The ASX 200 is up 19 points in late morning trade. Energy sector boost from US sanctions. LNK hit by budget changes, PDL result, AMP AGM and class action. Chinese inflation later today, US CPI tonight and BofE meets #ausbiz
Sorry it’s a quick report today…
TODAY
- Company news – AMP AGM, Caltex (CTX) AGM, Genworth Mortgage Trust (GMA) AGM, BT Investment Management (BTT) now Pendall (PDL) earnings, Xero (XRO) earnings, News Corporation (NWS), Nufarm (NUF) investor day
- Chinese data – Inflation Rate and PPI
- Japanese data – Bank Lending, Current Account, Eco Watchers Survey
TONIGHT
- UK data – Industrial Production, Manufacturing Production, Construction Output, Balance of Trade,
- BoE Interest Rate Decision
- BoE Gov Carney Speech
- US data – CPI, Core CPI
COMPANY NEWS
- Xero (XRO) – Results – 38% in operating revenue.
- Nufarm (NUF) – Investor Briefing
- Iluka (ILU) – Class Action Update. An update on proceeding related to alleged breaches of Iluka’s continuous disclosure obligations and misleading and deceptive conduct in relation to disclosures between April to July 2012. On 9 May 2018 Iluka was informed that the shareholder class action has received funding from the applicant’s third party litigation funder, Harbour Fund II LP. Iluka denies liability in respect of the allegations and will defend the proceedings.
- Janus Henderson (JHG) – 1Q results. Strong investment performance across all time periods, with 79%, 68% and 84% of assets under management (“AUM”) outperforming benchmarks on a 1, 3 and 5 year basis, respectively, as at 31 March 2018; Net outflows of US$2.7bn compared to US$2.9bn in the fourth quarter 2017; AUM increased to US$371.9bn, supported by positive market performance and favourable foreign exchange moves; Achieved US$96m of run rate net cost synergies, exceeding target, ahead of schedule; Quarterly dividend increased 13% to US$0.36 per share
- Link (LNK) – Budget changes for super where balance less than $6,000 and where there has been no contribution for 13 months, LNK says the impact could be significant but lists a number of issues that may reduce the impact.
- AMP – 1Q update. AWM assets under management down 2% to $128.3bn, largely due to weaker investment markets; AWM net cash outflow of $200m, in line with Q1 17, reflects subdued period of activity in superannuation following non-concessional contribution cap changes in 2017; Strong net cashflows on AMP’s North platform at $1.2bn, up 14%; AMP Capital net external cashflows of $1.6bn driven by strong cashflows in real assets; AMP Bank’s total loan book up 2% to $19.8bn during the quarter; Portfolio review of manage for value businesses continues; In response to ASIC industry reports 499 and 515, AMP continues to review adviser conduct, customer fees, the quality of advice, and the monitoring and supervision of its advisers. We anticipate that this review will lead to further customer remediation costs and associated expenses. We will provide a further update at or before the 1H 18 results. Also has been served with 2 class actions which it will defend.
- Caltex (CTX – AGM
- Downer EDI (DOW) – Guidance confirmed for underlying net profit after tax and before amortisation of acquired intangible assets (NPATA) of $295.
- Pendal Group (PDL) – Formerly BT Investment Management. Cash net profit after tax (Cash NPAT) was up 30% to $114.5m; strong growth in base management fee revenue, up 18% to $247.9 million; Average FUM up 14% to $98.6bn; higher base management fee margin of 51 basis points (bps), up 2 bps; performance fees for the period were up 70% to $47.6m; interim dividend of 22c, up 16% 19.c last year, and marking the 6th consecutive year of growth in the interim dividend.
BROKER CHANGES
- Commonwealth Bank (CBA) – March Q Trading update yesterday. Cash profit down 9% on revenue which fell 4% (2 fewer days and lower “other banking” income) and expenses up 3% (increased provisions for regulatory/compliance project spend). Loan impairment expenses of 14bp of gross loans (down from 16bp) but “There has been an uptick in home loan arrears, influenced by a small number of customers experiencing difficulties with rising essential costs and limited income growth”, while “troublesome and impaired assets” increased to $6.6bn. A small number of credits drove the increase in troublesome exposures over the quarter, with impaired assets stable. CET1 ratio 10.1% (down from 10.4%). CBA has also settled with ASIC in relation to the BBSW case, acknowledging that it attempted to engage in unconscionable conduct. There will be a $5m penalty, a $15m a payment to a financial consumer protection fund and a $5 million payment towards ASIC’s costs of the litigation and its investigation. The impact of this settlement will be reflected in CBA’s 2018 Financial Year results.
- Citi has a Sell recommendation with a target price of $72.00.Well below their exepctations. Focus on retail banking and rising costs
- Deutsche Bank has a Hold recommendation with a target price of $80.50. Everything weaker that they expected.
- Macquarie has a Neutral recommendation with a target price of $76.50 (down from $77.50). Well short of their expectations. Costs understandable but revenue was an issue.
- Morgan Stanley has an Underweight recommendation with a target price of $75.63. Ongoing derating likely as competitive advantages declining.
- Morgans has an Add recommendation with a target price of $79.00 (from $81.00). Reduced FY18 EPS estimates by 3.2% and FY19 by 2.3%.
- UBS has a Neutral recommendation with a target price of $74.00. A weak update and EPS estimates downgrade by 2-7%
- Challenger (CGF) – Positive impact form budget changes
- Morgans has a Hold recommendation with a target price of $13.02 (from $11.75). Likes the story and impact from budget but thinks fairly valued.
- UBS has a Neutral recommendation with a target price of $12.20. While the changes are positive they see limited upside to valuation.
- Greencross (GXL) – Negative trading update FY2018 EBITDA now expected to be $97-$100m and a non-cash impairment charge of $16-20m will be reflected in the FY2018 full year statutory result (impairment for projects, investments store assets etc; provisions for slow moving inventory and restructuring including redundancies). The retail division is performing well but veterinary business is not in-line with budget due to poor visit numbers, resulting on a $2.7m shortfall in EBITDA in FY18.
- Citi has a Neutral recommendation with a target price of $4.18. They are worried about the balance sheet. Way too early to consider buying.
- Deutsche Bank has downgraded to a Sell (from Hold) recommendation with a target price of $3.70. Poor outlook considering competition and large levels of debt.
- Macquarie has a Neutral recommendation with a target price of $4.35 (form $6.30). New guidance is 12% below consensus. But they approve of the pull-back in store roll outs and focus on digital strategy.
- UBS has a Neutral recommendation with a target price of $4.40 (form $5.90). They are worried about weak cash generation and the lift in net debt.
- Sydney Airport (SYD) – Morgans has downgraded to a Hold (form Add) recommendation with a target price of $7.12 (form $7.45). After the investor briefing, the analyst has cut long term forecasts and thinks distribution growth will slow. The downgrade is a result of share price strength.
OVERNIGHT
SPI FUTURES +23
US EQUITIES – S&P500 +26 (+0.97%), Dow Jones +182 (+0.75%), Nasdaq +73 (+1.0%).
Main themes –
- Oil rises to a 3.5 year high and energy shares rally after Trump pulls out of the Iran nuclear deal and reimposes sanctions.
EUROPEAN MARKETS – All higher. STOXX 600 +0.63%, UK FTSE +1.28%, German DAX +0.24%, French CAC +0.23%
CURRENCIES
- The US dollar is little changed at 93.12.
- The Aussie dollar is slightly higher at US74.64c.
BONDS – 2-yr: +1 bp to 2.53%, 5-yr: +3 bps to 2.84%, 10-yr: +4 bps to 3.00%, 30-yr: +3 bps to 3.16%%
COMMODITIES
- WTI oil futures resumed the climb, rising US$2.08 or 3% to US$71.14 (a 3.5 year high), after President Donald Trump said the US would restore sanctions on Iran, and plans to wind down the deal over 90 and 180 day periods. Estimates of the possible supply reduction range from 200,000-1m bpd, with the impact mostly from 2019. Saudi Arabia said it would work with other producers to lessen the impact of any shortage in oil supplies.
- Gold futures fell US70c to US$1313.00.
- Iron ore was up US$1.00 to US$67.00
- LME metals – Prices were all higher. Cu +0.96%, Ni +0.29%, Al +0.36%
ECONOMIC DATA, NEWS & POLITICS
- US economic data – Weekly MBA Mortgage Index -0.4% (prior -2.5%); April PPI 0.1% (consensus 0.2%; prior 0.3%), Core PPI 0.2% (consensus 0.2%; prior 0.3%); March Wholesale Inventories (actual 0.3%; consensus 0.5%; prior 0.9%). The PPI data confirms a moderation but is unlikely to alter the Fed’s view on policy direction
- Fed Speak – Atlanta Fed President (FOMC voter) Raphael Bostic said that inflation is likely to run above 2.0% for a while and that overshooting the target is not a problem. It reinforces the latest Fed comments that said the inflation target was subject to a ‘symmetric” measurement.
- European data – Italian Retail Sales -0.2% (expected 0.1%; last 0.7%) to be +2.9%yoy(last -0.6%); French Industrial Production -0.4% (expected 0.4%; last 1.1%); Spanish Industrial Production +5.1%yoy (consensus 3.3%; last 3.1%)
QUOTE OF THE DAY
“The hardest job kids face today is learning good manners without seeing any.” – Fred Astaire, American actor born this day in 1899. Died June 22, 1987.
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