MID MORNING MARKETS 14-5-18

The ASX 200 is up 5 points in mid-morning trade after pretty uneventful global leads. Telcos hits by TLS trading update. ANZ and MQG go ex-dividend (taking almost 10 points off All Ords). NBL takeover for most SFH assets. ELD and AST results. Local wages and jobs data later in the week #ausbiz

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TODAY

  • Ex-dividend – ANZ Bank (ANZ) 80.0c, Macquarie Group (MQG) 320.0c
  • Chinese data – FDI (YTD)
  • Japanese data – PPI

COMPANY NEWS

  • Elders (ELD) results. Statutory NPAT up 8% at $41.4m, underlying PAT up 13% at $39.7m, underlying EBIT up 10% to $45.7m, underlying return on capital of 28.2%, operating cash inflow of $26.1m, up $31.4m from pcp, dividend 9c. Outlook – cattle prices expected to ease. Supply of famr land may continue to be subdued, sheep prices to remain steady, growth in wool, winter cropping conditions expected to be average with limited rainfall during April and May,
  • Healthscope (HSO) – New offer from Brookfield Asset Management at $2.50, a 23% premium to HSO closing price on 24 April (the day prior to the previous offer from BGH).
  • AusNet Services (AST) results – Outlook statement. AusNet Services expects continued growth in its regulated asset base of around 3.5 per cent per annum to FY2021. In addition, net debt to regulated and contracted asset base is expected to remain below 70 per cent to FY2021.

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  • Tesltra (TLS) – Market update. Re-affirmed guidance consistent with its FY18 guidance, but EBITDA is expected to be at the bottom end of the range and free cashflow is expected to be at the top end to moderately above. Challenging trading conditions in FY18 are expected to continue in FY19, including ongoing pressure on mobile and fixed ARPUs and the accelerating impact of the nbn
    • Income is expected around the middle of the $27.6 – $29.5bn range
    • EBITDA is expected at the bottom end of the $10.1 – $10.6bn range
    • Net one-off nbn DA receipts less nbn net C2C2 is expected at the mid to upper end of the $1.4-$1.9bn range
    • Capex is expected at the mid to upper end of the $4.4 – $4.8bn range
    • Free cashflow is expected at the top end or moderately above the $4.2 – $4.7bnrange
    • FY18 underlying core fixed costs expected to decline approximately 7%.
    • Expected to incur incremental restructuring costs of approximately $300m in FY18 in line with guidance of $200 – $300m.
    • Dividend expected to be 22c
  • Downer EDI (DOW) – Awarded an Engineering, Procurement and Construction (EPC) contract worth approximately $150m by First Solar for the 87MWac Beryl Solar Farm located about five kilometres west of Gulgong, New South Wales (NSW). When in operation, the Beryl Solar Farm will see electricity generated with no water use, no air emissions, and no waste production, with the smallest carbon footprint of any PV technology available. When completed, the 260,000 advanced solar modules on the Beryl Solar Farm will produce energy to run approximately 25,000 average NSW homes, displacing more than 167,000 metric tons of carbon dioxide emissions per year.
  • Sandfire (SFR) – Trading Halt. Relates to an exploration update from drilling at the Company’s Morck’s Well Project, Western Australia.
  • GWA – GWA will sell its Door & Access Systems to Allegion (Australia) Pty Ltd for $107m, including an upfront payment of $102m, a contingent payment of $5m (subject to meeting certain transitional arrangements) and a standard post completion working capital adjustment. The transaction “enables strategic focus on superior solutions for water within GWA’s Bathrooms & Kitchens business”.
  • Nextdc (NXT) – Update on legal proceedings with Asia Pacific Data Centre Group (APDC). NXT has offered APDC addess to the properties involved in the dispute to enable an independe.t valuation. It concludes “NEXTDC is resolute in its view that APDC is not operated with sound governance practices and as such it remains appropriate that the vehicle be wound up. Accordingly, the Company continues to proceed with its proposal to wind up the APDC Trust and related court proceedings.”
  • Noni B (NBL) – Trading halt. Will acquire Millers, Katies, Crossroads, Autograph and Rivers from Specialty Fashion Group for $31.0 million in cash. Specialty will retain the City Chic business ($40m capital raising with $14.5 institutional offer and entitlement offer of $15.5m at $2.50.). NBL said the expect a further deterioration in the short term and the businesses being acquired are underperforming. NBL says they can turn things around.

BROKER CHANGES

  • Graincorp (GNC $7.74) – 1H results. Revenue down 19.1%, Net profit down 60% to $36.1m. Interim dividend of 8c
    • Credit Suisse has upgraded to an Outperform recommendation with a target price of $8.80 (from $9.06). The analyst notes shares have suffered due to poor harvest. While acknowledging the short term weather risk, they have upgraded due to significantly more diversified grain marketing business, asset sale opportunities, improving earnings in refined oils and opportunities in craft malt whisky support valuation.
    • Macquarie has a Neutral recommendation with a target price of $8.29). Negatives are season, positives are efficiencies and improving diversity (upstream and downstream). But progress only likely in FY19.
    • Morgans has a Hold recommendation with a target price of $8.00. The analyst is cautious short term due to the challenging start to the winter season.
    • UBS has a Neutral recommendation with a target price of $8.30. The analyst notes an improvement in the oil division and increased malt sales are required to meet FY18 guidance.

CHT1

  • Link Administration (LNK $6.98) – Deutsche has a Hold recommendation with a target price of $7.70. The analyst thinks LNK has 2.6m inactive customer accounts (around 28%). They are uncertain how many of these will transfer.

CHT2

  • Santos (STO $6.20) – Citi has a Neutral recommendation with a target price of $7.00 (from $6.50). The analyst thinks Harbour Energy will increase its bid due to the higher oil price.

CHT3

  • Xero (XRO $40.00) – Citi has downgraded to a Neutral (form Buy) recommendation with a target price of $40.60 (from $39.09). The analyst has cut estimates due to lower margin assumptions and lowers recommendation due to price performance.

CHT4


LAST WEEK

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THIS WEEK

  • 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.

COMPANY NEWS

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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

OVERNIGHT

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SPI FUTURES +4

US EQUITIES – S&P500 +5 (+0.17%), Dow Jones +92 (+0.37%), Nasdaq -2 (-0.09%).

Main themes

Health care outperformed after President Trump’s plans for lowering drug prices contains few specific details

EUROPEAN MARKETS – Mixed. STOXX 600 +0.11%, UK FTSE +0.31%, German DAX -0.17%, French CAC -0.07%. Italy -0.96% the exception.

CURRENCIES

  • The US dollar is lower, down to 92.55.
  • The Aussie dollar is a little higher at US75.47c.

BONDS – 2-yr: -1 bp to 2.53%, 5-yr: +1 bp to 2.84%, 10-yr: UNCH at 2.97%, 30-yr: -1 bp to 3.11%

COMMODITIES

  • WTI oil futures closed down 66c or 0.90% at US$70 but finished the week over a percent higher.
  • Gold futures closed US$1.60 lower at US$1320.70.
  • Iron ore was unchanged at US$67.00
  • LME metals – Prices were mixed. Cu +0.36%, Ni +1.26%, Al -2.01%

ECONOMIC DATA, NEWS & POLITICS

  • US economic data – April Import Prices ex-oil 0.2% (prior 0.2%) and Export Prices ex-ag 0.7% (prior -0.1%); May Michigan Sentiment – Preliminary 98.8 (consensus 98.0; prior 98.8)
  • ECB President Mario Draghi called for more government interference in capital markets, stating his desire for a fiscal instrument that would alleviate crisis-driven stress on weaker countries
  • European economic data – Spanish CPI +0.8% (as expected, last 0.1%) to be +1.1%yoy (as expected, last 1.2%)

QUOTE OF THE DAY

“Everybody has talent, it’s just a matter of moving around until you’ve discovered what it is.” – George Lucas, American director born this day in 1944.

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