MID MORNING MARKETS 19-4-18

The ASX 200 is up 35 points in mid morning trade. The Market Map says it all. Materials smashing it on commodity price rises and strong production reports. Telcos lag and more falls for AMP. Employment data today #ausbiz

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TODAY

  • Domestic economic data – Westpac Leading Index, Employment Change, Unemployment Rate

 

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  • Exdividend – Katana Capital (KAT) 0.8c

TONIGHT

  • ECB Angeloni Speech
  • UK Retail Sales
  • US economic data – Philadelphia Fed, Leading Indicators
  • Fed Speak – Governor (FOMC voter) Randal Quarles, Governor (FOMC voter) Lael Brainard
  • US earnings – Blackstone (BX), BNY Mellon (BK), Novartis AG (NVS), Philip Morris International (PM)

COMPANY NEWS

  • Bank Royal Commission – Today, CBA’s Marianne Perkovic will be back in the hot seat after a day yesterday that has been dubbed by Michael Janda from the ABC as giving (non)evidence. You can follow Michael and Dan Ziffer on @mikejanda and @danziffer on Twitter. Their commentary would be quite funny if it actually wasn’t.
  • BHP Billiton (BHP) – Quarterly production report. Full year production guidance remains unchanged for Petroleum, Metallurgical Coal and Energy Coal; Total Copper production guidance narrowed to 1,700-1,785 kt, however guidance for Olympic Dam reduced to approximately 135 kt following a slower than planned ramp-up after the major smelter maintenance campaign. Iron Ore production guidance reduced to 272-274 Mt (100% basis) reflecting car dumper reliability issues. Group copper equivalent production is expected to increase by 6% in the 2018 financial year. The exit process for Onshore US is progressing to plan, with bids expected by June 2018 and transactions potentially being announced in the first half of the 2019 financial year. In Petroleum, footprint increased in the northern extension of the Wildling prospect in the US Gulf of Mexico through the acquisition of 33.33% interest in the Samurai prospect. Also secured an option to purchase an additional 10% interest in the Scarborough development. All major projects under development are tracking to plan.
    • The Macquarie analysts note thermal coal missed the mark, while guidance for iron ore has been reduced by -2%, (was unexpected) and the range for copper was narrowed. Other operations performed pretty much in line with expectations. Overall they say it’s a “solid” report, apart from the slight negative regarding iron ore. They have an Outperform rating with a target price of $35.70.
  • South32 (S32) – Quarterly production report

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  • Alumina Limited (AWC) – Alcoa Q report
  • Australian Pharmaceutical Industries (API) – 1H18 result is slightly ahead of revised guidance. Underlying NPAT down 8% to of $26.8m; underlying EBIT down 8% to $44.6m; underlying ROCE increased to 15.41%, from 15.23% and underlying ROE decreased to 9.22%, from 10.56%; pharmacy Distribution continued to perform well with underlying sales growth of 9.8%; Priceline/Priceline Pharmacy total network sales growth of 2.1% with 466 stores, and comparable retail store sales decline of 1.7%; Fully franked interim dividend of 3.5 cents per share, on par with the pcp
  • Challenger (CGF) – Q FUM. Total AUM up 3% qoq to $78.6bn; Life net book growth up 74% on pcp $629m; Life net book growth of 5.2% in third quarter; Total Life sales down 13% to $1.1bn; Long term annuities account for 43% of annuity sales; Funds Management net flows $2.1 billion
  • Adelaide Brighton (ABC) – Major cement contract with BHP to continue to supply cement and lime at Olympic Dam.
  • Suncorp (SUN) – Chairman Dr Ziggy Switkowski AO will retire from the Board after the AGM on 20 September 2018, to be replaced by Ms Christine McLoughlin.
  • Iluka (ILU) – Quarterly production report
  • St Barbara (SBM) – Quarterly production report
  • Computershare (CPU) – Investor Day
  • Nextdc (NXT) – Asia Pacific Data Centre Group Limited has initiated legal proceedings in relation to a dispute over APDC’s claimed ongoing access rights at S1, M1 and P1. NEXTDC intends to defend APDC’s latest claims.
  • Speedcast (SDA) – Proposed debt refinancing.
  • Santos (STO) – Quarterly report. Reported strong free cash flow generation. Reiterated that shareholders should take no action in relation to the Harbour Proposal. Updated guidance

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BROKER UPDATES

  • AMP ($4.45) Ord Minnett has an Accumulate recommendation with a target price of $5.90. The analyst doesn’t see any immediate earnings risk from Royal Commission. Actual remediation costs and client disadvantage requiring remediation are considered small for the particular issue of “fees for no service”. The bigger issue is misleading ASIC and some sanctions may or may not follow – but where it justifies the lost market capitalisation of AMP ($904m) is yet to be determined. AMP is also undertaking a strategic review that involves considering asset disposals and the RC may also provide uncertainty to a potential acquirer, a negative for discussing price.
  • Aurizon (AZJ $4.50) – UBS has a Neutral recommendation with a target price of $4.90. AZJ reported above-rail volume growth of 1% in the March quarter. It will cease rail services to iron ore customer Cliffs from June, (UBS had already assumed in forecasts). The analyst thinks it is too early to gauge the impact of changes to the above-rail business and expects the decision on the UT5 is likely to drag into FY19 – with a final decision unlikely to change materially from the draft.
  • Credit Corp (CCP $18.72) – Morgans has an Add recommendation with a target price of $23.00 (from $23.60). FY18 earnings guidance and targets were reaffirmed – the analyst notes competitive pressure in the domestic business is high but expects incremental organic growth can be delivered by the lending and US divisions. They consider the longer-term opportunity in the US business remains attractive.
  • Bapcor (BAP $5.84) – Morgan Stanley has an Overweight recommendation with a target price of $7.00. A lack of near-term catalysts means the stock price has languished, and the Morgan Stanley analysts sees this as a buying opportunity. They have reassessed all divisions and increased forecasts for the wholesale segment, where the opportunity to sell products through trade and retail is greater than it previously realised. They remain confident in the medium-term growth outlook, management’s track record and the opportunity to extract benefits of scale.
  • CYBG (CYB $5.19) – CYBG has announced an increase in payment protection insurance provisions of £350m.
    • Credit Suisse has an Outperform recommendation with a target price of $6.00. The analyst has downgraded its FY18 “company defined” profit forecast by 65% but this does not have an impact on earnings forecasts. They find the quantum and the timing of the provision top-up disappointing but it hasn’t changed their positive view on the stock, which is a cost, revenue and capital story. They believe any share price weakness is a buying opportunity.
    • Macquarie has an Outperform recommendation with a target price of $6.50. The analyst acknowledges the implied capital reduction but envisages current share price weakness as an attractive buying opportunity. They expect underlying profitability to improve materially over the medium term as a result of efficiency benefits, market share gains and also, ultimately, a higher interest rate environment.
  • Treasury Wine Estates (TWE $17.80) – Citi has a Sell recommendation with a target price of $13.30. The Citi analysts remain of the view that pricing pressure will at some point catch the market’s attention, and trigger a de-rating for the shares. They have now further lowered estimates and are now 6% below market consensus for FY20. While volume growth is strong, pricing is declining in Asia.
  • Woodside Petroleum (WPL $31.45)
    • Citi has a Neutral recommendation with a target price of $28.34. March quarter production was higher than Citi forecast, largely from good utilisation at LNG projects and helped by lower cyclone activity. The analyst has increased 2018 earnings estimates by 2%, given the early ramp up of train 2 at Wheatstone.
    • Credit Suisse has an Underperform recommendation with a target price of $27.20. The March Q proved a good start to the year for LNG production, tracking the top end of guidance, but the analyst notes its early days. Wheatstone train one is performing well and T2 is now 97% completed. Realised prices were strong with Brent holding above US$70/bbl. CS has lifted its oil price assumptions, leading to material earnings upgrades for the next two years.
    • Macquarie has an Underperform recommendation with a target price of $28.1 (from $27.50). The Macquarie analyst thought Wheatstone subdued an otherwise strong first quarter. They anticipate the company will focus on the projects it can influence such as SNE in Senegal and Scarborough in WA. While positive on Senegal, they continue to believe Scarborough will struggle to find a place in the next wave of LNG developments.

OVERNIGHT

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SPI FUTURES +25

US EQUITIES – S&P500 +2 (+0.08%), Dow Jones -39 (-0.16%), Nasdaq +14 (+0.19%).

Main themes –

  • Most earnings well received – but IBM (-7.53%) weighed on Dow after disappointing earnings guidance
  • Big moves in commodity prices – oil and base metals higher

EUROPEAN MARKETS – All stronger. STOXX 600 +0.29%, UK FTSE +1.26%, German DAX +0.04%, French CAC +0.50%

CURRENCIES

  • The US dollar was up a touch at 89.61.
  • The Aussie dollar is a little stronger at US77.86.

BONDS – 2-yr: +3 bps to 2.42%, 5-yr: +5 bps to 2.73%, 10-yr: +5 bps to 2.87%, 30-yr: +5 bps to 3.05%

COMMODITIES

  • WTI oil futures were up US$1.95 or 2.9% at US$68.47. US crude stockpiles fell by 1.1mb.
  • Gold futures were US$4.00 or 0.3% higher at US$1,353.50.
  • Iron ore was down US$1.50 at US$64.50
  • LME metals were mixed – Copper +2.11%, nickel +7.46%, aluminium +5.49%.

ECONOMIC DATA, NEWS & POLITICS

  • US earnings – IBM -7.53%, Morgan Stanley (+0.04), U.S. Bancorp (-2.00%), After The Close – Alcoa (+4.24% after being up 4.06% during trading hours), American Express (+3.62), Thomson Reuters I/B/E/S says 79% of the S&P 500 companies surpassed earnings expectations, while 83% topped sales estimates.
  • “Nikkei” reported that the United States, Japan, and South Korea are lobbying for a commitment from North Korea to completely abandon its nuclear program by 2020
  • Fed Speak – New York Fed President William Dudley said he believes the neutral policy rate is around 3.00%
  • Italina Movimento Cinque Stelle leader Luigi Di Maio said he will not agree to a coalition deal with the center right
  • European data – Eurozone March CPI +1.0% as expected (last 0.2%) to be +1.3%yoy (consensus 1.4%; last 1.4%). March core CPI +1.0% as expected (last 1.0%) to be +1.4% year-over-year, as expected (last 0.4%)
  • UK March CPI +0.1% (expected 0.3%; last 0.4%) to be +2.5%yoy (consensus 2.7%; last 2.7%). Input PPI -0.1% (expected 0.3%; last -0.4%) and Output PPI +0.2% (expected 0.1%; last 0.0%). March Core CPI +2.3%yoy (expected 2.5%; last 2.4%). March House Price Index +4.4% yoy (consensus 4.8%; last 4.7%)

QUOTE OF THE DAY

“Opening the Pandora’s box of tariffs will be an endless game, and it will be a lose-lose proposition.” – Ildefonso Guajardo Villarreal, Mexican economist born this day in 1957

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