MID MORNING MARKETS 18-05-18

The ASX 200 has lost initial gains to be flat, with Healthcare boosted by another guidance upgrade from CSL (+12 points to the All Ord). Big miners and most banks lower. APX and IVC AGMs, SYD stats. MYR receives wrath of Lew and interest of Oaktree. Quiet week ahead #ausbiz

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COMPANY NEWS

  • CSL – Now expects FY18 NPAT of US$1,680-$1,710m (constant currency), up from the US$1,550-$1,600m range provided in February, based on a positive product and geographic sales mix shift, particularly with better than than expected sales of Idelvion®  and Haegarda®. Seqirus is also performing well, following a severe northern hemisphere influenza season. The phasing of investments in some clinical trials has also yielded a positive financial variance.
  • Appen Group (APX) – AGM. Outlook statement. “Appen is well positioned in a high growth market and is investing in people and technology for continued sales growth and unit cost reductions. Growth investments and mix of work pressuring Language Resources margins. YTD revenue plus orders in hand for delivery in 2018 ~$190M at end April 2018. The Company’s full year underlying EBITDA for the year ending Dec 31st 2018, is trending to the upper end of $50M – $55M.
  • Invocare (IVC) – Restated the revised guidance. Nice pictures of the transformation at Dandenong and Singapore funeral homes.

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  • AMP – 1st class action against AMP set to be heard at the Supreme Court
  • ANZ –  Will sell its 55% stake in Cambodian JV ANZ Royal Bank to J Trust, a Japanese company for a loss of $30m, after a 13 year relationship. It follows the sale of other non-core assets including stakes in Metrobank Card Corporation in the Philippines and Shanghai Rural Commercial Bank in China, as well as its Australian life insurance and superannuation businesses.
  • Stockland (SGP) – Melinda Conrad has been appointed a non-executive director
  • Sydney Airport (SYD) – Traffic Statistics for April. Overall passengers up 2.6% for the month, or 3.8% over the same period last year.

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  • Rio Tinto (RIO) – Has been granted accreditation by Australia’s Office of the National Rail Safety Regulator, approving the autonomous operation of trains (AutoHaul) at the group’s iron ore business in Western Australia. AutoHaul is scheduled to be completed by the end of the year. RIO also reiterated Pilbara shipments guidance for 2018 at 330-340mt.
  • Myer (MYR) – Another letter by Soloman Lew. He points to the continued aggressive sale mode which is still not working and will result in further losses. He says Gary Hounsell is softening us up for another poor result with claims about poor weather in May for Mother’s Day, which is inconsistent with the reports of other retailers. He says to brace for another downgrade – the fourth in the year. He warns of a breach of debt covenant and says we may never see another dividend unless the Board goes. “Myer is in peril”. And will surely fail under the current board. Also reports Oaktree Capital is looking at the company

BROKER CHANGES

  • Challenger (CGF $12.31) – Credit Suisse has an Outperform recommendation with a target price of $13.20. Following analysis of budget impact on CIRP (Comprehensive Income Products for Retirement), the analyst estimates annuity flows to grow by 10-30% with CGF to capture 25-50% of the growth, meaning its annuity book could grow 60-100% from lifetime annuity sales. Shares have clearly broken out of the downtrend in place since the start of the year. The MACD indicator  (the blue bars) suggest there could be further price rises ahead.

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  • Dulux (DLX $7.87) – 1H NPAT up 9.0% to $79.2m; sales revenue up 4.2% to $918.1 million; EBIT up 7.5% to $114.0m; net debt to EBITDA of 1.4x, consistent with September 2017. Interim dividend 14c fully franked.
    • Deutsche Bank has a Sell recommendation with a target price of $5.70. Whiel the result was above the analyst’s expectations, it included several one-offs and the underlying performance was about 5% below. The maintained guidance is also boosted by a $10m one-off.
    • Macquarie has a Neutral recommendation with a target price of $8.50 (from $8.00). While the Australasian businesses performed well, and there are M&A options and a strong balance sheet, the analyst thinks shares are fully valued (28% premium to ASX200 Industrials).
    • Morgans has a Hold recommendation with a target price of $7.69 (from $7.47). The analyst thinks DLX is a consistent performer with long term growth options in overseas markets, but this is already reflected in the share price.
    • Credit Suisse has a Neutral recommendation with a target price of $8.00 (from $7.50). The updated guidance is below the analyst’s estimates but they see long term potential. They’ve trimmed forecasts but raised the target price to reflect reduced cyclicality in the sector and solid track record. Technically I”m a little cautious. Shares are at the top of the Bollinger Band and while the MACD indicators has just given a buy signal on the weekly chart and the RSI is mid rage (from a historical perspective), I’m not sure it’s worth getting excited about.

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  • Link Administration (LNK $7.12) – Investor briefing yesterday. Macquarie has an Outperform recommendation with a target price of $8.10 (from $8.20). The analyst has cut revenue forecasts in FY21 by 14% to reflect the loss of inactive accounts resulting from budget measures and the loss of the CareSuper contract. They note acquisitions will support growth but see limited scope for anything transformational in the short term. Ohh! Is that the start of an RSI buy signal I see…A little early perhaps bt things do look to be improving now that the company has attempted to quantify the impact of the budget, giving us a worst-case scenario.

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  • Santos (STO $6.20) – Revised proposal from Harbour Energy at US$4.98. Macquarie has a Neutral recommendation with a target price of $6.30, The analyst thinks the board will reject the offer but this won’t be the end of things. A new offer, based on oil moves since the pre-offer market form November, could be around $6.80-7.20.

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  • Treasury Wines Estates (TWE $16.90) – Responded to media speculation about a glut of Chinese wine, with reports of excess TWE inventory and delays in getting wine imports cleared by customs. Deutsche Bank has a Hold recommendation with a target price of $16.00. The analyst thought management addressed concerns well at the investor conference call. Yesterday’s move barely making an impact on the weekly chart. Being so widely held and widely publicised, the share price impact might have further to go. I’m still comfortable now but on watch that more negative news may now come to the fore.

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NEXT WEEK

Economic Events

  • It’s very quiet domestically. Construction work on Wednesday and the Westpac leading index on Thursday
  • Chinese data is limited to industrial profits on Saturday
  • Japanese trade data is released on Monday, with the Nikkei manufacturing PMI on Wednesday.
  • The European Markit PMI numbers are out on Wednesday along with the flash PMI data
  • Some important data in the UK, including inflation and PPI on Wednesday, retail sales on Thursday and the second estimate on GDP on Friday
  • In the US, the minutes for the FOMC meeting are out on Wednesday along with new home sales, while existing home sales are Thursday and durable goods orders are Friday.

Company Events

  • Monday – Seven West Media (SWM) – Investor Day
  • Tuesday – James Hardie (JHX) Q earnings, TechnologyOne (TNE) earnings
  • Wednesday – Blackmores (BKL) analyst meeting, Woodside Petroleum )WPL) investor day, Boart Longyear (BLY) AGM
  • Thursday – Westfield (WFD) AGM
  • Friday – Sydney Airport (SYD) AGM

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OVERNIGHT

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SPI FUTURES +14

US EQUITIES – S&P500 -2 (-0.09%), Dow Jones -55 (-0.22%), Nasdaq -16 (-0.21%).

Main themes

  • US President Trump expressed doubts in relation to a trade deal with China, saying “Will that be successful? I tend to doubt it”. He said China, the European Union and other countries had become “spoiled” as they always got 100% of whatever they wanted.
  • Wal-Mart (-1.90%) shares lower despite good earnings
  • Energy sector outperforms after oil reached new highs

EUROPEAN MARKETS – Mostly stronger. STOXX 600 +0.66%, UK FTSE +0.70%, German DAX +0.91%, French CAC +0.98%.

CURRENCIES

  • The US dollar was a bit stronger at 93.47.
  • The Aussie dollar is slightly weaker at US75.14c.

BONDS – 2-yr: -1 bp to 2.57%, 5-yr: UNCH at 2.93%, 10-yr: +1 bp to 3.11%, 30-yr: +3 bps to 3.25%

COMMODITIES

  • WTI oil futures ended the day unchanged at US$71.49, after earlier reaching US$72.30 a barrel, on concerns about the impact of US sanction against Iran. Brent oil, the European benchmark, rallied above US$80 a barrel before easing back to $79.19. Other analysts said the moves are largely seasonal and prices will probably ease after the Memorial Day, while falling production in Venezuela is also a factor.
  • Gold futures closed down US$2.10 at US$1289.40. Rising yields put pressure on prices, while rising political tensions in North Korea provided support
  • Iron ore rose fell US$1.50 a tonne to US$68.00
  • LME metals – Prices were mostly stronger. Cu +0.78%, Ni +0.83%, Al -0.97%

ECONOMIC DATA, NEWS & POLITICS

  • US economic data – Weekly Initial Claims 34.4 (consensus 216K; prior 211K), Continuing Claims 1707K (prior 1794K), and May Philadelphia Fed 34.4 (consensus 20.0; prior 23.2); Leading Indicators 0.4% (consensus 0.4%; prior 0.3%)
  • Italian politics – Reports that Movimento 5 Stelle and Lega are close to naming a prime minister
  • Employment data yesterday – A reasonable report. The number of new jobs was 22.6K, above the consensus of 20K and it was all in full time jobs +32.7K at the expense of part time -10K. The participation rate rose back up to 65.6%, which led to an uptick in the unemployment rate to 5.6^ despite the increased number of employed. For more on the reasons the participation rate is increasing, see the recent analysis by the RBA here (https://www.rba.gov.au/publications/smp/2018/may/pdf/box-b-the-recent-increase-in-labour-force-participation.pdf) Spoiler alert…it’s mostly because of us girls going out and getting jobs.

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QUOTE OF THE DAY

“I want to thank my parents for somehow raising me to have confidence that is disproportionate with my looks and abilities.” – Tina Fey, American comedian born this day in 1970. Me too Tina…yours and mine!

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