MID MORNING MARKETS 27-02-18

The ASX200 is up 31 points in mid morning trade, with the Materials and Financials sectors both performing well. Utilities, Gold and Telcos lagging. Great result and upgrade from CGC. SDA loses CEO. WOR and LLC ex-div.  #ausbiz

MMM2MMM3MMM4TODAY

  • Domestic data – New home sales
  • Ex-dividend – Asaleo Care (AHY) 6.0c, Amcor (AMC) 26.2c, Aurora Dividend Income Trust (AOD) 0.3c, Asian Masters Fund (AUF) 1.1c, Alumina (AWC) 11.8c, Challenger (CGF) 17.5c, Finbar Group (FRI) 3.0c, Fairfax Media (FXJ) 1.1c, Greencross (GXL) 10.0c, Integrated Research (IRI) 3.0c, LendLease (LLC) 34.0c, Money3 Corporation (MNY) 4.5c, Moelis Australia (MOE) 7.0c, QANTM Intellectual Property (QIP) 2.8c, Shriro Holdings (SHM) 7.0c, Wagners Holding Company (WGN) 1.5c, WorleyParsons (WOR) 10.0c

TONIGHT

  • European loan growth and sentiment/confidence numbers
  • US economic data – Durable Orders, International Trade in Goods, S&P Case-Shiller Home Price Index, FHFA Housing Price Index, Consumer Confidence

COMPANY NEWS

  • Rio Tinto (RIO) – Rio Tinto has received a binding offer from Hydro of $345m, subject to final adjustments, to acquire Rio Tinto’s ISAL smelter in Iceland, its 53.3% share in the Aluchemie anode plant in the Netherlands and its 50% share in the Aluminium fluoride plant in Sweden.
  • AWE Limited (AWE)
  • Austal (ASB) – Net profit more than doubles to $25.6m.
  • COSTA GROUP HOLDINGS (CGC) – NPAT (before SGARA and material items) up 14.5% to $28.6m. Revenue up 9.8%. Div 5c up 25%. Citrus and tomatoes were the stand-out categories, fuelled by growing citrus export demand including Japan, the US and China. CGC acquired an additional 37% of African Blue was completed in November, with options to increase to 90% over the next 3 years. Conditional agreement for the acquisition of Coastal Avocados on Mid-North Coast of New South Wales, expanding avocado growing regions to a total of four. Acquisitions of a further two small avocado farms to complement the existing hubs in Atherton and Childers (QLD) have also been completed. Ongoing successful execution of domestic berry growth program. China expansion on track, including securing of land for FY2019 plantings. Balance sheet and cashflow positions are robust. Outlook – Trading over January/February continues to be solid with the portfolio performing well. FY earnings will be more heavily weighted to the 2H due to the timing of the avocado harvests and further growth of the international operations including the consolidation of African Blue. Inclusive of the African Blue acquisition, the company is projecting NPAT (pre-SGARA and material items) growth of approximately 25% for the full year (up from previous guidance of at least 20%). Costa continues to be well positioned to execute further organic growth alongside a disciplined value accretive M&A program. This is a good results and the diversification strategy has assisted the company to manage the agricultural risk inherent in the company. The upgrade is just another sweetener.
  • Motorcycle Holdings (MTO) – NPAT down 25% to $4.2m. Dividend 5.5c.
  • Iluka Resources (ILU) – Net loss $71.6m due to $185m in impairment charges, but underlying earnings rose up 140% to $360.5m due to the improvement in mineral sands markets. Higher cash costs. Net debt down 64% to $182.5m. Dividend reinstated at 25c. Impairments included $106m impairment of the shuttered Hamilton mineral separation plant, a $30m impairment of its investment in technology firm Metalysis Ltd. and a $125m increase to its rehabilitation provisions for closed operations, mainly in the US. Outlook – it expects markets “to remain positive in 2018.” A strong result, above expectations. Strong guidance.
  • Select Harvest (SHV) – NPAT down 43% to $5.6m. Normalised EBIT flat at $13.2m Revenue down 11%. Dividend 5c
  • Speedcast (SDA) – EBITDA growth up 195% to US$122.6m, Revenue up 136% to US$514.2mEBIT margin 23.8%. Dividend 4.8c. CFO Ian Baldwin will be leaving SDA at the end of the month for family reasons and will be pursuing a new opportunity.
  • Caltex Australia (CTX) – Net profit up 1.5% to $619m, slightly below the target given in December. Replacement cost of sales profit up 19% to $621m, slightly above the top end of the guidance range. Revenue up 19%. Div 61c. One-off loss of $14 includes profit on the sale of a fuel-oil business, offset by restructuring costs and a fund set up for franchisee assistance. Net debt up to $814m. Strong refiner margins. Commitment to its retail business and increase CAPEX to roll out. Reviewing alternative ownership models for assets. Review of ownership model to be completed in mid-2018. Going forward, the outlook will depend on the strategy for the retail business.
  • Bingo Industries Ltd (BIN) – NPAT up 30% to $17.8m. Div 1.72c. Guidance was reiterated and result was generally in line.
  • Pioneer Credit Ltd (PNC)
  • Cabcharge Australia (CAB) – Net loss $5.1m, Dividend 4c
  • Pilbara Mineral (PLS) – Excellent progress with Stage 1 construction and development and DSO operation.

BROKER CHANGES

  • G8 Education (GEM) – Ord Minnett has kept its Buy recommendation but cut its target price by 22% to $3.80. The analysts were disappointed that management couldn’t meet EBIT guidance given as recently as December. “While we consider weaker occupancy an industry issue, and not specific to G8 Education, it was disappointing to see the contribution from growth investments revised sharply lower, removing a potential offset to weaker occupancy in the run-up to new funding from July”. UBS has cut its target price by 7.1% to $3.95. Canaccord Genuity has cut its target price by 14% to $3.60. Macquarie has cut its target price by 8.3% to $3.30.
  • National Veterinary Care (NVL) – Canaccord Genuity has cut its target price by 1.7% to $2.90.
  • Reliance Worldwide (RWC) – Bell Potter has raised its target price by 19% to $4.95. Macquarie has raised its target price by 16% to $5.10.
  • Australian Finance Group 9AFG) – Macquarie has raised its target price by 2.4% to $2.12
  • Senatas (SEN) – Bell Potter has downgraded to a Hold recommendation (from Buy).
  • Isentia (ISD) – UBS has raised its target price by 4.5% to $1.05. Macquarie has cut its target price by 3.3% to 88c
  • Ausdrill (ASL) – Canaccord Genuity has raised its target price by 8.5% to $3.20
  • Fleetwood (FWD) – Canaccord Genuity has cut its target price by 3.4% to $3.37
  • Japara Healthcare (JHC) – UBS has raised its target price by 1.6% to $1.95.
  • Spark Infrastructure (SKI) – Macquarie has downgraded to a Neutral (from Outperform) recommendation.
  • Mayne Pharma (MYX) – Bell Potter has raised its target price by 17% to 74c.
  • QBE – UBS has raised its target price by 2.6% to $11.70
  • Adairs (ADH) – UBS has raised its target price by 2.1% to $2.40
  • OceanaGold (OCG) – NAB has maintained its Outperform recommendation and cut its target price to $5.50.
  • Ardent Leisure (AAD) – Citi has cut its target price by 2.1% to $2.35.
  • Chorus (CNU) – UBS has upgraded to a Neutral recommendation. MAcquaire has upgraded to an Outperform recommendation (from Neutral).
  • Bravuria Solutions (BVS) – Macquarie has raised its target price by 26% to $2.41.
  • Gateway Lifestyle (GTY) – UBS has raised its target price by 9.5% to $2.30.

REPORTING SEASON

  • Aussie earnings season officially finishes tomorrow. It’s been a generally positive season. Consensus earnings estimates have been revised higher and IG says the blended forward EPS forecast is now at the highest since 2012, which has eased the average price-earnings ratio lower to 15.74 times. IG sees scope for that to push into 16, which would see the S&P/ASX 200 trading into 6100-6150. At those levels, the market becomes more vulnerable to pullbacks, but IG is positive, saying the bulls are in charge for now.

OVERNIGHT

MMM1

SPI FUTURES +27

US EQUITIES – S&P500 +32 (+1.18%), Dow Jones +399 (+1.11%). Nasdaq +84 (+1.15%)

Main themes –

  • The S&P is down 3.25% from all-time highs reached earlier this year.
  • FAANG stocks (Facebook, Apple, Amazon, Netflix, Google) have returned to pre-correction levels.
  • US interest rates have stabilised

EUROPEAN MARKETS – Mostly higher. STOXX +0.50%, UK FTSE +0.62%, German Dax +0.35%, French CAC +0.51%. Greece the exception, down 0.84%.

CURRENCIES

  • The US dollar was little changed at 89.86.
  • The Aussie dollar is a bit stronger at US78.52c.

BONDS – 2-yr: -1 bp to 2.23%, 5-yr: -1 bp to 2.61%, 10-yr: -1 bp to 2.86%, 30-yr: UNCH at 3.16%

COMMODITIES

  • WTI oil was up US36c or 0.6% at US$63.91, continuing to strengthen. reversing earlier losses. Supporting prices was a shutdown of the El Feel oilfield in Libya, which produces 70,000bpd, comments from Saudi Arabia’s energy minister over the weekend that production during Jan-Mar would be below caps and the earthquake yesterday in PNG which led to production being suspended.
  • Gold futures were up 0.3% at US$1,334.40
  • Iron ore down US50c at$79.00.
  • LME metals were mixed – copper +0.21%, aluminium -0.09%, nickel +1.16%

ECONOMIC DATA, NEWS & POLITICS

  • Fed Speak – Chair Powell will testify before House Financial Services Committee tonight (10:00ET or 2am EAST). He will speak again on Thursday before the Senate Banking Committee
  • St Louis Fed President James Bullard – An era of low productivity growth and high world demand for safe assets may be anchoring central bank policy rates at a low level and further rate hikes could result in a policy that is too tight for the current economy. ”I have been a little bit concerned that the committee goes too far too fast…If we are going to do a lot of rate hikes we have to have data that supports that.” Now one of the more dovish FOMC members, Bullard argues the US is currently in a low-growth, low-inflation “regime,” and that rates should not rise much further, if at all, until there is evidence things have changed.
  • Mario Draghi suggested the ECB was still confident that inflation was on an upward trend, supporting market expectations for the bank to finish up its bond purchase program this year.
  • European politics – The German Christian Democrats approved a coalition agreement with the center-left Social Democrats, bringing Chancellor Angela Merkel closer to her fourth term.
  • Economic data – January New Home Sales -7.8% on the month to 593K (consensus 645K; last 643K)
  • China’s Communist Party has proposed removing presidential term limits, paving the way for Xi Jinping to rule for life.
  • The approval rating of Japanese Prime Minister Shinzo Abe’s cabinet has improved to 56% from 55%.
  • Anglo America (+3.09%) was higher on news it had sold the Drayton coal mine in Australia.

QUOTE OF THE DAY

“It’s not the having, it’s the getting.” – Elizabeth Taylor, English actress born this day in 1932. Died 23 March 2011.

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