MID MORNING MARKETS 17-4-18

The ASX 200 is up 23 points in mid morning trade on relief of limited Russian retaliation. All sectors higher but banks lagging amidst the bank royal commission. AMP still under the pump. Another VRL downgrade and NXT and FBU capital raising #ausbiz

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TODAY

  • Ex-dividend – Gazal Corporation (GZL) 8.0c, NZME (NZM) 5.6c
  • RBA Meeting Minutes
  • Chinese NBS Press Conference, Fixed Asset Investment (YTD), GDP Growth Rate, Industrial Production, Retail Sales

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  • Japanese data – Capacity Utilization and Industrial Production

TONIGHT

  • European ZEW Economic Sentiment Index
  • UK – Average Earnings incl. Bonus, Unemployment Rate
  • US economic data – Housing Starts, Building Permits, Industrial Production, Capacity Utilization
  • US earnings reports – Goldman Sachs (GS), Johnson & Johnson (JNJ), Northern Trust (NTRS), UnitedHealth (UNH). After The Close – CSX, IBM, United Continental (UAL), WesBanco Inc (WSBC)

COMPANY NEWS

  • Bank Royal Commission – AMP back on the stand facing questions about fee-for-no service.
  • Downer EDI (DOW) – Has been awarded a contract with OZ Minerals Carrapateena Pty Ltd (OZ Minerals), valued at approximately $660m over six and a half years, to provide underground mining services at the Carrapateena copper gold project in South Australia. Includes site setup and development to the top of the ore body and infrastructure excavation; production setup and ramp up; and bedding in steady-state operations at nameplate site capacity.
  • Bank of Queensland (BOQ) – Cash earnings up 4% to $182m; Statutory NPAT up 8% to $174m; Net Interest Margin up 1bp on the prior half to 1.97%; Cost to Income ratio up 20 bps to 47.6%; Loan Impairment Expense down 19% to $22 million or 10 bps of gross loans; Common Equity Tier 1 (CET1) capital ratio up 3 bps on the prior half to 9.42%; Basic earnings per share up 2% to 46.5c; Return on average ordinary equity up 10 bps to 9.9%; Fully franked interim dividend maintained at 38 cents per ordinary share. Has sold ST Andrew’s Insurance to Freedom Insurance Group for $65m.
  • Village Roadshow (VRL) – Theme Parks and Cinema Exhibition have continued to experience challenging trading conditions with Commonwealth Games and a wet March contributing factors. Overall VRL results for the year ended 30 June 2018 (FY18) are now expected to be below those set out in previous VRL announcements made in January and February 2018 and now expects NPAT of $10m loss to breakeven
  • Fletcher Building (FBU) – Trading update, trading halt and capital raising. Raising NZ$750m through a fully underwritten pro rata entitlement offer (the “Offer”) at NZ$4.80 and establishing a new standby banking facility of NZ$500m (the “Standby Facility”). earnings guidance confirmed at FY18 EBIT of NZ$680m – NZ$720m (excluding B+I and significant items) and an estimated loss for B+I of NZ$(660)m.
  • CIMIC (CIM) – 1Q report. 1Q NPAT up 7% to $172, 2018 NPAT guidance confirmed at $720-780m.
  • Mayne Pharma (MYX) – Has launched amiodarone tablets, 200mg in the US. Amiodarone is a generic alternative to Cordarone® tablets, indicated for life-threatening recurrent ventricular arrhythmia. This launch complements the existing amiodarone product range that includes 100mg and 400m dose strengths. According to IQVIA, US brand and generic sales of amiodarone tablets, 200mg, were approximately US$22m for the 12 months ending 31 January 2018.
  • Nextdc (NXT) – Intends to purchase three new commercial property sites for future data centre developments: Sydney (“S3”), Melbourne (“M3”), and Perth (“P2”). The purchases, together with the initial development of P2, will be funded via an equity raising – a fully underwritten $281m institutional placement of new shares (the “Placement”) and a non-underwritten Share Purchase Plan (“SPP”). The General Placement underwritten floor price is $6.43 per share, representing a 3.0% discount to 5-day VWAP1 and 5.6% discount to the last closing price
  • HUB24 (HUB) – 3Q flows. Strongest third quarter net inflows for Q3FY18 of $595m (growth of 42% on pcp) and gross inflows of $820m ; Funds under Administration (FUA) of $7.4b at 31 March 2018 (growth of 58% on pcp); 17 new licensees signed distribution agreements during the quarter representing significant growth opportunities; HUB24 recognised  as  the  market  leader  managed  accounts  being  awarded  first  place  by Investment Trends for the 2nd year running; A new white label was launched during the quarter for a boutique private wealth licensee with flows commencing ; Client led development for new opportunities is continuing with the launch of our next generation model portfolio capability to occur in the coming weeks
  • Village Roadshwo (VRL) – Trading update
  • Evolution Mining (EVN) – Quarterly Report
  • Regis Resources (RRL) – Quarterly Report
  • Whitehaven Coal (WHC) – Quarterly report
  • Tassal Group (TGR) – Conference presentations
  • Webjet (WEB) – Goldman Sachs presentation
  • McMillan Shakespeare (MMS) – Goldman Sachs conference
  • Atlas Iron (AGO) – Q report

BROKER CHANGES

  • Transurban (TCL $11.25) – March quarter 2018 update. Average Daily Traffic increased by 2.7%, with growth across all Australian markets. Traffic growth was affected by the timing of the Easter holiday period.
    • Macquarie has an Outperform recommendation with a target price of $12.44. Growth is still affected by road works in Melbourne and Brisbane. US roads were affected by weather. Sydney traffic growth was a positive surprise for the analyst. They see FY18 growth in EBITDA of 10%, accelerating to 13% in FY19, and believe organic growth can mitigate the impact of any WestConnex acquisition.
    • Morgan Stanley has an Equal-weight recommendation with a target price of $13.00. The analyst though it was a mixed traffic growth report which was acceptable in view of construction works and the impact of an early Easter. All of the Australian roads benefited from a truck toll multiplier. The US roads do not currently accommodate heavy vehicles, except buses.
    • Morgans has an Add recommendation with a target price of $12.52 (from $12.50), Traffic growth was less than the analyst expected in Melbourne and Brisbane. Traffic growth exceeded forecasts in Sydney and the express lanes in Virginia were affected by weather. They have adjusted their assumptions resulting slight downgrades to short-term forecasts.
    • UBS has a Buy recommendation with a target price of $13.35. Revenue is no longer reported on a quarterly basis but the analyst sees no reason to change its forecasts. Sydney roads saw 3.5% growth despite the M2 being disrupted by roadworks and truck traffic is rising 5% compared to 3% for cars, providing an earnings boost. On traffic trends and the company’s development pipeline, the analyst expects high single-digit dividend growth to continue.
  • Praemium (PPS $66c) – Morgans has a Hold recommendation with a target price of 69c. Strong net flows in the March quarter supported the business and FUM grew 37% for the 12 months to March. The analyst notes the company is on track to meet full year revenue and earnings forecasts. Hold rating and $0.69 target maintained.
  • Class (CL1 $2.14) – Morgans has an Add recommendation with a target price of $3.25. March quarter account growth was in line with expectations and CL1 remains on track to meet the analyst’s forecasts for FY18. Short-term regulatory and competitive pressures may have slowed the rate of growth but sustainable double-digit earnings and free cash flow growth should still be delivered.

OVERNIGHT

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SPI FUTURES +0

US EQUITIES – S&P500 +22 (+0.81%), Dow Jones +213 (+0.87%), Nasdaq +50 (+0.70%).

Main themes –

  • General optimism that the US-led strike on the Syrian government was met with limited retaliatory response from Russia
  • Stronger than expected retail sales beat data – +0.6% actual vs +0.4% consensus
  • President Donald Trump is expected to nominate Pimco executive Richard Clarida as vice chair of the Federal Reserve. He is also expected to place Kansas regulator Michelle Bowman in a vacant Fed governorship. These are 2 of the four vacancies at the Fed.

EUROPEAN MARKETS – Mostly lower. STOXX 600 -0.39%, UK FTSE -0.91%, German DAX -0.41%, French CAC +0.07% the exception

CURRENCIES

  • The US dollar was down 0.42% at 89.42.
  • The Aussie dollar is stronger at US77.82.

BONDS – 2-yr: UNCH at 2.37%, 5-yr: +1 bp at 2.68%, 10-yr: +1 bp to 2.83%, 30-yr: +1 bp to 3.03%

COMMODITIES

  • WTI oil fell US$1.17 or 1.7% to US$66.22, on reduced concerns about a fallout from Syria strikes and the Baker Hughes rig count, which increased by 7 to 815, the highest since March 2015.
  • Gold futures were up 0.2% at US$1,350.60 on US dollar weakness.
  • Iron ore was unchanged at US$66.50
  • LME metals saw more big moves – Copper -1.18%, nickel +2.83%, aluminium +4.99%.

ECONOMIC DATA, NEWS & POLITICS

  • US earnings – Bank of America (+0.44%), Charles Schwab (+4.00%), M&T Bank (-0.87). After The Close Netflix (+5.27% in after-hours trade), US economic data – Retail Sales +0.6% (consensus +0.4%, prior -0.1%), Retail Sales, Ex-Auto +0.2% (consensus +0.2%, prior +0.2%), Empire Manufacturing Index 15.8 (consensus 20.0, Prior 22.5), Business Inventories +0.6% (consensus +0.6%, prior +0.6%), NAHB Housing Market Index 69 (consensus 70, Prior 70)
  • German March wholesale price index 0.0% (expected +0.4%; prior -0.3%) to be +1.2%yoy (expected +1.5%, prior +1.2%
  • Press reports highlight declining approval rating for Japanese Prime Minister Abe, who meets with President Trump from today until April 20 at Mar-A-Lago to discuss trade/security matters
  • People’s Bank of China raised the 14-day reverse repo rate to 2.70% from 2.65%
  • Following Summit of Americas, VP Pence says NAFTA deal could be possible in next several weeks
  • Merck (+2.44%) rallied after saying its cancer-treatment drug Keytruda reduced the risk of death in a trial by 51% when combined with chemotherapy.
  • US earnings expectations – S&P 500 earnings to grow by 19.7% in Q2, 22.1% in Q3, and 19.1% in Q4. Even when comparisons get more difficult in Q1-2019, earnings are forecasted to rise 10.6%. Revenue growth is expected to be more modest at +7.3%

QUOTE OF THE DAY

Tuesday 17 April

“Go as far as you can see; when you get there, you’ll be able to see farther.” – J. P. Morgan, American businessman born this day in 1837. Died 31 March 1913

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