of $2,230m which included expected property development spend. This implies an increase of 24% vs the previous corresponding period, which management noted would be spent on new stores and more supermarket refurbishments.


WOW Daily Chart (Source – Thomson Reuters)

One of the key metrics in the result was the margin performance from the Australian Food and Liquor business. However with the reallocation of the cost of petrol discounts following the ACCC ruling interpreting the movement in Food & Liquor margins is difficult. Therefore it makes sense to look at the margin of the Australian supermarket business as a whole including both Food & Liquor and Petrol. Gross margins improved substantially in the 2H by 15 basis points. Surprisingly management called out the positive benefit of growth in its higher margin private label range which now accounted for 15-16% of sales. We put a HOLD recommendation on the stock at the current price of $35.94.

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