MID MORNING MARKETS 15-05-18

The ASX 200 is down 10 points in mid-morning trade after another quiet night overseas. LNK clarifies likely budget impact, APT in the US, TLS target prices cut, NAB ex, AHG trading downdate, RBA minutes today and US retail sales tonight #ausbiz

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TODAY

  • Ex-dividend – National Aust. Bank (NAB) 99.0c, United Overseas Australia (UOS) 2.5c
  • Company events – CYBC (CYB) Q earnings, Galaxy (GXY) AGM, Macquarie Atlas Roads (MQA) AGM, Viva Energy REIT (VVR) AGM
  • RBA Meeting Minutes
  • Chinese data – Fixed Asset Investment, Industrial Production, Retail Sales

TONIGHT

  • German – GDP Growth Flash
  • European data – Industrial Production, ZEW Economic Sentiment Index, GDP Growth Rate (2nd Est)
  • UK data – Employment Change, Unemployment Rate, Average Earnings incl. Bonus
  • US economic data – Retail Sales, Empire Manufacturing, Business Inventories, NAHB Housing Market Index, Net Long-Term TIC Flows
  • Fed Speak – Dallas Fed president Robert Kaplan (non-FOMC voter), San Francisco Fed President John Williams (FOMC voter)

COMPANY NEWS

  • Santos (STO) – responds to media speculation that ENN Ecological Holdings (ENN) will enter a trading suspension on the Shanghai Stock Exchange in connection with a preliminary agreement with Harbour in relation to the Harbour Proposal. The company says it hasn’t received any confirmation about an agreement between ENN and Harbour and continues to advise shareholders to take no action.
  • Automotive Holdings (AHG) – Trading update and now expects FY Operating NPAT of around $75m. Automotive retail margins are challenging and continue to be affected by regulatory changes; Western Australian private buyer recovery slower than expected; Refrigerated Logistics sale completion timing affecting trading; Focus remains on cost control.
  • Whitehave Coal (WHC) – Gas received Ministerial Consent and approval for the transfer of Idemitsu’s 30% joint venture interest in the Tarrawonga mine to the company. The acquisition increases WHC’s equity share in annual saleable coal production by about 0.55Mtpa.
  • Bluescope Steel (BSL) – Expects underlying EIBT for 1H18 of $680m (prior guidance $606m). With continued strong steel spreads in North America, the increase is mainly due to stronger performance at the North Star mini-mill in Ohio. Other factors include moderately better performance in Australian steel products., including higher margins on export coke sales; and lower contributions from the ASEAN building products business, partly offset by stronger margins in NA. The Macqaurie analyst has commentated on the update, saying that they were positively surprised by the update, even though they were already above guidance. They think macro conditions are positive for the company and North America is the key driver. They have an Outperform recommendation with a target price of $19.60
  • Link Administration (LNK) – Update on the impact of the budget. An industry consultation period is now under way and is expected to be completed by 29 May 2018. LNK says the first date currently proposed for the assessment of impacted member accounts is 1 July 2019. The first date currently proposed for the transfer of impacted member accounts is 31 October 2019 (Sweep Date); and the impact from any reduction in the number of member accounts on Link Group is therefore not anticipated before FY2020. However based on the current numbers, If the Sweep Date was 30 April 2018, the estimated unmitigated full year revenue impact to Link Group would be approximately $55 million. However LNK says most funds plan to actively engage with their members and this, plus the opt-in life insurance, may reduce the number of accounts transferred out. Looking at the chart there is no reason to go there just yet…but shares ARE heavily oversold.

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  • Macquarie Atlas Roads (MQA) – AGM

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  • WorleyParsons (WOR) – Awarded a general engineering service (GES) contract by Yanbu Aramco Sinopec Refining Company Ltd (YASREF), which operates a full-conversion refinery that covers about 5.2 million square meters in the Yanbu Industrial City in Saudi Arabia.
  • Lynas (LYC) – Share Price Update. LYC notes there has recently been a change of government in Malaysia, and that this may have influenced recent changes in the share price. Says they “look forward to working with the new government. We believe that the election result is the main influence on the recent changes in the share price (which began last Thursday) rather than individual media articles.” Here the company refers to an article in the Star Online which mentions environmental monitoring, residue management and related aspects of the Malaysia plant and says it has been regularly reviewed and found to be compliant, including at the time of the most recent licence renewal in September 2016.
  • Bank of Queensland (BOQ) – CEO connect presentation. “We anticipate there will be structural changes in the industry given the issues that are emerging from the Royal Commission.” And “Finally, we are well positioned to deliver on our core strategic priorities over the medium to long term.”
  • Afterpay (APT) – Has commenced transacting in the US in a phased approach with a number of significant lifestyle retailers including Urban Outfitters
  • Newcrest Mining (NCM) – Bank of America/Merrill Lynch presentation
  • JP Morgan Clean Energy Metals Corporate Day – Independence Group (IGO) and Syrah (SYR) are two of the companies presenting

BROKER CHANGES

  • 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. Morgans has a Hold recommendation with a target price of $7.70 (from $7.50). The analyst was happy the company can still grow earnings despite the decline in cattle prices. They note the speculation that Sichuan Hebang Biotechnology, which recently became a substantial shareholder, will increase its holding and say a highly accretive corporate transaction is the key upside risk. MACD buy signal (blue bars going from negative to positive) but the RSI is approaching oversold territory (not uncommon!)

CHT2

  • Healthscope (HSO $2.58) – New offer yesterday 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 and 6% premium to it). Morgans has a hold recommendation with a target price of $2.42. The analyst was surprised and think the price is high in light of uncertainties including additional competitive tension.

CHT3

  • Myer (MYR $38c) – Myer reports Q sales this week. Citi has a Sell recommendation with a target price of 41c. The analyst expects sales down 4..9% yoy as discount department stores invest in price, which is weighing on the entire sector. Technically, shares look interesting. There has been a buy signal on both the MACD indicator (the blue bars going from negative to positive) and RSI (the red line moving above the oversold level of 30). Not sure I’d be keen to test it out, just pointing to the signals.

CHT4

  • 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.
    • Morgans has an Add recommendation with a target price of $3.99 (from $4.12). The narrowed guidance is broadly in line with the analyst’s forecasts but they have lowered FY19 EBITDA estimates by 4% due to lower subscriber ARPU. The tick-up in the MACD indicator and improvement in RSI has taken a hit…shares still in downtrend.
    • Citi has a Sell recommendation with a target price of $2.70 (from $3.10). They see a big risk to a dividend cut and suggest cost cutting and asset sales since there is limited scope for growth. While 5G will be cheaper to deliver than 4G, they think it will lead to data limit increases rather than greater profitability, and competition among NBN providers means any wholesale price cuts will simply be competed away.
    • UBS has a Neutral recommendation with a target price of $3.10 (from $3.30). The analyst sees downside risk

CHT5

  • Specialty Fashion Group (SFH $60c) – acquire Millers, Katies, Crossroads, Autograph and Rivers from Specialty Fashion Group for $31.0 million in cash. Specialty will retain the City Chic business. Citi has upgraded to a Buy (from Neutral) recommendation with a target price of 75c (from 48c). The analyst notes City Chic is growing earnings at 5-10% and has improving margins. They estimate SFH will be cash positive and may even resume dividend payments.

CHT6

  • Link Administration (LNK $6.79) – UBS has a Neutral recommendation with a target price of $7.65 (from $9.10) – The analyst thinks the budget changes could result in LNK losing 12-20% of its accounts in the key funds administration division so they’ve cut forecasts by 12% in FY 20 and lowered their target price. There might be changes which mitigate some of the impact over the medium term. See not above for chart and new announcement today by the company.

OVERNIGHT

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SPI FUTURES +41

US EQUITIES – S&P500 +2 (+0.09%), Dow Jones +68 (+0.27%), Nasdaq +8 (+0.11%).

Main themes

US-China trade tensions ease after US President Trump tweet about getting Chinese technology firm ZTE “back into business, fast.”

EUROPEAN MARKETS – Were generally weaker. STOXX 600 -0.05%, UK FTSE -0.18%, German DAX -0.187%, French CAC -0.02%. Italy +0.26% the exception.

CURRENCIES

  • The US dollar is a little higher at 92.62.
  • The Aussie dollar is lower at US75.29c.

BONDS – 2-yr: +1 bp to 2.54%, 5-yr: +1 bp to 2.85%, 10-yr: +2 bps to 2.99%, 30-yr: +2 bps to 3.13%

COMMODITIES

  • WTI oil futures closed up US26c or 0.40% at US$70.96. Oil related news included a report from OPEC showed the global oil glut had virtually been eliminated, with Venezuelan production at its lowest in decades and other key producers reducing output by more than the supply-cutting pact agreed last year.
  • Gold futures closed US$2.50 lower at US$1318.20.
  • Iron ore rose US$1.00 a tonne to US$68.00
  • LME metals – Prices were mixed. Cu -0.82%, Ni +3.17%, Al +1.35%

ECONOMIC DATA, NEWS & POLITICS

  • There was no economic data of note
  • Trade policy – US-China trade tensions eased after President Trump tweets he and Chinese President Xi are working to get ZTE (Chinese telecom company) back into business
  • Fed Speak – Cleveland Fed President Loretta Mester (FOMC voter) sees gradual rate hike path over the medium term and discusses the need to start managing a potential increase in in debt-to-GDP
  • NAFTA negotiations – House Speaker Ryan has set a May 17 deadline for getting necessary paperwork to consider a renegotiated deal in the House this year
  • ECBMember Villeroy said the ECB could give some additional guidance on the timing of any ECB rate hike following the end of the asset purchase program, noting any rate moves will be dependent on the inflation outlook.

QUOTE OF THE DAY

“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” – Paul Samuelson, American economist born this day in 1915. Died 13 December 2009.

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