MID MORNING MARKETS 27-04-18

The ASX200 is up 30 point in mid-morning trade, with weakness in the banks and Telstra the key feature. RMD results, NAN gets approval for Trophon2 and IPL impairment charges. RBA and FOMC next week with bank results. #ausbiz

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TODAY

  • Economic data – PPI
  • Ex-dividends – Ama Group (AMA) 0.5c, Aurora Dividend Income Trust (AOD) 0.3c, MFF Capital Investments (MFF) 1.5c, Steamships Trading Company (SST) 13.6c
  • Chinese data – Industrial Profits
  • Japanese data – Unemployment Rate, Retail Sales, Industrial Production, Construction Orders, Housing Starts
  • BOJ Interest Rate Decision and BoJ Quarterly Outlook Report

TONIGHT

  • European data – Consumer Confidence, Nationwide Housing Prices
  • UK GDP Growth Rate
  • US economic data – GDP-Adv., Chain Deflator-Adv., Employment Cost Index, Chicago PMI, Michigan Sentiment – Final. The consensus is for GDP to have grown at an annualised rate of 2.1%.
  • US earnings – Cabot Oil & Gas (COG), Chevron (CVX), Colgate-Palmolive (CL), Dominion Energy (D), Exxon Mobil (XOM), Honda Motor (HMC), Moody’s (MCO), Sony (SNE)

NEXT WEEK

  • RBA meeting  –  No change in rates is expected. The RBA monetary policy statement follows on Friday. Other data includes credit and trade data.
  • Bank reporting season – ANZ Wednesday, NAB Thursday, Macquarie Friday and WBC the following Monday.
  • FOMC meeting next Wednesday – Only a 6.7% expectation of a rate rise at this stage.
  • Chinese PMI numbers
  • US jobs numbers next Friday.

COMPANY NEWS

  • Banking Royal Commission – Last day today with representatives from ASIC in continuing evidence about how financial advisers get disciplined. Yesterday’s developments included financial planner, lawyer and accountant Terry McMaster collapsing in the witness box and being taken to hospital. Another key development was internal documents released to the RC which exposure poor lending practices. UBS analysed the PwC data and determined that
    • 9% of minimum income verifications (eg payslip checks) were not completed
    • 66% had not itemised living expenses collected
    • The median assessed household living expenses represented just 23% of household income
    • 30% of the sample the borrower’s financial position was suggested to have been misrepresented
    • 9% of the sample the loan would not have been approved if the “true financial information” was used in serviceability assessment.
  • ResMed (RMD) – 3Q result: Revenue up 15% to $591.6m (or 10% on a constant currency basis); Net income increased by 25%; non-GAAP net income up 32%; GAAP diluted EPS $0.76; non-GAAP diluted EPS $0.92; Operating cash flow of $149.1m in the third quarter. US revenue was up 7%; Brightree revenue up 14%; Europe Asia and other market revenue up 16%; Gross margins fell to 58.2% (from 58.3%). “We had a strong quarter, with solid revenue growth at the top line, and operating leverage improving the bottom line,”
  • Caltex (CTX) – Refiner margins

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  • Nanosonics (NAN) – Has received pivotal FDA 510(k) clearance for its 2nd generation trophon platform device – trophon2. It is anticipated that the commercial release of the new trophon2 in the US will be in 2Q of FY19. The product is currently being introduced into manufacturing with a ramp up in production expected to take place over the next 3 months.
  • Incitec Pivot (IPL) – Material items included in 1H18 reults released 9 May. Dyno Nobel Asia Pacific – Non-cash goodwill impairment charge of approximately $236m will reduce the carrying value of DNAP’s goodwill from $1,144.5m to $908.5m due to changes in DNAP’s contractual position in the West Australian market, the impact of the ammonium nitrate supply/demand imbalance in Australia, as well as updated long term gas production cost forecasts for the Company’s Moranbah plant post 2026. IPL remains positive in relation to the medium to long term growth. Impact of U.S. taxation reforms – One-off benefit of $96.5m.
  • Sandfire (SFR) – Q production report. Ouput of 11kozs.
  • Aristocrat Leisure (ALL) – Acknowledging litigation relating to the operation of the online social gaming platform Big Fish Casino. Aristocrat completed its acquisition of Big Fish Games, Inc from CDI in January 2018. ALL said the litigation was known and considered as part of the transaction. “A number of contractual protections were agreed as part of the acquisition, including broad indemnity protection from CDI relating specifically to the Kater litigation.”

BROKER UPDATES

  • Healthscope (HSO) – Takeover offer at$2.36 by a 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.
    • Credit Suisse rates has upgraded to a Neutral (from Underperform) recommendation with a target price of $2.23 (from $1.78). The CS has raised its target price to match the bid and suggests the small control premium reflects challenging market conditions. They await an assessment form the board, completion of due diligence and regulatory approval, notwithstanding the potential of a counter bid.
    • Deutsche Bank has a Hold recommendation with a target price of $20.5.
    • Macquarie is restricted from rating HSO. They note the requirement that the Healthscope board unanimously agrees to recommend shareholders vote in favour of the scheme.
    • Morgans has downgraded to a Hold (from Add) recommendation with a target price of $2.42. The Morgans analyst would be surprised if another bidder jumped in to sweeten the deal given there are a number of issues such as slowing utilisation, health fund price indexation and government policies. They don’t rule out the possibility the bid is reduced.
  • Sonic Healthcare (SHC $23.38) – Deutsche Bank has a Buy recommendation with a target price of $26.90. Offshore peer LabCorp has reported a strong 1Q, achieving 8.0% revenue growth, underpinned by acquisitions.
  • Wesfarmers (WES $43.13) – 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%.
    • Deutsche Bank has a Hold recommendation with a target price of $41.00. There was no change of direction indicated. The analyst thinks the slight improvement at Coles is likely to be from improved market conditions rather than better trends in market share.
    • Macquarie is restricted from providing a rating. The analyst notes the pick up in growth across key businesses, while Bunnings UK remains problematic with declining comparable sales of -15.4%.
    • Credit Suisse has an Outperform recommendation with a target price of $45.20 (from $44.98). The analyst saw Target stabilising and K-Mart, Bunnings A&NZ and Officeworks all beating expectations. Bunnings UK&I improved, but not by enough to suggest it should not be offloaded. While there were some signs of improvement for Coles ahead of the demerger, they are not completely convinced.
  • AMP ($4.05) – Credit Suisse rates has an Outperform recommendation with a target price of $4.80 (from $5.45). The analyst says the likely earnings impact from the Royal Commission is still unknown, and they haven’t downgraded their (clearly wrong) recommendation, arguing the downside is likely now priced in. They note uncertainty remains and the planned asset sales and strategy are in doubt without a CEO.
  • Boral (BLD $6.52) – Deutsche Bank has a Buy recommendation with a target price of $7.57. The analyst notes the USG/Boral joint venture’s adjusted earnings margins declined -260 basis points to 11% because of higher input costs in the March quarter. This was partly offset by an increase in the plasterboard price. While 1Q is typically the slowest quarter in the year, it follows a 4% decline in Boral’s share of equity income from the JV in the first half.
  • Brambles (BXB $9.83) – Deutsche Bank has a Hold recommendation with a target price of $10.15. Sales revenue for the nine months to March was up 5%, in line with management’s target, and the analyst notes the actual FX results reflect a soft US dollar relative to other operating currencies.
  • Computershare (CPU $17.10) – Deutsche Bank has a Sell recommendation with a target price of $15.10. The recent strategy updates indicates CPU intends to become simpler and more transparent. The Deutsche analyst is cautious due to concerns around the sustainability of margins in mortgage servicing.
  • Clearview Wealth (CVW $1.18) – Hasn’t received an offer from Sony Life Insurance and has terminated its cooperation agreement. Macquarie has an Outperform recommendation with a target price of $1.40 (from $1.70). The analyst notes there is now corporate appeal for CVW. It is trading at a material discount to the their target, while the medium term outlook remains attractive despite the regulatory scrutiny of the sector.
  • Fortescue Metals Group (FMG $4.49) – Deutsche Bank has a Buy recommendation with a target price of $5.70. The March quarter production was in line and price realisation was slightly better than the analyst expected and they think this should continue to improve. FY18 cost guidance is revised up slightly.
  • JB Hi-Fi (JBH $25.63) – Macquarie has an Outperform recommendation with a target price of $31.30. The analyst is cautious about the MqrQ sales update which is due next week on May 2 and the market may be concerned about gross margin pressure and the sales performance at The Good Guy’s. But they note category growth drivers appear healthy and think there is upside still from the merger synergies.
  • Woodside Petroleum (WPL $32.17) – Macquarie has upgraded to a Neutral (from Underperform) recommendation with a target price of $31.90 (from $28.10). The analyst has upgraded (Brent) oil price forecasts by 20% to US$70/bbl for 2018 and by 5% to US$57/bbl for 2019, resulting in target price upgrades. Macquarie continues to expect 2019 will be in oversupply resulting in a build up of global oil stocks because of the return of OPEC volumes and sustained US production growth.

 


OVERNIGHT

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SPI FUTURES +44

US EQUITIES – S&P500 +28 (+1.04%), Dow Jones +239 (+0.99%), Nasdaq +115 (+1.64%).

Main themes –

  • Tech sector outperforms with strong performance following results. Facebook +9.06% reported better than expected earnings and revenue and strong growth in users.
  • ECB meeting statement was in line with expectations, although Draghi’s comments were fairly dovish

EUROPEAN MARKETS – All stronger. STOXX 600 +0.94%, UK FTSE +0.57%, French CAC +0.74%, German DAX +0.63%,

CURRENCIES

  • The US dollar rally continued – up 0.4% to 91.58.
  • The Aussie dollar is little changed at US75.57.

BONDS – 2-yr: UNCH at 2.49%, 5-yr: -2 bps to 2.82%, 10-yr: -3 bps to 2.99%, 30-yr: -3 bps to 3.18%

COMMODITIES

  • WTI oil futures closed up 14c or 0.2% to US$68.19 on increasing expectations that the US will re0impose sanctions against Iran. French President Emmanuel Macron said he expected Trump to pull out of the 2015 deal with Iran, in which Iran suspended its nuclear program in return for Western powers lifting crippling sanctions. Venezuela’s oil production has also dropped significantly due to political and economic crisis.
  • Gold futures eased US$4.90 at US$1317.90
  • 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 – March Durable Orders 2.6% (consensus 1.9%; prior 3.5%), Durable Goods -ex transportation 0.0% (consensus 0.6%; prior 0.9%), weekly Initial Claims 209K (consensus 225K; prior 233K), Continuing Claims 1837K (prior 1863K), March advance International Trade in Goods -$68.00bn (last -$75.90bn), and March advance Wholesale Inventories 0.5% (prior 1.0%)
  • The ECB left interest rates unchanged, as expected, and confirmed that net asset purchases will remain at the current monthly pace of €30bn until the end of September 2018, or beyond, if necessary. ECB President Mario Draghi said that underlying inflation is still not showing a convincing uptrend and that significant stimulus remains necessary
  • Italian politics – Movimento 5 Stelle leader Luigi Di Maio reiterated his intent to try forming a government with Partido Demcratico. However, some members of PD, like former Prime Minister Matteo Renzi, are opposed to an alliance with M5S
  • US earnings – Amazon (+3.96 and then +7.05% in after hours trade) will increase the price of its Prime plan. American Airlines (-6.36%), Bristol-Myers (+1.93%), ConocoPhillips (+2.94%), Domino’s Pizza (+7.31%), DR Horton (+1.20%), General Motors (+0.37%), Hilton (+0.12%), PepsiCo (+2.09%), Time Warner (-2.71%), UPS +4.25%. After the Close – Intel (+5.09%), Mattel (+3.71% and then +3.65% in after-hours trade), Microsoft (+2.27%), Starbucks (-2.21%), U.S. Steel (-7.08%), Western Digital (-2.17%),

QUOTE OF THE DAY

“Spontaneity has its time and its place.” – Arthur Frank Burns, Ukrainian economist born this day in 1904. Died 6 June 1987.

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