RunningMoney

The ASX 200 is flat in mid morning trade. It’s the last day of the month and quarter. Not much news. REH makes acquisition. Defensive sectors lead, IT but banks doing well.  A2M still under pressure on Nestle competition #ausbiz

TODAY

• Ex–dividend – Adelaide Brighton (ABC) 16.0c, Absolute Equity Performance Fund (AEG) 2.0c, GBST Holdings (GBT) 2.5c, Lycopodium (LYL) 12.0c, Prime Financial Group (PFG) 0.5c, Russell Invest Aust Select Corp Bond ETF (RCB) 17.6c, Russell Invest High Div Aust Shares ETF (RDV) 40.9c, nvest Aust Govt Bond ETF (RGB) 8.9c, Russell Invest Aust Semi-Govt Bond ETF (RSM) 10.3c
• Australian data – Private Sector Credit
• Japanese Retail Sales
• Quarter end – It’s the last day of trading for the quarter, so expect some increase volatility.

TONIGHT

• German – Unemployment Rate and Inflation Rate
• UK – Nationwide Housing Prices, Current Account, GDP Growth Rate QoQ Final, BoE Consumer Credit, Business Investment Final
• US economic data – Personal Income, Personal Spending, PCE Prices
• Fed Speak – Philadelphia Fed President (alternate voter in 2018) Patrick Harker

COMPANY NEWS

• Rio Tinto (RIO) – Is repaying debt and today announced the pricing of its EUR cash tender offer for holders of its €750,000,000 2% Instruments due 11 May 2020 (the “2020 Notes”) and its €500,000,000 2.875% Instruments due 11 December 2024 (the “2024 Notes” and together with the 2020 Notes, the “Notes”), accepting for purchase €431,640,000 in aggregate principal amount
• Reece (REH) – Has acquired Heatcraft’s New Zealand Operations from Swedish company, Beijer Ref. Heatcraft is a leading supplier of wholesale refrigeration across Australia and New Zealand. The move expands Reece’s footprint across the North and South Islands of New Zealand from 11 to 18 locations, and extends its customer offering to include wholesale refrigeration.
• Macquarie Atlas Roads (MQA) – Distribution of 12c for 1H18.
• NWH Holdings (NWH) The second of the Forrestfield-Airport Link’s two tunnel-boring machines (TBMs) has been temporarily halted today. TBM Sandy stopped when it came within 40m – the minimum distance – of the stationary TBM Grace. Grace stopped tunnelling on February 14 after encountering some minor ground disturbance issues when travelling through difficult terrain, the Ascot formation. It is expected that Grace – and subsequently Sandy – will be able to resume tunnelling in the coming weeks, once a number of investigations into the earlier ground disturbances are complete.
• Senex Energy (SXY) – Has been granted a Petroleum Lease and preliminary environmental approvals from the Queensland Government to develop Project Atlas for domestic gas supply. Project Atlas is a high-quality coal seam gas permit located south east of Wandoan in Queensland’s Surat Basin. Senex was awarded the permit by the Queensland Government in September 2017
• following a competitive tender.
• Platinum Asset Management (PTM) – Brigitte Smith has been appointed to the Board as a non-executive director.
• Star Entertainment Group (SGR) has expanded its strategic partnership with Chow Tai Fook Enterprises Limited (CTF) and Far East Consortium International Limited (FEC) to enhance the long-term value of The Star’s properties and core businesses.
• Fletcher Building (FBU) – has obtained an extension to the waivers of the breach of financial covenants under its US Private Placement (USPP) and bank syndicate funding arrangements. The breach occurred as a result of the provision for expected losses incurred by the Company’s Building and Interiors (B+I) business, which were announced on 14 February 2018 and included in the Company’s financial statements for the six months ended 31 December 2017.
• Woodside Petroleum (WPL) – The acquisition of ExxonMobil’s interest in the Scarborough gas field has been completed, effective 1 January 2018. WPL has acquired an additional 50% interest in WA-1-R (which contains the majority of the Scarborough gas field), and now holds a 75% interest in WA-1-R and a 50% interest in WA-61-R, WA-62- R and WA-63-R. These retention leases cover the Scarborough, Thebe and Jupiter gas fields, which are estimated to contain gross (100%) contingent resources (2C) of 9.2 Tcf of dry gas. Woodside will operate all of these retention leases. Woodside’s Best Estimate Contingent Resources (2C) have increased by 640 MMboe to 5,652 MMboe.
• Vocus Communication (VOC)
• Ardent Leisure(AAD)

BROKER CHANGES

• Fortescue Metals Group (FMG $4.37) – Earlier this week downgraded its guidance for its realisation prices for iron ore, with an implied rate of 62% for the 2H.
  • Macquarie has an Outperform recommendation with a target price of $5.50 (from $5.80). The analyst has slightly lowered their assumption for FY18 but retains the 72% realisation assumption for FY19, resulting in only a minor change to it’s the target price. DPS estimates have been reduced significantly. They think the stock now looks cheap.
  • UBS has a Buy recommendation with a target price of $5.50 (from $5.60). UBS has downgraded underlying earnings estimates by -13%, with the price realisation guidance down to 62% in the second half versus the analyst’s forecasts of 68%.

• Newcrest Mining (NCM) – UBS has a Sell recommendation with a target price of $14.70. UBS has lifted its gold price assumptions by 1-2% for the next few years and upgraded Newcrest forecasts for earnings per share by 8-11%. The short-term outlook has been clouded by the breach of the tailings dam at Cadia but the analyst suggests the market will likely prioritise the long-term outlook.

• Rio Tinto (RIO $73.39) – Yesterday 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 recent divestments of RIO’s QLD coal assets is now $US4.15bn, with the funds to be used for general corporate purposes.
  • Citi has a Buy recommendation with a target price of $82. Citi expects Rio Tinto to return the post-tax net sale proceeds to shareholders once the deal is closed in the second half.
  • UBS has a Buy recommendation with a target price of $90. The valuation for Kestrel is materially better than UBS estimated and the analyst expects proceeds to be returned to shareholders via buybacks.

• Vocus Communications (VOC $2.29) – UBS has a Neutral recommendation with a target price of $2.60. Recent press suggests a potential value for the NZ assets as low as $250m, which has led investors to question whether a sale would necessarily resolve the company’s debt issues or whether the company will still need to raise equity. UBS suggests there may be a third, and preferable, option where lenders provide relief, given the company has received temporary increases in covenant limits in the past. A temporary lift in debt covenants would only help insofar as the company is able to grow earnings, the broker acknowledges.
• Western Areas (WSA $3.21) – UBS has a Sell recommendation with a target price of $2.80 (from $2.68). The analyst has raised 2018/19 nickel forecasts by 8-14% which has led to significant upgrades to earnings estimates. The broker’s longer-term outlook remains unchanged and the long-term nickel price forecast is still at US$6/lb.
• Z1P – Ord Minnett has initiated coverage with an Accumulate recommendation with a target price of 88c. Zip Co is being described as a rapidly growing provider in the alternative financing and payments space. The company facilitates consumer transactions via zipMoney and zipPay products, as well as providing budgeting tools via Pocketbook. Ord Minnett estimates already the company is responsible for circa 2.3% of all online sales in Australia. Users have grown 340% over the last 12 mths; integrated merchants have grown by 260% over the same period. The company is high growth, but not expected to turn profitable in the near term (losses forecast to reduce).

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OVERNIGHT

SPI FUTURES +7

US EQUITIES – S&P500 -8 (-0.29%), Dow Jones -9 (-0.04%), Nasdaq -60 (-0.85%).

Main themes –

• The tech sector underperformed.
• Amazon -4.38% on reports that Trump is “obsessed” with the company and wants to “go after” it; Apple -1.10% after Goldman Sachs predicted lower iPhone sales and cut its price target to $159 from $161; Netflix -4.96%,
• The US dollar rallied to a two-week high against the yen amid reports North Korea’s Supreme Leader Kim Jong-un would like to meet with Japanese officials following his visit to Beijing.

EUROPEAN MARKETS – Mostly stronger. STOX500 +0.46%, UK FTSE +0.64%, German Dax -0.25%, French CAC +0.29%

CURRENCIES

• The US dollar is up 0.78% to 90.07.
• The Aussie dollar is little changed at US76.62.

BONDS – 2-yr: +2 bps to 2.29%, 5-yr: +1 bp to 2.59%, 10-yr: -1 bp to 2.78%, 30-yr: -2 bps to 3.01%

COMMODITIES

• WTI oil closed down US87c or 1.3% to US$65.38 a barrel, after earlier being down as much as 2%, following an increase of 1.6mb in EIA stockpiles. The EIA weekly production figures showed American production continuing to tick higher to 10.43mbpd,
• Gold futures fell 1.34% to US$1,329.80.
• 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 – Weekly MBA Mortgage Index 4.8% (prior -1.1%), February Advance International Trade in Goods -$75.4bn (consensus -$74.2bn; prior -$75.3bn), Q4 GDP Third Estimate 2.9% (consensus 2.6%; prior 2.5%), and Q4 GDP Deflator Third Estimate 2.3% (consensus 2.3%; prior 2.3%); February Pending Home Sales 3.1% (consensus 2.5%; prior -5.0%)
• Fed Speak – Atlanta Fed President Raphael Bostic spoke in favour of continued rate hikes, noting he is eager to see a return to a ‘neutral’ fed funds rate
• European data – Germany’s April GfK Consumer Climate 10.9 (expected 10.7; last 10.8); France’s March Consumer Confidence 100, as expected (last 100); Italy’s January Industrial New Orders -4.5% month-over-month (last 4.6%); +9.6% year-over-year (last 4.1%) and Industrial Sales -2.8% month-over-month (last 2.5%); +5.3% year-over-year (last 7.4%); Spain’s February Retail Sales +1.9% year-over-year (last 2.2%). January current account deficit EUR450 million (last surplus of EUR2.64 billion)

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“The independent girl is a person before whose wrath only the most rash dare stand, and, they, it must be confessed, with much fear and trembling.” – Lou Henry Hoover, American first lady born this day in 1874. Died 7 January 1944.