MID MORNING MARKETS 21-2-18

The ASX200 is down 4 points in early morning trade, a good performance considering SPI futures were down 28, and that BHP is taking 16 points off the market. Lots of results with BHP, WES, FMG, LLC, SYD and LLC the majors. APX and A2M the highlights…BWX not so #ausbiz

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TODAY

  • The highlight of the week – wage inflation. Consensus is for growth of 0.5% in the quarter and 2% over the year, unchanged from the September quarter.

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  • Ex-dividend – AMP Limited (AMP) 14.5c, NGI Navigator Global Investments (NG) 8.9c, The Star Entertainment Group (SGR) 7.5c, SUN Suncorp Group (SUN) 33.0c
  • Japanese manufacturing PMI and All Industry Activity Index
  • Chinese New Year also affecting trading volumes.

TONIGHT

  • European PMI numbers
  • UK employment data
  • FOMC meeting minutes and existing home sales

COMPANY NEWS

  • BHP Billiton (BHP) – Underlying net profit rose 25% to US$4.1bn with benefit from higher copper, LNG and oil and iron ore prices (Consensus est $4.21bn (or US$4.25bn), Citi est $4.129bn). Interim dividend up 38% to US55c, above expectations, and hint that it could rise further. EBITDA up 14% to US$11.23bn.
    • After-tax profit down 37% due to losses from US tax changes but benefits from the tax cuts going forward.
    • U$210m loss for the half for Samarco, the 2015 mine disaster.
    • DRP to be reintroduced
    • No review of dual-listed structure
    • Hoping to sell shale assets later in the year.
    • Expects Chinese to slow modestly in 2018 to 6.5%/
    • Net debt down$1bn to US$15.4
    • Results was about 5T below analyst expectations, but dividend should be well-received.

Brokers are already starting to downgrade – Citi has downgraded to a Neutral (from Buy) recommendation. Deutsche Bank has downgraded by a Hold from Buy.

  • A2 Milk Company (A2M) – 1H Profit up 150% to NZ$98.5m with strong and continued growth in its core markets. 1H revenue up 70% to NZ$4.3bn, EBITDA up 123% to NZ$143 million. Earnings growth will be skewed in the 2H with higher marketing expenses in China and the US. A2M also announced a strategic relationship with New Zealand’s Fonterra, who will produce and distribute A2 milk products to markets in Southeast Asia and the Middle East.
  • Wesfarmers Limited (WES) – NPAT down 3.3% to $1.1bn but included NPAT included post-tax significant items of $1.3bn relating to the UK and Target businesses. (Consensus est $1608m, Citi est $1631m). 1H operating revenue up 2.8% to $35.9bn. EPS down 3.2% to 19c, down 3.2%. Dividend of 103c. Segment performance: Bunnings (Aus) revenue +10.2% to $6.6bn with strong and continued sales growth across all market segments; Bunnings UK reported a £517m loss, 15.5% lower than pcp; Coles’ earnings -14.1% to $790m. Despite good sales momentum, lower fuel and financial services earnings dragged on the result; Department store revenue +3.2% to $4.8bn Kmart outperformed, offset by Target resulting in a non-cash impairment of $306m; Officeworks revenue +9.7% to $1.0bn. While impairment charges flagged, UK and Target the key issue. An update to UK Bunnings strategic review is expected in June. The short-term focus is improving execution to lift performance over Spring.
  • Lendlease Group (LLC) – 1H profit +7.8% to $425.7m. (Consensus est $131.4m, Citi est $131.5m) Revenue +9.4% to $8.69bn. Dividend 34c. Outlook – Optimistic, noting an extensive development pipeline of $56.7bn, including $40.3bn of urbanisation projects and $16.3bn of Communities and Retirement projects. FUM $28.3bn and approximately $4bn of secured future FUM.
  • Sydney Airport (SYD) – FY17 results. EBITDA + 8.3% to $1.199bn on total passenger growth of 3.6%. Total revenue +8.7%. Record passenger numbers of 43.3m, + 3.6%. International passengers grew 7.2%. The company said the inbound travel market has grown 8% yoy from a diverse range of major Asian markets, the US and the UK. Australian outbound travel increased 6% yoy. Revenue was boosted by retail – up 12.7% due to the completion of the T1 and T2 fashion, specialty, food and beverage precincts. Dividend 37.5c.

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  • Downer EDI Limited (DOW) – 1H net loss of $11.1m, including $126m impairment of goodwill in its mining business and writedowns linked to a freight rail divestment. (Consensus est $115m, Citi est $108m, CommSec est $127m). 1H net loss of $11.1m, including $126m impairment of goodwill in its mining business and writedowns linked to a freight rail divestment. Interim dividend was + 8.3% to 13c. FY18 underlying profit of $295m expected, including profits of $202m for Downer and $93m for Spotless.
  • Fairfax Media Ltd (FXJ) – Underlying 1H net profit -9.9% to $76.3m Statutory profit down 54% to $38.5m. (Citi est $57m). Revenue -3.9%, EBITDA up 1.3% to $146.9m and dividend of 1.1c. The balance sheet was strong but 60% holding in DHG is the key. Stan subscriber base now of 930k, with 83% growth in subscription revenue in three years. Outlook statement – revenues around 4-5% lower than last year. Publishing trends were broadly consistent. Cost savings the focus.
  • Coca-Cola Amatil (CCL) – Underlying net profit down 0.4% to $416.2 (guidance had been for the result to be in line). (Consensus est $409.2m, Citi est $416m, CommSec est $404.6m) Stat Net profit rose 81% to $445.2. Revenue down 3% and Aust beverage revenue down 3.3%. Dividend 26c. Outlook – the previously announced growth plan for its Australia beverages unit would see an additional investment of $40m in 2018 across marketing, equipment, technology and price, which would weigh on near-term earnings. But still continues to target mid-single digit EPS growth in the medium term.
  • WorleyParsons Ltd (WOR) – Underlying net profit up 37% to $78.2m (Consensus est $78m, Citi est $73m). Dividend 10c. Expects higher-than-normal weighting of earnings in 2H due to acquisition of UK integrated solutions. Balance sheet metrics continue to improve. Acquisition of AFW UK Oil and Gas (now UK integrated solution) and an ongoing cost-reduction drive helped the result.
  • Fortescue Metals Grp (FMG) – 1H net profit down 44% to US$681m led by weaker prices from iron ore. (Consensus $735m, Citi est$739.5m). 1H revenue down 18%. 11c dividend. “High steel mill profitability incentivised blast furnaces to maximize production by using higher iron-content ores” such that FMG only received about US$47 a ton for its shipments, down from US$56 a ton in the same period a year earlier, despite a 5% rise in the average benchmark market price. End-Dec net debt US$3.3bn, up from US$2.63bn at end-June. Gearing 30%, down from 31% from end June. New loan will repay existing debt and reduce borrowing costs by around US$80m pa. Chinese banks offer support for new loans.

BROKER CHANGES

  • Apn Outdoor Grp (APO) – Citi has upgraded to Outperform (from Neutral). Credit Suisse has upgraded to am Outperform (from Neutral) recommendation with a target price raised 7.4$ to $5.05. Canaccord Genuity has cut its target price by 1.1% to $4.65.
  • Flexigroup (FXL) – Credit Suisse has raised its target price by 5.7% to $1.85.
  • Corporate Travel Group (CTD) – Ord Minnett has upgraded to a a Buy recommendation with a target price raised 6% to $24.36.
  • Monadelphous Group (MND) – Citi has raised its target price by 3.5% to $13.40
  •  Northern Star (NST) – Citi has raised its target price by 15% to $6.30.
  • Super Ret Rep Ltd (SUL) – Citi has cut its target price by 7.4% to $8.80. Credit Suisse has upgraded to a Neutral recommendation with a target price cut 7.9% to $7.07. Bell Potter has downgraded to a Hold (from Buy) recommendation with a target price cut 26% to $7.35. Morgan Stanley has downgraded to an Equal-weight recommendation with a target price 30% to $7.00. UBS has cut its target price by 8.4% to $8.70
  • Seven West Media Ltd (SWM) – Citi has cut its target price by 6% to $53c.Credit Suisse has cut its target price by 16% to 65c.
  • Senex Energy Limited (SXY) – (Consensus est $1m, Citi est -$4.6m, CommSec est -$1m)
  • Vocus Group Ltd (VOC) – Citi has cut its target price by 1.4% to $3.50

OVERNIGHT

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SPI FUTURES -28

US EQUITIES – S&P500 -5 (-0.58%), Dow Jones -255 (-1.01%). Nasdaq -5 (-0.07%)

Main themes –

  • Trading is “choppy” with the S&P 500 hovering around its 50-day simple moving average
  • US bond yields remain at multi-year highs. The US 10 year is currently trading at parity with the Aussie 10 year.
  • Wal-Mart (-10.18%) fell after missing on Q4 earnings, reporting s 23% drop in e-commerce revenue and lowering FY19 guidance. Skewed performance of the Dow Jones
  • Technology strong industry leadership

EUROPEAN MARKETS – Mostly higher. STOXX +0.60%, UK FTSE -0.01%, German Dax +0.83%, French CAC +0.64%.

CURRENCIES

  • The US dollar rallied again, up 0.68% at 89.71.
  • The Aussie dollar is 0.45% lower at 78.84.

BONDS – 2-yr: +3 bps to 2.22%, 5-yr: +2 bp to 2.65%, 10-yr: +1 bp to 2.89%, 30-yr: +2 bps to 3.16%.

COMMODITIES

  • WTI oil rose US22c to US$61.90. Reduced supply from Canada to the US, caused by restricted capacity of the Keystone pipeline, was supporting WTI. In other oil news, OPEC’s head of research said that the excess of oil held in storage has fallen in the past year, to be 74mb above the five-year average, compared with a surplus of around 340mb in January 2017.
  • Gold futures were down 1.8% at US$1331.80
  • Iron ore unchanged at $78.30. (Chinese holiday)
  • LME metals were mixed – copper -0.39%, aluminium -1.26%, nickel +0.07%

ECONOMIC DATA, NEWS & POLITICS

  • Eurogroup chief Mario Centeno said that Greece has two more hurdles to clear before receiving the next bailout tranche of €5.70bn.
  • Eurozone ZEW Economic Sentiment 29.3 (expected 28.4; last 31.8)
  • German February ZEW Economic Sentiment 17.8 (expected 16.5; last 20.4) and ZEW Current Conditions 92.3 (expected 93.9; last 95.2). January PPI +0.5% as expected (last 0.2%) and +2.1%yoy (expected 1.9%; last 2.3%)
  • UK February CBI Industrial Trends Orders 10 (expected 12; last 14)

QUOTE OF THE DAY

“I want to swim in both directions at once. Desire success, court failure.” – Alan Rickman, British actor born this day in 1946. Died January 14, 2016.

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