MID MORNING MARKETS 11-5-18

The ASX 200 is up 14 points in mid morning trade. No inflation pressure in the US. PPT has a CEO, GNC has results, AMP under more pressure. Housing data today. Next week babks go ex, and local wages and jobs data #ausbiz

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TODAY

  • Australian data – Housing Finance
  • Ex-dividend – Tamawood (TWD) 11.0c
  • Company News – GrainCorp (GNC) earnings, REA Group (REA) – Q update, Oil Search (OSH) AGM
  • Chinese data – New Yuan Loans
  • Japanese – Machine Tool Orders

TONGHT

  • US Fed Speak – St Louis Fed President (alternate voter) James Bullard
  • ECB Draghi Speech
  • US economic data – Import Prices/Export prices, University of Michigan Sentiment – Prelim

COMPANY NEWS

  • News Corp (NWS) – 3Q result. Revenue up 6% with growth in every segment. Net loss of $1.1bn, including non-cash impairment charges and write-down of $1.2bn. Digital Real Estate Services segment revenues grew 27%, benefiting from product innovation and improved yield at both REA Group and realtor.com
  • REA Group (REA) – 3Q result. Revenue growth of 20% to $592m and EBITDA growth from core operations of 21% to $345m. Strength of the Company’s residential and commercial businesses and the inclusion of the financial services business (not included in pcp). Listing volumes in Australia were lower due to the timing of Easter and project launches continuing to be lower than pcp. The financial services segment (launched in 1H), remains on track to deliver the previous FY18 revenue guidance of $26m – $30m and EBITDA $7m – $11m. Expenses up partially due to financial services inclusion and increased marketing activity…FY revenue growth will exceed cost growth.
  • Perpetual (PPT) – Rob Adams (former of Janus Henderson) has been appointed CEO from 24 September. He was previously Chief Executive at Challenger Funds Management and First State Investments (UK). He has also held senior positions in Wealth Management at Challenger and in Marketing and Distribution at Colonial First State
  • Graincorp (GNC) – 1H results. Revenue down 19.1%, Net profit down 60% to $36.1m. Interim dividend of 8c
  • Orora (ORA) – Update. Orora expects to continue to drive organic growth and invest in innovation and growth during  FY18, with constant currency earnings expected to be higher than reported in 2017, subject to global economic conditions
  • Oil Search (OSH) – AGM presentation

BROKER CHANGES

  • AMP – 1Q update (outflows of $200m) and AGM yesterday. Technically speaking, there isn’t anything to get excited about yet.
    • Citi has a Neutral recommendation with a target price of $4.15. The analyst has cut forecasts 5-% and expect net outflows, margin squeeze and higher corporate costs ahead. But the outlook is very uncertain, and these forecasts might prove optimistic.
    • Credit Suisse has an Outperform recommendation with a target price of $4.80. The analyst expects outflows of $11bn over the next 18 months and a slowing of growth. While a significant discount to the market, it is probably deserved.
    • Macquarie has downgraded to Neutral (from Outperform) recommendation with a target price of $4.30 (from $5.65). The analyst expects further negative outflows and see limited share price upside.
    • Morgans has an Add recommendation with a target price of $4.56 (from $4.94). The analst points to the better performing AMP Capital and bank division. They’ve downgraded FY18 and FY19 Eps estimates by 2-3%.

CHT1

  • Boral (BLD $6.65) – Sales of concrete and quarries business in Denver for US$127m. Macquarie has an Outperform recommendation with a target price of $8.45. The price is a discount to listed peers but probably a fair price. The analyst thinks it’s good for management focus and the balance sheet. The daily indicators are starting to look much more positive and the weekly chart is just STARTING to show an improvement.

CH2

  • CSR – Citi has a Neutral recommendation with a target price of $5.39. The analyst was a fan of the result, the best in 11 years, particularly balance sheet performance. It’s probably the peak in the cycle, although a sharp drop is not expected. Share price reaction wasn’t so positive though…daily is ok but the weekly one suggests staying away for now

CHT3

  • Domino’s Pizza (DMP $42.8) – Citi has upgraded to a Neutral (form Sell) recommendation with a target price of $44.60. The analyst thinks the risks are now priced in, although they only estimate 16% growth, lower than management target of 20% growth. There are some positive technical indicators here, with the MACD histogram (the blue bars) moving into positive territory, while shares have also moved off the lower Bollinger Band. Starting to look more interesting…particularly with the upgrade from Citi.

CHT4

  • Downer EDI (DOW $7.03) – UBS has a Buy recommendation with a target price of $7.60. The analyst likes the earnings growth outlook given ongoing investment in infrastructure, with DOW reaffirming guidance and making positive statement about cost out targets from Spotless and Royal Adelaide Hospital resolution.

CHT5

  • Link (LNK $7.24) – Impact on super accounts from budget changes. From a technical perspective, there is no reason to go near it just yet, even though the broker response is positive
    • Citi has downgrade to a Neutral (from Buy) recommendation with a target price of $8.10 (from $9.85). The analyst has downgraded due to uncertainty and impact on sentiment, which outweigh the otherwise positive outlook.
    • Morgans has an Add recommendation with a target price of $8.52 (from $8.75). The analyst thought (and I very much agree) that the announcement was very vague. They think the budget changes might have a 2.5% impact on EPS in FY20 and the loss of CareSuper will reduce revenue by 1%. While negative, they think shares are oversold.

CHT6

  • Treasury Wine Estates (TWE $19.16) – Credit Suisse has an Underperform recommendation with a target price of $15.65 (from $15.35). With the 2018 high cost (and good quality!), the analyst expects cost reduction to be in focus and price rises possible at the higher end. We hold this one in the PV portfolios and while it’s looking top of the range, nothing to be too concerned about as yet.

CHT7

  • Xero (XRO $39.89) – UBS has a Neutral recommendation with a target price of $42.50. The analyst describes a good result with good new subscriber numbers in the UK offsetting weakness in AUS/NZ. Shares are starting to look a bit overbought.

CHT8

  • Nufarm (NUF $8.84) – Credit Suisse has an Outperform recommendation with a target price of $9.45. The analyst sees a bit of upside. They note the confidence in the recovery from the delayed northern hemisphere planting, which mitigates some downside risk into FY19 forecasts, while there are also opportunities for growth in North American and with the recent European portfolio acquisition.

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OVERNIGHT

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SPI FUTURES +13

US EQUITIES – S&P500 +25 (+0.94%), Dow Jones +197 (+0.80%), Nasdaq +65 (+0.89%).

Main themes –

  • Subdued inflation data lowered the risk of aggressive rate tightening by the Fed. Market expectations for rate hikes in June and September are 100% and 76%, respectively, in line with Fed projections.

EUROPEAN MARKETS – Mostly higher. STOXX 600 +0.51%, UK FTSE +0.50%, German DAX +0.62%, French CAC +0.20%. Italy -0.96% the exception.

CURRENCIES

  • The US dollar is lower, down 0.4% at 92.71.
  • The Aussie dollar is significantly higher, up almost a percent at US75.33c.

BONDS – 2-yr: +1 bp to 2.54%, 5-yr: -1 bp to 2.83%, 10-yr: -3 bps to 2.97%, 30-yr: -4 bps to 3.12%

COMMODITIES

  • WTI oil futures closed up 22c or 0.3% to US$71.36, stabilising after President Donald Trump’s decision to restore sanctions on Iran. Other factors influencing prices were continued concerns about Venezuela and a report from the EIA, which raised its forecast for US output to 12mbpd late next year. That would make the US the world’s largest producer.
  • Gold futures rose $9.30 to US$1322.30.
  • Iron ore was unchanged at US$67.00
  • LME metals – Mixed. Cu +1.57%, Ni -0.32%, Al -1.31%

ECONOMIC DATA, NEWS & POLITICS

  • US economic data – April CPI 0.2% (consensus 0.3%; prior -0.1%), Core CPI 0.1% (consensus 0.2%; prior 0.2%), weekly Initial Claims 211K (consensus 220K; prior 211K), and Continuing Claims 1790K (prior 1760K)
  • US President Donald Trump will meet with North Korean Supreme Leader Kim Jong-un on June 12 in Singapore, 3 days after the end of the G7 Summit in Quebec.
  • UK – The Bank of England voted 7-2 to keep the bank rate at 0.5% and the asset purchase program unchanged £435bn. BoE Governor Mike Carney said interest rates will likely go up by the end of the year
  • UK economic data – March Industrial Production +0.1% (as expected, last 0.1%) to be +2.9%yoy (consensus 3.1%; last 2.1%). March Manufacturing Production -0.1% (expected -0.2%; last -0.2%) to be +2.9%yoy (as expected, last 2.5%). March Construction Output -2.3% (expected -2.1%; last -1.0%) to be -4.9%yoy (expected -5.7%; last -1.8%)
  • Italian politics – Movimento 5 Stelle and Lega are reported to be near a coalition deal
  • European data – Italian March Industrial Production +1.2% (expected 0.4%; last -0.5%) to be +3.6%yoy (consensus 2.4%; last 2.5%)
  • Chinese data yesterday – Inflation missed estimates to be down -0.2% over the month, with the annual rate easing to 1.8% from 2.1%.

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NEXT WEEK 

Company News

  • The banks go ex-dividend

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  • Monday – Elders (ELD) results, AusNet Services (AST) results
  • Tuesday – CYBC (CYB) – Q earnings, Galaxy (GXY) AGM, Macquarie Atlas Roads (MQA) AGM, Viva Energy REIT (VVR) AGM
  • Wednesday – Boral (BLD) Investor Day, Coca-Cola (CCL) AGM, Sigma Healthcare (SIG) AGM
  • Thursday – Dulux (DLX) results, Link (LNK) Investor Day, Adelaide Brighton (ABC) AGM, Ooh! Media (OML) AGM, Speedcast (SDA) AGM, Syrah (SYR) AGM
  • Friday – Invocare (IVC) AGM, Appen Group (APX) AGM, Sydney Airport (SYD) traffic stats

Economic News

  • Domestically it’s a big week – we’ve got the RBA meeting minutes on Tuesday, wages on Wednesday (this is such an important number since wages have just not be growing…consensus is for a slight pick-up to 2.2%) and then the really big one, jobs data on Thursday. An increase of 30.4k is expected after the very disappointing 4.9K increase in March.
  • A lot on in China as well with Foreign Direct Investment Monday, industrial production and retail sale son Tuesday and house prices on Wednesday.
  • Japanese GDP on Wednesday with the economy expected to have grown 0.4% for the quarter (or 2.4% annualised). Other key data includes capacity utilisation and industrial production on Wednesday and inflation on Friday.
  • The second estimate of European GDP is released on Tuesday along with industrial production, while inflation is Wednesday and trade data on Friday.
  • UK employment data on Tuesday is the major focus.
  • In the US we have retails sales on Tuesday, followed by housing starts and building permits, and industrial production and capacity utilisation on Wednesday…and the leading indicators on Thursday. In the grand scheme of things, it’s a quiet week data0wise apart from retail sales.

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QUOTE OF THE DAY

“It’s better to have loved and lost than do forty pounds of laundry a week.” ― Salvador Dalí, Spanish artist born this day in 1904. Died 23 January 1989. I could not agree more!

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