MID MORNING MARKETS 4-5-18

The ASX200 is up 6 points in mid morning trade after the US staged a huge recovery overnight.  Banks under some pressure , except MQG after great result. AMP responds to RC. RBA MP statement later today and US jobs tonight. #ausbiz

MMM12MMM13MMM14TODAY

  • RBA Monetary Policy Statement
  • Economic data – New Motor Vehicle Sales
  • Chinese data – Caixin Composite PMI, Caixin Services PMI
  • BT Investment (BTT) renamed as Pendal (PDL)

TONIGHT

  • European data – Markit Services PMI Final, Markit Composite PMI Final, Retail Sales
  • US data – Nonfarm Payrolls, Nonfarm Private Payrolls, Unemployment Rate, Avg. Hourly Earnings, Average Workweek

MMM1


COMPANY NEWS

  • Orica (ORI) – Has responded to media speculation about environmental provisions, which look to have been released early by ASIC. ORI said it expects to increase the provision for remediation of the Botany site by an amount of approximately $115m, in line with our expectations at the time of the announcement on 1 March 2018. Results are out on May 7.
  • Macquarie Bank (MQG) – FY18 net profit up 15% to $2,557m; 2H18 net profit up 5% to $1,309m; FY18 net operating income up 5% to $10,920m; Annuity-style businesses’ combined net profit contribution up 6% on FY17; Capital markets facing businesses’ combined net profit contribution up 11% on FY17; International income 67% of total income in FY18; FY18 operating expenses up 3% to $7,456m; Assets under management up 3% to $496.7bn; Financial position comfortably exceeds regulatory requirements; Group capital surplus of $4.2bn; Bank CET1 ratio 11.0% (Harmonised: 13.5%); Leverage ratio 6.0% (Harmonised: 6.9%); LCR 162%; NSFR 112%; FY18 EPS up 15% to $7.58; Annualised ROE 16.8% from 15.2% in FY17; Final dividend $3.20 (45% franked) bringing FY div to $5.25 (45% franked), up from $4.70 in FY17; share buyback program remains in place

MMM2

  • Sirtex (SRX) – Has advised that 2 current proceedings against the company have been consolidated into a single proceeding, which is expected commence hearing sometime in April 2019.
  • Nanosonics (NAN) – Has received a Medical Device Licence from Health Canada for the trophon2 system. It comes after FDA clearance last week and enables NAN to launch trophon2 both in the US and Canada during 1Q 2019 financial year. Canada is an important market, representing an opportunity for trophon similar to Australia. Importantly, Canada has strong fundamentals for adoption with High Level Disinfection guidelines already in place. The new functionality of trophon2 places Nanosonics in a good position to establish trophon as standard of care in the Canadian market.
  • AMP – Submission to the Royal Commission. Reiterates unreserved apology for the failings in respect of advice and service delivery to our customers. However AMP does not accept all of Counsel Assisting’s open findings. “AMP strenuously denies the allegation by Counsel Assisting that it is open to find that AMP hascommitted a criminal offence in providing the Clayton Utz report to ASIC.”
  • Sydney Airport (SYD) – Investor Day
  • Wisetech (WTC) – Investor Day
  • Cochlear (COH) – Investor Day
  • Janus Henderson Group (JHG) – AGM

BROKER NEWS

  • APA Group (APA $8.47) – Macquarie has a Neutral recommendation with a target price of $7.82. APA presented at the Macquarie conference and suggests the impact of rising interest rates on the business has been overstated. APA has a strong committed projected pipeline across a diverse client base, and in the US has identified the gas pipeline/distribution business as an area of focus (expects 9-12% as the government encourages the development of the gas network). The Macquarie analyst thinks while there is value in the business, the recent rally narrows that value.

MMM3

  • Bapcor (BAP $6.32) – Macquarie has an Outperform recommendation with a target price of $6.60. BAP presented at the Macquarie conference and reiterated guidance for 30% growth in net profit in FY18. Sales growth for the Burson trade business has strengthened to 4% in the year to date. The analyst thinks the upside to margins is under appreciated, and this will underpin earnings upgrades in the medium to longer term, while a potential Asian expansion offers significant upside.

MMM4

  • National Australia Bank (NAB $29.39) – Yesterday 1H profit up 1.5% (down 5.7% over the half) but cash earnings down 16% to $2.76bn. Cash earnings hit with $755m in restructuring costs. Credit impairment charge down 5.3% yoy to A$373m. NIM expanded by 5 basis points thanks to lower funding costs and increases to mortgage rates; revenue up 2.5% but expenses for the six months climbed 25%, due in part to restructuring-related costs. CET1 ratio 10.21%. Interim dividend of 99c a share. Will exit the advice, platform, superannuation and asset management business, including MLC by end 2019 and will invest in more focused wealth offering.
    • Citi has a Buy recommendation with a target price of $32.25. The result was below Citi’s estimates and the analyst notes the restructuring plan has removed management’s ability to adjust costs where revenue growth is slower. The 2H is unlikely to deliver the flat underlying profit as previously guided. Despite this, NAB’s top position in business banking means it is well-positioned for the medium term.
    • Credit Suisse has an Outperform recommendation with a target price of $32.00 (from $34.50). The analyst has reduced forecasts by 3-4% but is still comfortable with NAB’s strategy and willingness to address its cost base. They are more cautious on the revenue environment and think near term earnings may be affected before the benefits of the strategy are realised.
    • Deutsche Bank has a Buy recommendation with a target price of $32.00. The analyst thought the results was largely in line and there weren’t many surprises apart from margins, which surprised to the upside. They think the reinvestment program appears on track and cost growth guidance for FY18-20 was reiterated.

Macquarie has an Outperform recommendation with a target price of $32.00. A broadly in line results but the analyst thinks it will be challenging for the bank to achieve pre-provision profit growth in FY18. Current expenses are high, which is a risk in light of falling earnings. Going forward, FY19-20 earnings growth should improve.MMM5

  • Super Retail Group (SUL $7.57) – Trading Update yesterday. Profit in line with expectations and FY18 EBIT will be flat. Supercheap Auto is on track to hold full year EBIT margins in line with pcp. Rebel’s EBIT margins are tracking at 0.1% points below pcp and BCF’s EBIT margins are tracking at 1.0% points below pcp. “BCF’s sales performance has been impacted by differing weather conditions across the country during February and March with like for like sales in New South Wales growing by 6.5% so far this half year while declining by 4.5% in Queensland.”
    • Citi has a Buy recommendation with a target price of $9.00 (from $8.80). The analyst thought the update was positive, with automotive again standing out (stable margins and growth in like-for-like sales of 4.4%). BCF sales were affected by Queensland weather. SUL is the preferred discretionary retailer, given the high-quality set of brands and no direct housing exposure.
    • Deutsche Bank has a Hold recommendation with a target price of $9.50. Margins are tracking in line with the analysts expectations. Automotive lfl sales growth of 3.9% for the year to date, Sports lfl sales growth is 1.5% and BCF lfl sales up marginally, by 0.7%.
    • Macquarie has an Outperform recommendation with a target price of $9.20. The analyst pointed to a slight improvement in Rebel while BCF was weaker.
    • Morgan Stanley has an Equal-weight recommendation with a target price of $7.50 (from $7.00). While the update was better than the analyst expected and FY18 EBIT guidance exceeded their expectations, they remain cautious due to the threat from Amazon. SUL has reduced its store targets by a total of 125 across five years, although the Macpac target of 95 partially offsets the reductions. The company expects 4-6% sales growth ex Macpac and 10-30 basis points margin expansion across FY19-21.
    • Morgans has a Hold recommendation with a target price of $8.21 (from $7.64). The analyst is positive and expects FY19 will benefit from the move to break even at Rays and an additional nine-months contribution from Macpac. But they are concerned about the increasingly competitive backdrop which will erode some of the upside.

MMM6

  • Nick Scali (NCK $6.84) – Macquarie has an Outperform recommendation with a target price of $7.50. Management has reaffirmed FY18 guidance, targeting net profit growth of 5-10%. The Macquarie analyst thinks the valuation is attractive and that store expansion and ongoing scale benefits will underpin earnings growth into FY19.

MMM7

  • Santos (STO $6.22) – Macquarie has a Neutral recommendation with a target price of $6.30. The US$221m sale price for STO’s Asian business is less than the Macquarie analyst expected. The 50% stake in the AAL block (US$88m carry on its development) was not included and should be sold separately. The Harbour Energy offer continues to hang over the stock and with little clarity on the outcome, they are cautious.

MMM8

  • Seek (SEK $20.15) – Macquarie has a Neutral recommendation with a target price of $20.35. SEK has presented at the Macquarie conference and has reaffirmed FY18 guidance, with revenue growth of 20-25% and EBITDA growth of 14-15% expected. The analyst notes the company is progressively investing in its core business and making targeted acquisitions.

MMM9

  • Treasury Wine Estates (TWE $18.99) – Credit Suisse has an Underperform recommendation with a target price of $15.35. TWE held an investor day, which stated a 25% volume and value share target in the A&NZ market by 2025. This would lead to a significant increase forecasts and valuation. While there are no current measures, TWE suggests it’s currently 21%. CS forecasts 1-2% growth out to 2025.

MMM9a


OVERNIGHT

MMM10

SPI FUTURES +12

US EQUITIES – S&P500 -6 (-0.23%), Dow Jones +5 (+0.02%), Nasdaq -13 (-0.18%).

Main themes –

  • Markets recovered significant early losses, S&P500 -41 and Dow -394 at one point.
  • The US yield curve, which was negative for financials
  • Trading was cautious ahead of key employment data tonight.

EUROPEAN MARKETS – All lower. STOXX 600 -0.73%, UK FTSE -0.54%, German DAX -0.88%, French CAC -0.50%

CURRENCIES

  • The US dollar was weaker at 92.43.
  • The Aussie dollar has jumped to US75.32.

BONDS – 2-yr: UNCH at 2.49%, 5-yr: -2 bps to 2.78%, 10-yr: -1 bp to 2.95%, 30-yr: -2 bps to 3.12%

COMMODITIES

  • WTI oil futures rose US50c or 0.7% to US$68.43, despite news Iran Foreign Affairs Minister Mohammad Javad Zarif said the country will not renegotiate the nuclear deal it struck with the US in 2015.
  • Gold futures rose US$7.10 to US$1312.70.
  • Iron ore was down US50c at US$66.50
  • LME metals mostly lower – Copper +0.10%, nickel -1.47%, aluminium -2.26%.

ECONOMIC DATA, NEWS & POLITICS

  • US economic data – Q1 Productivity – preliminary 0.7% (consensus 0.8%; prior 0.0%), Q1 Unit Labor Costs – preliminary 2.7% (consensus 3.0%; prior 2.5%), March Trade Balance -$49.00bn (consensus -$49.80bn; prior -$57.7bn), weekly Initial Claims 211K (consensus 220K; prior 209K), and Continuing Claims 1.756m (prior 1.833m); March Factory Orders 1.6% (consensus 1.2%; prior 1.6%) and April ISM Services 56.8 (consensus 58.3; prior 58.8). While factory orders exceeded expectations, it showed a dip in business spending, while the miss for the ISM Services number should balance the accelerating growth story.
  • US earnings – Avon Products (AVP), DowDuPont (DWDP), Ferrari (RACE), Kellogg (K), Kraft (KHC), KKR, World Wrestling (WWE). After The Close – CBS, Fluor (FLR), GoPro (GPRO), Motorola Solutions (MSI), Weight Watchers (WTW)
  • Treasury Secretary Steven Mnuchin will meet with Chinese Vice Premier Liu He and discuss trade between the two nations. Trump tweeted the “financial team is in China trying to negotiate a level playing field on trade! I look forward to being with President Xi in the not too distant future.”
  • European data – Eurozone April CPI +1.2% (expected 1.3%; last 1.3%) and Core CPI +0.7% (expected 0.9%; last 1.0%). March PPI +0.1% (as expected, last 0.1%) to be +2.1%yoy (as expected, last 1.6%), Spanish Consumer Confidence 99.9 (last 98.6)
  • UK April Services PMI 52.8 (expected 53.5; last 51.7)
  • Domestic data yesterday was surprisingly strong. With much better than expected trade surplus of $1.53bn and building approvals +2.6% (while the previous number was revised to -4.2% from -6.2%)

MMM10a


QUOTE OF THE DAY

“The danger to society is not merely that it should believe wrong things, though that is great enough; but that it should become credulous, and lose the habit of testing things and inquiring into them; for then it must sink back into savagery.” – William Kingdon Clifford, English mathematician born this day in 1845. Died 3 March 1879. Keep questioning everything people!

MMM11

 

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