MID MORNING MARKETS 29-05-18

The ASX 200 is up 6 points in mid-morning trade after a quiet night overseas. Banks having a good day, Materials mixed and Telcos drag on TLS. ALQ results, RFG new CEO, GXY land sale and more falls for MTS. #ausbiz

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TODAY

  • Ex-dividend – Aristocrat Leisure (ALL) 19.0c
  • Challenger (CGF) Investor Day
  • Japanese – Unemployment Rate

TONIGHT

  • European – Loan Growth and M3 Money Supply
  • US economic data – S&P Case-Shiller Home Price Index and Consumer Confidence

COMPANY NEWS

  • ANZ – AFR reports ANZ is cutting interest rates for some of its interest-only loan and investment loan interest rates. 2yr interest only investment loan down 26bp to 4.33%; 2yr interest in advance loan down 26bp to 4.13%; 2 year investment loan down 11 to 4.23%. It follows news APRA would cut the limit on investor loan growth (if lender could show it met benchmark for the last 6 months). Expect more moves like this.
  • Retail Food Group (RFG) – Richard Hinton has been promoted to CEO
  • ALS (ALQ) – FY2008 profit released after market yesterday. NPAT up 21.1% to $142.2m in line with guidance ($135-145). Increase due to improvements in market conditions for those businesses exposed to mineral commodities markets and expansion in the less cyclical Life Sciences and Industrial operations with food, environmental and tribology acquisitions in mainland Europe and South America. Final div 9c (up 25.9%). Underlying EPS up 22% to is 28.4c. Proposed divestment of Oil and Gas laboratories, On-market Share Buyback to continue, Business outlook continues to remain stable. Commodities division +43.%the highlight. Life Sciences +2.3% despite strong revenue growth due to the effects of competition and temporary acquisition integration-related disruptions.
    • Credit Suisse has a Neutral recommendation with a target price of $7.8. The result was 5% below the analyst’s estimates and they thought the outlook was less upbeat than previously with cost pressures mentioned. They have increased FY19 FY20 estimates by 3% and 7% respectively on margin improvement.
    • Morgans has a Hold recommendation with a target price of $7.13 (from $7.44). The analyst thinks the miss in life sciences is unlikely to offset the better performance in commodities and there should be downgrades to consensus. They have downgraded FY19 and FY20 by 8% and 9% respectively but expects better clarity from the briefing.

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  • Galaxy (GXY) – Will sell tenement package at Sal de Vida to POSCO for $280m.
  • Pilbara Minerals (PBS) – Has announced further substantial increase in both tonnage and grade to the JORC 2012 Mineral Resource for Pilbara’s 100%-owned Pilgangoora Tantalum-Lithium Project in WA.
  • Brickworks (BKW) – Has sold the 9 hectare property at 62 Belmore Road, Punchbowl. The arrangement provides the buyer with the option to purchase the site for $41m in 1HFY19 and includes a 10 year (plus 10 year option) lease back to Austral Bricks for its two hectare specialised brick plant.

ANALYST COMMENTAY AND CHANGES

  • APN Outdoor (APO) – FY18 Guidance. FY underlying EBITDA is expected to be $92-$96 million as revenue momentum continues to build. Headline 1H18 revenue growth mid-single digits on pcp, and high-single digits excluding the impact of the Yarra Trams contract loss in 2H17. FY18 capex expenditure $25-$30m, in line with guidance at the FY17 results presentation.
    • Credit Suisse has an Outperform recommendation with a target price of $6.05 (from $5.05). While pleased with the improvement, the analyst thinks uncertainty about the deal on AdShel will weigh near term. They have upgraded 2018-20 estimates by 8%.
    • Morgan Stanley has an Overweight recommendation with a target price of $6.30. The analyst is happy with the update.
    • Morgans has a hold recommendation with a target price of $5.35 (from $4.86). Transit advertising was the highlight for the Morgans analyst and they have upgraded forecasts in line with guidance.

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  • Metcash (MTS) – New distribution centre in SA that will enable significant operational efficiencies and broader product range. Drakes has not committed to supplying its supermarkets from the new DC. (Total Sales Drakes Supermarkets in SA were ~$270 million in FY18.) The Supermarkets & Convenience pillar is expected to report a 1.2% fall in total sales and a 3.6% decline in wholesale sales (excluding tobacco) for FY (30 April 2018). FY18 earnings for Supermarkets & Convenience is expected to be in line with the prior financial year. It is not expected that this advice from Drakes will have a material impact on the earnings of the Supermarkets & Convenience pillar in FY19. A couple of negative technical signals on the chat, including a bi drop in RSI and the MACD indicator dropping below zero (although this doesn’t look convincing)
    • Morgan Stanley has an Overweight recommendation with a target price of $3.90 (from $4.00). The analyst doesn’t think the news about Drakes signals more departures, while the impact is not expected to be felt until FY20. Drakes represents just 3% of MTS food and grocery sales so the impact on margins is likely to be small.

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  • Domino’s Pizza (DMP) – Morgans has upgraded to a Buy (from Hold) recommendation with a target price of $51.51 (from $50.39). The analyst thinks DMP can deliver 15% net profit growth pa for the next 3-5 years. Technically DMP looks interesting and shares look very close to breaking the downtrend

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  • Fisher & Paykel (FPH) – Yesterday’s results. NPAT up 12% to NZ$190.2m. Revenue up 10% in to a record NZ$980.8 million (9% growth in constant currency); Expect 2019FY operating revenue of NZ$1.05bn and NPAT of NZ$210m.
    • Credit Suisse has an Underperform recommendation with a target price of NZ$12.00. While happy with the result0s and the company, the analyst thinks shares are full valued and don’t price in the risks.
    • UBS has a Sell recommendation with a target price of NZ$11.75 (fomr NZ11.65). The analyst thinks FY19 guidance suggest subdued growth ahead. They note strong competition, lingering flu season and strong valuation.
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OVERNIGHT

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SPI FUTURES -14

US EQUITIES – Closed for Memorial day

Main themes

  • US president Donald Trump said a team had arrived in North Korea to prepare for a proposed summit between him and Kim Jong Un.
  • Italian politics dominated European markets
  • Low volume exaggerated market volatility.
  • S&P500 futures are +4 at 222.25 while Dow Jones futures are +33 at 24763

EUROPEAN MARKETS – Mostly weaker. STOXX 600 -0.32%, German DAX -0.56%, French CAC -0.61%. Italian MIB -2.08

CURRENCIES

  • The US dollar is a little weaker at 94.19.
  • The Aussie dollar is a touch lower at US75.47c.

BONDS – US yields were unchanged by the Italian 10 year yield rose 22 basis points after political developments over the weekend.

COMMODITIES

  • WTI oil futures down another US$1.66 or 2.5% to US$66.22 after confirmation that OPEC and non-OPEC producers might raise output (by around 1mbpd) to deal with falling production in Venezuela and US sanction on Iran. The oil ministers of Saudi Arabia and Russia met in St Petersburg to discuss the options. The Baker Hughes rig count also increased by 15 last week to 859, the highest level since 2015. Brent and WTI have fallen by 6.4% and 9.1% respectively from peaks touched earlier in May.
  • Gold futures fell 0.5% to US$1297.10 on renewed hoped for a US-North Korean summit.
  • Iron Ore – IRESS reports iron ore unchanged at US$65.00 a tonne. The CommSec site says China Import (Fines 62% Fe) was down US50c to US$63.25/dry ton. (CFR Tianjin port)
  • LME metals – LME closed

ECONOMIC DATA, NEWS & POLITICS

  • Italian politics – The leader of Italy’s largest political party called for the country’s president to be impeached after choosing to veto a choice for economy minister. Luigi Di Maio of the anti-establishment Five Star Movement said President Sergio Mattarella had prompted an “institutional crisis” by rejecting eurosceptic candidate Paolo Savona. No major political group has been able to form a majority in Italy since elections in March, meaning Italy still has no government and focus has turned to the possibility of another election

QUOTE OF THE DAY

“Data, I think, is one of the most powerful mechanisms for telling stories. I take a huge pile of data and I try to get it to tell stories.” – Steven Levitt, American economist born this day in 1967 and one of my favourite authors. One of the few economists to give me dinner table conversation that other guests are actually interested in. If you haven’t read @Freakonomics, then you should!!!!

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