The ASX 200 is up 12 points in mid morning trade. Healthcare and C Staples weaker but other sectors up, led by Energy. ANZ higher on results despite lower NIM and CBA brushes off APRA knuckle -slap. RBA meets today…excitement plus! #ausbiz
TODAY
- RBA Interest Rate Decision
- Australian data – AIG Manufacturing Index, TD-MI Inflation Gauge
- Japanese data – Nikkei Manufacturing PMI Final
TONIGHT
- Most European markets will be closed for Labor Day tomorrow
- UK Markit/CIPS Manufacturing PMI, BoE Credit data
- US economic data – ISM Index and Construction Spending
- US earnings – BP (BP), Carlyle Group (CG), Marathon Petroleum (MPC), Merck (MRK), Pfizer (PFE), Under Armour (UAA). After The Close – Apple (AAPL), Denny’s (DENN), Western Union (WU)
COMPANY NEWS
- Commonwealth Bank (CBA) – APRA hasn’t been completely kind to CBA in its final report on the Prudential Inquiry. An extract summary of the findings –
“Its overarching conclusion is that “CBA’s continued financial success dulled the senses of the institution”, particularly in relation to the management of non-financial risks.
The Report also found a number of prominent cultural themes such as a widespread sense of complacency, a reactive stance in dealing with risks, being insular and not learning from experiences and mistakes, and an overly collegial and collaborative working environment which lessened the opportunity for constructive criticism, timely decision-making and a focus on outcomes.
The Report raises a number of matters of prudential concern. In response, CBA has acknowledged APRA’s concerns and has offered an Enforceable Undertaking (EU) under which CBA’s remedial action in response to the report will be monitored. APRA has also applied a $1 billion add-on to CBA’s minimum capital requirement.
As some of the recommendations deal with the way in which CBA interacts with customers, APRA will work closely with the Australian Securities and Investments.”
- APRA has effectively told CBA to put aside an extra $1bn to cover potential fallout from governance and cultural failings. The media release is here. CBA has responses saying it has a detailed roadmap for ongoing change and we will work with APRA to ensure it implements all of the Report’s 35 recommendations.
- ANZ – 1H result. Cash profit up 4.1% but net interest margin down 7bps to 1.93%.
- Aristocrat Leisure (ALL) – Investor Day
- Dexus (DXS) – Operational update
- Vicinity Centres (VCX) – Q report and trading update. Guidance for FY18 funds from operations (FFO) firmed to 18.2c, the top end of the previously announced guidance range, with an expected payout of 100% of adjusted funds from operations (AFFO)
- Mineral Resources (MIN) – Q report
- ASX – Financial results for the 9 months to 31 March
MACQUARIE AUSTRALIA CONFERNECE. A number of companies are presenting, making it a mini reporting season. There might be some trading updates or comments on operation performance but I don’t have time to go through all the presentations this morning. More just in case stocks you hold move around today.
- Mirvac (MGR)
- Wisetech Global (WTC) – Presenting at the Macquarie Australia Conference. As part of the presentation, WTC is providing an overview of its business and an updated FY18 guidance of revenue growth of 37% to 43% and range of $210m to $220m, subject to currency movements
- Medibank Private (MPL)
- Nib Holdings (NHF)
- Charter Hall Group (CHC) –
- Evolution Mining (EVN)
- Northern Star (NST)
- Southern Cross (SXL)
- Investa Office Group (IOF)
- Incitec Pivot (IPL)
- Nine Entertainment Group (NEC)
- Charter Hall (CQR)
- Origin Energy (ORG)
- Domain Group (DHG)
- Breville Group (BRG)
- Newcrest Mining (NCM)
- Skycity Entertainment (SKC) – Investor presentation and trading update. Expect to achieve around 3% growth in normalised group EBITDA in FY18 vs. pcp
- Corporate Travel Group (CTD) – CTD has also announced e acquisition of SCT Travel Group Pty Ltd, trading as Platinum Travel Corporation (PTC) in QLD and NSW, effective 1 July 2018. Greg McCarthy from SCT has been appointed CEO of the Aus/Nz operations. The base consideration is AUD$5m, representing around 5x FY19 EBIT, via a mixture of cash and stock (funded from short term cash flow), with an additional earn-out component based upon long term growth. It includes the acquisition of the PTC Corporate and Events business in QLD and NSW only. There will be no contribution to FY18 results.
- Suncorp (SUN) – Commitments unchanged. Key Bank FY19 targets are cost to income (CTI) around 50%, subject to regulatory reform costs and net interest margin 1.80% to 1.90%.
- Sydney Airport (SYD)
BROKER CHANGES
- AGL Energy (ALG) – AGL has received a $2250m offer for Liddell from Alinta. It has confirmed it requires Liddell as part of its NSW Generation Plan post 2022 Morgan Stanley has an Equal-weight recommendation with a target price of $24.28. AGL has announced a new gas-fired peaker in NSW as part of its post 2022 replacement plan for Liddell. The analyst sees little fundamental difference between the scenarios envisaged for Liddell, assuming normal commercial rules apply. They believe AGL will continue to resist calls to change its Liddell closure plan and may extend the plant life, if market conditions justify, or sell at an attractive price.
- CSL – Site visit to Melbourne to CSL’s R&D hub and Broadmeadows fractionation facility
- Deutsche Bank has a Hold recommendation with a target price of $169. The analyst suggests the Bio21 institute provides distinct benefits amid the large R&D expenditure plans for the second half. The collection centres target is reiterated for FY18.
- Macquarie has an Outperform recommendation with a target price of $172. The analyst sees CSL well-positioned to deliver robust earnings growth in FY18 and FY19. They believe the plasma collection centre network is a competitive advantage allowing CSL to meet robust immunoglobulin demand as well as increased volumes from expanded indications.
- UBS has a Buy recommendation with a target price of $175. The analyst was impressed but hasn’t changed forecasts. Broadmeadows in particular is transitioning from what was a toll fraction facility for several Asia-Pac countries to a comprehensive part of the global Behring business.
- Graincorp (GNC $8.89) – Credit Suisse has downgraded to a Neutral (from Outperform) recommendation with a target price of $9.06. The outlook for rainfall is signalling low soil moisture entering the 2018 season and any further reduction in rainfall from this point would result in downside to the crop. Outside of crop conditions, The analyst thinks upside depends on a more aggressive restructuring of its storage and logistics business. They expect oils and malt will be in focus at the first half result on May 11.
- Wesfarmers (WES $43.77) – Following update last week
- Deutsche Bank has a Hold recommendation with a target price of $41.00. The company’s update provided insights into the operating conditions for Bunnings UK, where lfl sales growth was 3.0% and strong trade in plumbing and heating offset weakness in consumer segments, which was attributed to a “fragile UK consumer environment”.
- Morgans has a Hold recommendation with a target price of $44.74 (from $44.65). March quarter sales were slightly better than the analyst expected with Bunnings Australasia standing out. Bunnings UK & Ireland was poor, with like-for-like sales falling -15.4% despite management’s efforts to improve Homebase and refine the offerings at Bunnings. Severe weather in March significantly affected the performance despite an improvement in January and February. They think Bunnings UK & Ireland is still a long way from where it needs to be for management to justify continuing with the venture.
- Transurban (TCL $11.60) – UBS has a Buy recommendation with a target price of $13.35. There was no new info at the investor day yesterday, with no changes to UBS forecasts. TCL plans to continue investing capital beyond its four networks and is establishing a debt strategy to provide some protection against rising interest rates. The development pipeline is strong, with the West Gate Tunnel (TCL’s biggest ever project) showcased on the day.
- Insurance Australia Group (IAG $7.90) – Morgan Stanley has an Overweight recommendation with a target price of $8.00. The analyst thinks favourable catastrophe experience, elevated reserve releases, cost reductions and potential capital returns suggest that IAG will continue to outperform. They forecast cash returns on equity building above the company’s 15% target and potential buybacks to drive further upside.
- Nanosonics (NAN $2.41) – Morgans has an Add recommendation with a target price of $3.12 (from $3.13). Sales were softer during the transition period as distributors tightly managed inventory and the analyst has revised down FY18 profit forecasts to reflect the slower US sales. FY19 and FY20 estimates are unchanged.
OVERNIGHT
SPI FUTURES -16
US EQUITIES – S&P500 -22 (-0.82%), Dow Jones -148 (-0.61%), Nasdaq -54 (-0.75%).
Main themes –
- The PCE price index rose 2.0% yoy, in the reaches of the Federal Reserve’s inflation target, which will give the Fed some data-based cause for additional rate rises (although not expected at this week’s meeting)
- Israeli Prime Minister Benjamin Netanyahu claimed that Iran lied about not having a nuclear weapons development program. Mr Netanyahu said that nearly half a ton of documents with proof was smuggled out of Iran. The documents have reportedly been verified by US officials. This comes ahead of the May 12 deadline for certifying the Iran nuclear deal.
EUROPEAN MARKETS – All higher. STOXX 600 +0.18%, UK FTSE +0.09%, French CAC +0.68%, German DAX +0.25%,
CURRENCIES
- The US dollar was up around 0.3% at 91.82.
- The Aussie dollar is half a cent lower at US75.31.
BONDS – 2-yr: UNCH at 2.48%, 5-yr: -1 bp to 2.79%, 10-yr: -2 bps to 2.94%, 30-yr: -3 bps to 3.10%
COMMODITIES
- WTI oil futures rallied to close up 47c or 0.69% to US$68.57 after Israeli Prime Minister Benjamin Netanyahu’s claims there was evidence showing Iran ran a secret program to produce nuclear weapons.
- Gold futures closed down US$4.20 at US$1319.20 on easing geopolitical tensions.
- Iron ore unchanged at US$67.00
- LME metals mixed – Copper +0.15%, nickel -2.46%, aluminium -2.29%. Over the week Al fell almost 10% after the US gave American customers of Russia’s biggest aluminium 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 earnings – AK Steel (-3.37%), Allergan (-5.18%), Loews Corp (+1.37%), McDonald’s (+5.77%),
- US economic data – March Personal Income 0.3% (consensus 0.4%; prior 0.3%), Personal Spending 0.4% (consensus 0.4%; prior 0.0%), PCE Prices 0.0% (consensus 0.0%; prior 0.2%), and PCE Prices – Core 0.2% (consensus 0.2%; prior 0.2%); Those monthly changes left the PCE Price Index up 2.0%yoy, versus 1.7% in February, and the core PCE Price Index up 1.9% year-over-year, versus 1.6% in February. April Chicago PMI 57.6 (consensus 58.0; prior 57.4); March Pending Home Sales 0.4% (consensus 1.5%; prior 2.8%)
- Chinese data yesterday – PMI numbers were stronger than expected, with the manufacturing PMI up to 54.8.
QUOTE OF THE DAY
“All you have to be is kind. That’s all you need. Once you’ve got that, it virtually rules out everything else.” – Joanna Lumley. English actress born this day in 1946
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