The ASX 200 is down 45 points in mid morning trade after an about-face in the US. Patting the dead cat. Defensive sectors lead, IT and cyclicals hit. Banks also awful. A2M and FMG the lowlights following presentation and downgrade. #ausbiz
TODAY
- Ex-dividend – Asia Pacific Data Centre (AJD) 2.0c, Australian Unity Office Property Fund (AOF) 3.9c, AP Eagers (APE) 22.5c, Aims Property Securities (APW) 0.8c, Arena REIT (ARF) 3.2c, Australian Enhanced Income Fund (AYF) 8.8c, Cabcharge CAB) 4.0c, Charter Hall Long Wale REIT (CLW) 6.6c, Cromwell Property (CMW) 2.1c, Convenience Retail REIT (CRR) 5.0c, Eagle Health Holdings (EHH) 0.5c, Garda Capital Group (GCM) 1.0c, Garda Diversified Property Fund (GDF) 2.3c, HT&E (HT1) 4.0c, Industria REIT (IDR) 4.1c, Macquarie Telecom Group (MAQ) 25.0c, Meridian Energy (MEZ) 6.9c, Pioneer Credit (PNC) 6.6c, PWR Holdings (PWH) 1.1c, Rural Funds (RFF) 2.5c, RFM Poultty (RFP) 2.5c, 360 Capital (TGP) 2.0c, 360 Capital Total Return Fund (TOT) 2.3c, Virtus Health (VRT) 14.0c, Vita Group (VTG) 4.7c, Wealth Defender Equities (WDE) 2.0c, WPP AUNZ (WPP) 4.2c
TONIGHT
- UK – CBI Distributive Trades
- US economic data – GDP (Third Estimate) and Pending Home Sales
COMPANY NEWS
- Rio Tinto (RIO) – Has sold its 80% stake in Queensland’s Kestrel underground coal mine for $US2.25bn to a group including EMR Capital and PT Adaro Energy (EMR Capital is a private equity manager. Adaro is an Indonesian coal company). The sale will be completed in 2H and required FIRB approval. The mine is located in the Bowen Basin, 40km NE of Emerald in central QLD, employing longwall mining to produce high quality coking and thermal coal products for export markets. The recent divestments of RIO’s QLD coal assets is now $US4.15bn, with the funds to be used for general corporate purposes. Last week RIO sold its Hail Creek and Valeria coal assets in QLD to Glencore for $US1.7bn and also sold an undeveloped tenement in Queensland to Whitehaven Coal for $US200m. Last year RIO sold its Hunter Valley coal mine, rail and ports assets to Yancoal for $US2.69bn. It had previously sold its 40% stake in the Bengalla coal mine to New Hope for $US606m and the Mt Pleasant coal project for $US220m.
- A2 Milk (A2M) – Investor Presentation
- Cimic (CIM) – Thiess has been awarded a three-year $280m contract extension at the Wahana coal mine in South Kalimantan, Indonesia. Thiess will continue to provide coal mining services including overburden removal, pit dewatering and coal hauling to port at Wahana, which is owned by Bayan Resources.
- Nick Scali (NCK)- MD Anthony Scali has sold half his 27% stake to one of his Chinese suppliers.
BROKER CHANGES
- Fortescue Metals Group (FMG $4.58) – Citi has downgraded to a Sell (from Buy) recommendation with a target price of $4.10 (from $5.40. FMG lowered its expectations for realised price discounts yesterday. The Citi analyst notes that these discounts for lower grade iron ore have become more structural than cyclical, balanced 2/3 plus 1/3. They have reduced forecasts and valuation, resulting in a downgraded recommendation.
- Bluescope Steel (BSL $15.18) – Macquarie has an Outperform recommendation with a target price of $19.00 (from $19.00). The Analyst has raised its steel price estimates by an average 7% and 11% in 2018 and 2019 respectively. In the near term these increases are neutralised by raw materials. The results is a downgrade to BSL’s FY18 earnings estimates of 0.8% but an increase for FY19 of 11.9%.
- BTT Investment Management (BTT $10.18) – Morgan Stanley has an Overweight recommendation with a target price of $13.20. BT intends to change its name Pendal Group (PDL), with the change applying to both the group and the Australian business while JO Hambro operations are unaffected. The analyst sees the move as a small headwind as BT is a well-established brand in Australia and re-branding brings additional marketing costs. Licence costs will decrease as Westpac (WBC) owns the BT brand and the company has been licensing the name. Renewal is due later this year. Also Westpac intends to sell its remaining stake after the first half results on May 10.
- CSL – Morgan Stanley has an Equal-weight recommendation with a target price of $155 (from $153). The analyst notes CSL continues to trade towards its bull case despite a strong performance and rich valuation, which implies further upside. They consider perception is not reality and some of the bull case components are highly unlikely.
- CSR ($5.26) – Morgan Stanley has upgraded to an Equal-weight (from Underweight) recommendation with a target price of $5.00 (from $4.25). The analyst has upgraded earnings estimates due to stronger than expected housing construction and favourable aluminium pricing. They think the current valuation is attractive but would like to see a more meaningful discount to its historical multiple, or demonstration of value through the cycle, before adopting a more positive stance.
- News Corporation (NWS $20.96) – UBS has initiated coverage with a Sell recommendation with a target price of $20.40. The UBS analyst estimates that after stripping out the separately-listed REA Group (REA), which accounts for approximately half of the company’s market value, the market is pricing in the remaining traditional media assets at around $7.06-8.43. They see potential upside catalysts for this “stub”, including participation in consolidation in Australia/US following changes to cross-media ownership laws and cost reduction opportunities from the proposed merger of Foxtel/Fox Sports and a printing joint venture with Fairfax (FXJ).
- Oz Minerals (OZL $9.10) – Morgans rates has a Hold recommendation with a target price of $9.80. Has made an off-market takeover offer for Avanco Resources, for total equity value of $418m, representing 16% of OZL market cap. The offer has been unanimously recommended by Avanco’s Board. The price represents a premium of 119% to Avanco’s 1-month VWPA. OZL says the deal will be a value and earnings accretive opportunity for OZ Minerals, offering significant upside embedded in Avanco’s portfolio and a pathway to optimise assets. The aim is to be a 50ktpa+ copper and 100koz+ gold producer in Brazil at bottom half of cost curve. Morgans believes the acquisition is expensive relative to recent trading but understands the strategic rationale in acquiring cash flow from a prospective suite of projects. The analyst suggests the market will take time to be convinced about this acquisition and believes strong execution on Carrapateena is required in 2018 to retain the market’s faith in the stock.
- Transurban (TCL $11.27) – Macquarie has an Outperform recommendation with a target price of $12.44. The analyst calculates the immediate accretion of the A25 Montreal acquisition to be around CAD22m by 2023. The analyst suggests the value addition is longer dated, with an overall estimated internal rate of return of 8%. The second stage, namely the widening the feeder roads or a new partnership agreement on competing bridges, will be the catalyst to upside to the transaction.
OVERNIGHT
SPI FUTURES -60
US EQUITIES – S&P500 -46 (-1.73%), Dow Jones -345 (-1.43%), Nasdaq -212 (-2.93%).
Main themes –
- Initial optimism that the US and China will act to avoid a trade war soon faded. Dow went form +244 to -494 at worst.
- Technology sector underperformed Facebook remains under pressure as Bank of America Merrill Lynch reduced its price target for the second time in five days
- GE (+5.78% to $13.64) rallied on unsubstantiated market speculation that Warren Buffett could be accumulating a stake. In an interview held earlier this year, Buffett suggested that Berkshire Hathaway could look at GE at ‘the right number’. At that time, GE shares were trading just under $19.
EUROPEAN MARKETS – All stronger. STOX500 +1.21%, UK FTSE +1.62%, German Dax +1.56%, French CAC +0.98%
CURRENCIES
- The US dollar is up 0.34% to 89.33.
- The Aussie dollar is lower at US76.82.
BONDS –2-yr: -2 bps to 2.27%, 5-yr: -6 bps to 2.58%, 10-yr: -6 bps to 2.79%, 30-yr: -4 bps to 3.03%
COMMODITIES
- WTI oil was up US30c to US$65.85 a barrel, supported by concerns that tensions in the Middle East could lead to supply disruptions. The US has threatened to withdraw from a nuclear deal that Iran signed with six nations in 2015, raising the chance that it may impose sanctions on Tehran and limit oil exports.
- Gold futures fell 1% to US$1,342.00.
- Iron ore was up 35c at US$63.50
- LME metals were mostly stronger – copper +0.71%, nickel +0.35%, aluminium -0.33% the exception.
ECONOMIC DATA, NEWS & POLITICS
- US economic data – January S&P Case-Shiller Home Price Index 6.4% (consensus 6.3%; prior 6.3%), March Consumer Confidence 127.7 (consensus 129.5; prior 130.0)
- Russia – More than 140 Russian intelligence agents have now been expelled from 25 countries for Russia’s alleged poisoning of a former intelligence officer living in the UK, meaning history’s largest collective expulsion of Russian intelligence officers has gotten even larger
- European data – Eurozone March Business and Consumer Survey 112.6 (expected 113.4; last 114.2). February M3 Money Supply +4.2%yoy (expected 4.6%; last 4.6%) and Private Sector Loans +2.9%yoy (expected 3.0%; last 2.9%); Germany’s February Import Price Index -0.6% (expected -0.3%; last 0.5%) and -0.6%yoy (consensus -0.3%; last 0.7%).
QUOTE OF THE DAY
“Economic growth and environmental protection are not at odds. They’re opposite sides of the same coin if you’re looking at longer-term prosperity.” – Henry Paulson, former Chairman/CEO of Goldman Sachs and Secretary of the Treasury, born this day in 1946
RunningMoney 