Technicals | Jul 07 2017
Bottom Line
6/7:
Daily Trend: Down
WeeklyTrend: Down
Monthly Trend: Up
Support Levels: $2.45 / $2.19 – $2.17 / $2.11 / $1.90
Resistance Levels: $2.88
Technical Discussion
Spark Infrastructure Group ((SKI)) is an Australia based company engaged in investment in regulated electricity distribution and transmission businesses in Australia. The Company operates through several sections, being Victoria Power Networks, SA Power Networks and TransGrid. Victoria Power Networks holds interest in two electricity distribution businesses in Victoria, which include CitiPower and Powercor. It also invests in regulated water and sewerage assets.
For the year ending the 31st of December 2016 revenues decreased 10% to A$243.9M. Net income decreased 8% to A$81.1M. Revenues highlight the SA Power Networks section decrease of 33% to A$98.2M. Dividend per share increased from A$0.06 to A$0.07. Basic Earnings per Share excluding extraordinary items remained flat at A$0.03. Broker consensus is currently “buy”. The dividend yield is 5.7%.
Reasons to be bullish longer term (caution short-term):
→ Attractive dividend.
→ Strong and positive earnings bias.
→ Certainty over the regulation reset.
→ Low risk proposition with major assets VPN & SAPN outperforming.
→ Greater value due to cost efficiency and TransGrid.
→ Attractive yield, supported by high-quality regulated assets.
→ Cost reductions are in place with revenue growing.
Price action was looking exceptionally strong during our last review with the line of resistance having been overcome. A push above the wave equality projection was the next hurdle which is also a box that can be ticked. However, regarding the short-term price action that’s the good news out of the way. The clear problem here is the swift and impulsive movement down from the recent pivot high around $2.90. In fact, the typical retracement zone has already been tagged which would be fine if a corrective pattern down had unfolded.
Clearly this isn’t the case meaning we are now on alert for the larger degree patterns also taking a turn for the worse. Despite the wave equality projection being overcome it could well be that a corrective pattern higher has unfolded off the November 2016 lows, completing as a 3-wave movement. If this is the case then a continuation down toward the zone of support between $2.10 – $2.00 is likely.
It isn’t quite all doom and gloom yet although a push beneath the lower boundary of our target at $2.45 would likely be the final nail in the coffin regarding anything more bullish unfolding any time soon. Bigger picture, there’s nothing not to like about the company with an exceptional trend unfolding off the March 2009 lows. In other words, even if a deeper retracement unfolds, as is looking more likely, the bullish longer-term case remains intact. For now though, caution is required.
Trading Strategy
Bearish divergence on this daily chart has now unwound with our oscillator deep into the oversold position. However, at best we can look for a bounce only from current levels which has the hurdle of resistance to overcome before morphing into something more bullish although this isn’t our highest expectation. Notwithstanding a rally, the risk is to the downside over the coming weeks and likely months ahead. As such there is no reason to want to be involved for the foreseeable future.
Re-published with permission of the publisher. www.thechartist.com.au All copyright remains with the publisher. The above views expressed are not by association FNArena's (see our disclaimer).
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