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Good afternoon,

I really need to stop kidding myself that I'm going to get this note out by Friday night!  What do they say about goals... They need to be specific, measurable, attainable, relevant and time-based? 

That being said, while I'm working from home, work seems to be bleeding into life and life is bleeding into work, even more so than normal (other small business owners will understand what I'm talking about!) Funny thing is, not much I'd rather do on a rainy Saturday except sip a coffee, listen to Daniel Caesar and fiddle around with my spreadsheets. 

The ASX 200 added 2.77% for the week, closing at 5391 on Friday.  US markets up on Friday night, S&P 500 +1.69%, Europe up 1-1.35%, Japan +2.5% and Asia up about 1% elsewhere.

Another interesting week with lots to cover.  I'll try and quickly run through what's relevant and if you want more information on anything specific, drop me an email

All charts unless otherwise labelled are from Factset. 
Source: IRESS

I think if you want to get a gauge on how the economy is re-starting, the traffic data is about as good of an indicator as you're going to get.  Lucky for us, Transurban (TCL) had a briefing on Monday and put out a few slides, so I thought I'd share the good news... looks like life is on it's way back to normal (whatever that means). 
Source: Transurban, 4 May 2020

In April the average workday traffic was down 42% on last year and weekend traffic was down 67%!


China looks like its back to almost business as usual
Source: Transurban, 4 May 2020

What's this all mean for the markets?  If I had to guess, I'd say the S&P500 holds the 200 week moving average, even if we do have a bit of a correction.  So that's kinda 10% downside worst case.
Australian market doesn't really look the same, we've yet to recover as much as the US, despite a materially stronger result on COVID-19.  If we were in the same boat as the US, the ASX200 would be 6,000-6,200 points, but instead, we are languishing at 5,391 pts. 

Chart below has the same 200wk and 50wk moving average lines as above, but just a shorter time period to highlight the difference.
I enjoyed this piece from AMP Capital's Shane Oliver (who I think is always about as correct as an economist can be).  I'm thinking of changing my tune on the AUD/USD on the back of it, despite the Australian stimulus response being the largest as a percentage of GDP of anywhere in the world. 

From a purely health perspective, no argument that Australia gets the gold medal. (Log scale of new cases per 1m population)
Source: Financial Times
Insider Buying

This new found positivity on Australia got me thinking, let's go take a look at what stocks insiders (directors, major shareholders) have been buying over the past 8 weeks.

What I did was have a look at the shares purchased, as a percentage of the total market cap (i.e. how much of the company did they buy). 

This first chart is those companies who had more than 1% of their stock bought by insiders.  Noting this incudes buybacks from the company (which is why SKC is so high) and also stuff like capital raisings that get participated in by major shareholders/directors (DCN, SOM). 
I'm probably more interested in the activity in the next chart, the "top up" buys less than 1% of the company but perhaps signaling confidence in their business.
Founders with major holdings are clearly adding stock - backing themselves in to recover.  Stocks like FLN, SOL, REH all making the list is encouraging and not necessarily surprising.  Good to see contractors like PRN, WOR backing themselves in to keep winning work (they are in a much better position than previous slowdowns.)

As for PPK, I've never actually looked at this business and it looks really interesting on first glance.  Proof paying attention and spending your weekends trawling market data can through up a few potential investment ideas. 
Source: IRESS
What's your broking firm buying/selling?

While I was sniffing around PPK, I wanted to check which brokers had been active in the stock and I realised that most of you don't realise that people like me have access to broker trading data. 

We can see how much each firm has been buying and selling in each stock across multiple time universes.  The below data relates to April and the 9 days of May so far, in totality. 
Source: IRESS

Few observations/assumptions/guesses from my perspective (and take this with a grain of salt, trading data doesn't always reflect what's going on and can be unduly influenced by a single big, random order, for example):
  • Retail brokers clearly pushing Macquarie (MQG) as an altenative to the major banks for the dividend hungry retirees.
  • Even brokers with a strong buy recommendations are unloading Afterpay (APT) - I'm looking at you Bell Potter!
  • BBOZ is a leverage short on the Aussie market - not going well so far for Shaw's. 
  • Lots of profit taking in gold (EVN, NCM, PMGOLD)
  • Taylor Collins with the typical mer culpa trade, selling their disaster in Flight Centre (FLT) and just parking money in CSL, which regardless of what happens, your clients will never sack you for losing money in CSL/CBA.
Short Sellers

While we are looking at market data.  Here's the change in short positions over the past week. 

I've been trying to figure out the best, most useful way to present you with the short selling data over the past few months and I think I've cracked the nut! 

I'll look at any stocks with more than 3% of their issued capital sold short and then filter for stocks that have had their short position increased/decreased by 10%, over the most recently available week of data (short seller data put out a week or so delayed). 
Source: IRESS

Unsurprisingly, Corporate Travel (CTD) tops out the list but interesting to see a few valuation based shorts coming on wtih recent winners like BHP, Chorus (CNU), ASX and Bavura (BVS) copping a bit of heat.


Nice to see some of the cyclical building materials companies catch a break like Boral (BLD) and CSR.  I think both can do well on the backside of this lockdown.  Non-bank financials also saw some big positions close, Bendigo Bank (BEN), Bank of Qld (BOQ), Challenger (CGF)Computershare (CPU) probably closed up on LNK results while maybe a long/short trade emerging on Brambles (BXB)/ Amcor (AMC). 

Keep in mind, this is all "old news" / backward looking data.
Movers and Shakers / Afterpay VS Zip
(All sourced from IRESS)

Afterpay (APT) had a huge week after Tencent announced a 5% stake in the company.  I don't understand the appeal, even their house broker Citi, despite forecasting APT to do almost $30bn in underlying transaction volume by FY22, still has them with negative $500m in operating cash flow that year. 

If you're a lending company and you can't make a positive margin at $30bn in transaction volume scale, you've gotta ask the question, can you even make a margin at all?  I'll quote my very intelligent friend (again), "there's endless opportunity for profitless revenue growth". 


I did a bit of work on Afterpay during the week (as I hadn't actually dug into their numbers for probably 6 or 7 quarters).  I estimate their loan book losses are running in 9-15%, and I think if you strip out late fees in the US, you'll see their merchant fees are well and truly sub 2.5% (vs 3.8% that they report).  I calculate they are still making 25-30% of their money from late fees. 

However, as long as they can keep raising money at a lower and lower cost of equity, they can keep growing their "revenue" (as there's no debating the product is popular) which, if history is anything to go by, means the stonk price goes up! 

I'll just stick with Zip Co (Z1P), which I think could be a buy on any weakness. 

Peter Gray has Z1P's bad debts and arrears on a string (and I'll admit, I had a few doubts in this environment - which I don't think even he'd hold against me!)

You'll see a weaker consumer show up in their volume growth but not their bad debts, as the Z1P team use the range of non-traditional, real-time credit markers to manage the flow of money to customers to ensure they are always optimising the trade off in all credit products between revenue growth and loan impairments. 

My other very knowledgable friend (he knows more about Z1P than anyone I've ever met) tells me the UK and NZ acquisitions are excellent businesses - I haven't had a hard look at them but I'd take his word for it.  Something to get excited about on the back of this coronavirus drama?

Oh and unlike Afterpay, a 12 year old could go through Z1P's presentation and work out what their operating margins are going to be at a $1bn loan book, a $2bn loan book.  Transparent, clear, concise, considered. 
Elsewhere, technology stocks had a good week, Appen (APX), Nearmap (NEA), Altium (ALU) and Wisetech (WTC) all doing double digits. 

I'm very happy with this as 3 of these 4 stocks are in the Seneca Australian Shares SMA which is now available on Praemium.  It's run by me and the investment committee, it invests in 20 to 40 ASX 200 listed securities, with a focus on quality and sustainable growth at a reasonable price. 


Minimum investment is $25,000 and I'm offering the first $10m into the model a discounted management fee. 

If you're a client of another firm who has access to Praemium (like my old firm Shaw's) you can ask you advisor to buy it for you from the SMA menu.

If you want more information, just drop me an email.

Not much on the negative side of the ledger to get excited about, travel up and downALS (ALQ) reported some temporary and relatively minor disruption to their exceptionally steady and well run business. 
Dividends below for those interested.... 
I've actually got a heap more that I wanted to cover, but it's been a few hours and I've had about enough, enjoy the rest of your weekend. 

LL
Luke Laretive
CEO & Investment Adviser

T  +61 3 8639 1601  |   M  0451 122 656 | lukel@senecafs.com.au
Level 2 Professional Chambers
120 Collins Street Melbourne VIC 3000 
AFSL No. 492686
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