MID MORNING MARKETS 26-4-18

The ASX200 is down 1 point in mid-morning trade, with weakness in the banks largely offset by positivity everywhere else. WES reports mixed Q sales, takeover offer for HSO and BXB trading update. Interestingly, APRA also discards the 10% investor lending benchmark. #ausbiz

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TODAY

  • Australian data – Import/Export Prices
  • Ex-dividend – Bank of Queensland (BOQ) 38.0c

TONIGHT

  • ECB Interest Rate Decision
  • Uk data – Finance Mortgage Approvals , CBI Distributive Trades , Gfk Consumer Confidence
  • US economic data – Durable Goods Orders
  • US earnings – American Airlines (AAL), Bristol-Myers (BMY), ConocoPhillips (COP), Domino’s Pizza (DPZ), DR Horton (DHI), Fiat Chrysler (FCAU), Franklin Resources (BEN), General Motors (GM), Hilton (HLT), KKR, Newmont Mining (NEM), PepsiCo (PEP), Royal Dutch Shell (RDS.A), Time Warner (TWX), Union Pacific (UNP), UPS. After The Close – Amazon (AMZN), Amgen (AMGN), Intel (INTC), Mattel (MAT), Microsoft (MSFT), ResMed (RMD), Starbucks (SBUX), U.S. Steel (X), Western Digital (WDC),

COMPANY NEWS

  • Banking Royal Commission – Last 2 days. CEO of FPA and representative from ASIC. The focus will be on what is taking so long to discipline advisers.Speaking of the banks, APRA has announced that it is removing the 10% limit on investor lending growth  for complying banks. As part of the changes, APRA also expects ADIs to develop internal portfolio limits on the proportion of new lending at very high debt-to-income levels, and policy limits on maximum debt-to-income levels for individual borrowers.
  • Wesfarmers (WES) – Q report. Kmart +10.2% the highlight, with Bunnings (ANZ) +8.9% and Officeworks +7.2% also strong. Bunnings UK -6.5%, Target -2.0% and Coles +0.3%. The one area that doesn’t make sense to me is what K-Mart is killing it but Target is such a flop. Don’t get me wrong – I understand it (Kmart rocks and I shop there all the time…but can’t remember the last time I bought something at Target) – I just can’t understand the bit about them run by the same group.

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  • GPT – MarQ operational update. Total Centre comparable MAT growth of 2.1% (+1.7% at 31 December 2017). Guidance maintained – expects to achieve FFO per security growth of approximately 3% for the full year 2018, and distribution per security growth of approximately 3%.
  • Healthscope (HSO) – Has received a takeover offer at $2.36, a 16% to the closing share price of A$2.03 on 24 April 2018. The consortium includes BGH Capital Fund I, together with AustralianSuper, Carob Investment Private Limited (a subsidiary of GIC (Ventures) Private Limited), Ontario Teachers’ Pension Plan Board and Canada Pension Plan Investment Board (collectively the “BGH – AustralianSuper Consortium”). AustralianSuper currently has a shareholding of approximately 14.0% in Healthscope. HSO is reviewing the offer.
  • Newcrest Mining (NCM) – Gold production down 6% to 576koz. Copper production down 15.5% to 19kt, Group AISC of $826 per ounce, $3 per ounce lower than the prior quarter; Group AISC margin of $515 per ounce, 12.2% higher than the prior quarter; Record Lihir annualised mill throughput rate of 15mtpa for the quarter, surpassing the sustainable 14mtpa target rate; Cadia production impacted by Northern Tailings Facility (NTF) embankment slump on 9 March 2018, return to full production expected mid June quarter 2018; Acquired 27.1% of Lundin Gold Inc. (which owns the Tier 1 Fruta del Norte development project in Ecuador) for $250m; Updated Feasibility Study for Wafi-Golpu released with an improved business case; The divestment of Bonikro was completed in the period; FY18 Guidance updated for Cadia NTF embankment slump, Telfer production and updated economic assumptions.

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  • Scentre Group (SCG) – 1Q update. Confirmed guidance for full year growth in funds from operations (FFO) of approximately 4%. Distribution guidance of 22.16 cents per security was also confirmed.
  • Brambles (BXB) – Trading update. “Sales revenue for the first nine months of FY18 was strong and in line with our expectation for mid-single digit revenue growth.” Volume expansion was the key revenue driver. Looking at initiatives to offset increasing inflation in transport, lumber and labour inflation, particularly in the USA and Europe. Benefits of these initiatives to start flowing through during the fourth quarter and into FY19.

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  • Cleanaway (CWY) – The ACCC will not oppose Cleanaway’s proposed acquisition of Tox Free Solutions Limited
  • Clearview (CVW) – Hasn’t received an offer from Sony Life Insurance and has terminated its cooperation agreement

BROKER CHANGES

  • Blackmores (BKL $121.83) Q update on Tuesday. Net sales for the nine months to 31 March up 8.5% to $434m. Net profit after tax up 19.3% to $52m. Acquisition of 100% of the world-class Catalent Australia tablet and soft-gel capsule manufacturing facility in Braeside, Victoria for $43.2 million,
    • Morgans has a Hold recommendation with a target price of $115 (from $125). The earnings were weaker than the analyst expected and they have reduced net profit estimates for FY18 and FY19 by 3.9% and 7.7% respectively. The Catalent acquisition is expected to generate manufacturing efficiencies and be accretive in year one, FY20.
    • Credit Suisse has a Neutral recommendation with a target price of $130. The analyst was disappointed with sales growth in China, although BKL cautioned investors regarding the supply constraints in the period. They need to see growth in China accelerating before they get more positive

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  • Boral (BLD) – Trading update from Tuesday. BLD has sold its Prospect Masonry property (at Clunies Ross Street, Greystanes in New South Wales) and now expects a total EBITDA $55-65m contribution from Property in FY2018. There were also downgrades to both the Aus and Nth Americam operations.
    • Morgan Stanley has an Overweight recommendation with a target price of $8.00 (from $8.50). The analyst was disappointed that Australian underlying earnings (ex-property)are downgraded due to a kiln outage, challenges in WA and rain in Queensland. Nevertheless, they expect the problem to be temporary and considers the valuation compelling.
    • Macquarie has an Outperform recommendation with a target price of $8.50. While performance was affected by wet weather in both Qld and the US and a kiln outage in NSW, the analyst doesn’t see any significant impact on valuation. Australian infrastructure construction remains strong as does US housing, despite the weather.
    • Credit Suisse has a Neutral recommendation with a target price of $7.45 (from $7.70). The analyst notes the soft quarter and the second downgrade to North American expectations in succession, with the market failing to re-base US earnings following assurances from management at 1H that appeared confident. They are Neutral and await more clarity on the US issues,
    • Ord Minnett has an Accumulate recommendation with a target price of $7.90 (from $8.20). The analyst was particularly disappointed with the Australian division update. They have raised FY18 earnings estimates by 12% due higher property earnings and lower tax charges, which more than offset downgrades across the underlying operations in Australia

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  • Fortescue Metals Group (FMG $4.57) – Macquarie has an Outperform recommendation with a target price of $5.40 (from $5.50). Shipments and pricing were in line with the analyst’s forecast. A cost increase of 9% were above their 6% forecast but increased FY cost guidance met expectations given movements in FX and the oil price. All up they thought it was a solid result. The chart looks positive…MACD histogram moving towards positive territory and price moving away from lower Bollinger Band BUT bounce is losing momentum, as reflected in the RSI.

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  • G8 Education (GEM $2.23) – Morgans has an Add recommendation with a target price of $3.07 (from $3.53). Following the AGM comments on supply overhand and the resulting pressure on occupancy. Morgans has cut its target price, saying conditions are likely to be tough in the near term despite the de-rating. They are still positive over the medium term. This one has to start turning up soon…doesn’t it? I am taking a positive longer term outlook on GEM – the yield is sensational and the growth outlook is strong. I also expect things to improve as the supply/demand imbalance eases and the changes to Child Care Benefit take effect. But the chart is the opposite of inspiring.

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  • Metcash (MTS $3.38) – Morgan has an Overweight recommendation with a target price of $4.00 (from $3.40). The analyst is increasingly confident in the near-term outlook and thinks the market is not taking into account the healthy growth in hardware. Discussions with IGA retailers signal improving trading and supermarket competition is more benign. Overall, they expect the FY18 results in June to be a catalyst

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OVERNIGHT TUESDAY

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OVERNIGHT WEDNESDAY

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SPI FUTURES +41…but they were down 38 yesterday so slightly positive start expected today

US EQUITIES – S&P500 +5 (0.18%), Dow Jones +60 (+0.25%), Nasdaq -4 (-0.05%). Tuesday performance was S&P500 -36 (-1.34%), Dow Jones -425 (-1.74%), Nasdaq -121 (-1.70%).

Main themes – The market recovered from early losses, which came as US bond yields rose above 3.0%, on strong earnings from Boeing.

EUROPEAN MARKETS – All lower. STOXX 600 -0.77%, UK FTSE -0.62%, French CAC -0.57%, German DAX -1.02%, Moves on Tuesday STOXX 600 -0.02%, UK FTSE +0.36%, French CAC +0.10%, German DAX -0.17%,

CURRENCIES

  • The US dollar resumed its rally – up 0.5% to 91.22.
  • More weakness in the Aussie dollar, currently trading at US75.56.

BONDS – 2-yr: +3 bps to 2.49%, 5-yr: +2 bps to 2.84%, 10-yr: +4 bps to 3.02%, 30-yr: +4 bps to 3.21%

COMMODITIES

  • WTI oil futures closed up 35c to US$68.05. Crude inventories rose 2.2bm in the week compared with expectations for a decrease of 2mb. On Tuesday oil finished down US90c or 1.4% to US$67.70, after US President Donald Trump said the US and France could reach an agreement to preserve the Iran nuclear deal “fairly quickly.” There is a May 12 to decide whether to quit a nuclear deal with Iran and reimpose sanctions.
  • Gold futures eased 0.76% to US$ $1322.90 on higher interest rates and easing trade conflictconcerns. On Tuesday gold closed US$9.00 higher at US$1,330
  • Iron ore unchanged at US$69.00. On Tuesday it was up US50c
  • LME metals mixed – Copper -0.07%, nickel +1.14%, aluminium +0.81%. Tuesday’s moves. Copper +1.00%, nickel -1.96%, aluminium -2.96%. Al has been weaker after the US gave American customers of Russia’s biggest aluminum producer Rusal more time to comply with sanctions (from June 5 to October 23) and suggested further easing of the sanctions.

ECONOMIC DATA, NEWS & POLITICS

  • US economic data – February FHFA Housing Price Index 0.6% (consensus 0.5%; prior 0.9%) and February S&P Case-Shiller Home Price Index 6.8% (consensus 6.4%; prior 6.4%); New Home Sales +4.05% to 694K (consensus 631K; prior 667K); April Consumer Confidence 128.7 (consensus 126.1; prior 127.0)
  • US earnings (Tuesday) – 3M (-7.68%) beat earnings expectations on in-line revenues, but lowered its profit guidance for fiscal year 2018, Caterpillar (-6.20% after initial gains), Coca-Cola (-2.61%),
  • US Earnings (Wednesday) – Boeing (+4.19%), Dr Pepper Snapple (+0.75%), Goodyear Tire (-5.06), NASDAQ (+1.79%), T. Rowe Price (+3.38%), Twitter (-2.36%). After The Close – AT&T (-4.55%), Cheesecake Factory (-5.34%), Chipotle Mexican Grill (+10.30%), eBay (-3.83%), Facebook (+5.44%), Ford Motor (3.15%F), PayPal (+2.53%), Visa (+2.30%)
  • Brexit – The House of Lords voted (Tuesday) to keep the EU Charter of Fundamental Rights following Brexit. EU Brexit negotiator Michel Barnier said the UK must present a clear plan for its future relationship with Europe in order to continue talks.

QUOTE OF THE DAY

“I think the mistake some people make is they try to change the man they love after they get married. You cannot change a person.” – Melania Trump, American first lady born this day in 1970.

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