MID MORNING MARKETS 30-05-18

The ASX 200 is down 48 points in mid-morning trade after a huge sell-off in European markets on Italian political concerns. US finished off lows. Utilities ok but TLS and the banks hit and Materials not great either. AUD under 75c #ausbiz

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TODAY

  • Economic data – Building Permits
  • TechnologyOne (TNE) – Investor Day
  • Japanese – Retail Sales, Consumer Confidence
  • BoJ Kuroda Speech

TONIGHT

  • European data – Consumer Confidence Final
  • UK – Gfk Consumer Confidence
  • US economic data – ADP Employment Change, GDP – Second Estimate, Adv. International Trade in Goods, Adv. Wholesale Inventories, Fed’s Beige Book
  • US Q results – Michael Kors (KORS), Dick’s Sporting Goods (DKS), and Sears (SHLD)

COMPANY NEWS

  • ANZ – Has sold OnePath Life NZ to Cigna Corporation for $700m. The transaction represents a slight premium to embedded value and is expected to generate a gain on sale of around NZ$50 million, increasing ANZ Group’s Level 1 and Level 2 CET1 ratios by ~5 basis points and ~15 basis points respectively. ANZ New Zealand’s Investment Management business is not part of the sale. There is a 20 year strategic alliance for insurance to ANZ customers.
  • WiseTech Global (WTC) – Has acquired SaaS Transportation, a specialist Less Than Truckload (LTL) transport management solution provider in the US. SaaS Transportation provides LTL TMS to third party logistics companies and shippers and a specialist LTL freight rating engine with connections to LTL carriers including FedEx Freight, Con-way freight/XPO Logistics, Day & Ross Freight, Old Dominion Freight Line, UPS Freight and YRC Freight. The purchase includes ~$2.1m upfront, with a further multi-year earn-out potential of up to ~$1.7m related to business and product integration, and revenue performance and while it’s of strategic value, the transaction is not material.
  • REA Group (REA) – The ACCC has approved the acquisition of Hometrack Australia Pty Ltd, which provides products includes property data analytics and insights, customised data platforms and a highly regarded Automated Valuation Model (AVM).

ANALYST CHANGES

  • Collection House (CLH) – Canaccord Genuity has upgraded to a Hold (from Buy) recommendation with a target price up 31% to $1.59.

CHT1

  • ALS (ALQ $7.42) – FY2008 profit yesterday. NPAT up 21.1% to $142.2m in line with guidance ($135-145). Life Sciences +2.3% disappointed despite strong revenue growth due to the effects of competition and temporary acquisition integration-related disruptions. Shares ended down 1.85% after being down as much as 8.2% during the day. Today
    • Morgans has a Hold recommendation with a target price of $7.23 (from $7.13), They have raised forecasts slightly.
    • Citi has a Buy recommendation with a target price of $8.45 (from $9.20). The analyst likes the exposure to the cyclical recovery in the commodities division and growth in Life Sciences. They believe it can deliver 17% earnings growth in FY19 despite the disappointing FY19 performance, and that the company will benefit from acquisitions in the food and pharmaceutical division.
    • Macquarie has an Outperform recommendation with a target price of $8.10 (from $8.20). The analyst expects more pricing and mix improvements and the Life Science should benefit from cost reductions.

CHT2

  • Freedom Foods (FNP $5.81) – Morgans has a Hold recommendation with a target price of $5.90 (from $5.05). The analyst has updated their model to account for the $200m capital raising which will accelerate capex. While there is a strong earnings growth, the business is capital intensive and the current price is fair.

CHT3

  • South32 (S32 $3.69). UBS has a Neutral recommendation with a target price of $3.70. S32 has acquired a 50% interest in Eagle Downs in QLD. Eagle Downs is a partially developed metallurgical coal project, placed under care and maintenance in late 2015 after the collapse of a key contractor. First coal is expected in 3-4 years. The next step is the compilation of a feasibility study that will review the 2016 DFS.

CHT4

  • APA Group (APA $8.43) – Macquarie has upgraded to an Outperform (from Neutral) recommendation with a target price of $8.67 (up 11%). The analyst has raised earnings estimates for FY18 and FY19 by 1.8% and 2.8% respectively, noting the drag from regulatory threat has run its course and the US is now emerging as a growth option.

CHT6

  •  Galaxy (GXY) – Will sell tenement package at Sal de Vida to POSCO for $280m.
    • Citi has a Buy recommendation with a target price of $4.30. The northern tenements represent about 28% of the project’s resources. The analyst thinks it’s a good outcome and largely funds the project without affecting the intrinsic value.
    • Morgan Stanley has an Equal-weight recommendation with a target price of $2.95. The analyst is also positive but they do have some concerns concerning extra lithium supply.

CHT5

  • Nextdc (NXT $7.27) – Macquarie has a Neutral recommendation with a target price of $7.47 (from $6.32). The analyst has reviewed the proposed data centre plans for M3, S3 and P2 and thinks NXT is in a good position. They think valuation is the key issue and there is risk longer term given it is only billing around 10% of its planned capacity.

CHT7

  • REA Group (REA $90.91). Macquarie has downgraded to an Underperform recommendation with a target price of $86 (from $74). The analyst thinks the valuation is stretched and while earnings growth is strong, the company will be rerated, offsetting the benefit. Listing volumes are down moderately, while the price/mix will be the key driver

CHT8


SHORT CHANGED

This week’s “Short Changed” report shows some major short building over the last month in Greencross (GXL) and Invocare (IVC), and they now have more than 10% of shares short sold. Blue Sky (BSL), Bingo (BIN) and G8 Education (GEM) also saw some significant increases in shorts, making all these share susceptible to a short-covering rally.

Short-covering was most evident in Healthscope (HSO) with shorts falling to 3.8% from 13.04% over the last month. Afterpay Touch (APT) also saw a big short-fall.

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OVERNIGHT

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SPI FUTURES -45

US EQUITIES – S&P500 -31 (-1.16%), Dow Jones -392 (-1.58%), Nasdaq -37 (-0.50%).

Main themes

  • Markets finished well off their lows
  • US bonds rallied as European markets sold off
  • Italian politics dominated
  • Oil slide continues
  • Chinese trade concerns – US President Donald Trump said the US will continue to take action on trade with China, releasing a list of $50bn of Chinese goods to be taxed at 25%.
  • US banks heavily sold off. JPMorgan -4.27 on flat revenue estimates, Citi -4.3%, Bank of America -3.98%
  • European banks also under heavy pressure – Deutsche -4.6%, Credit Suisse -3.99%, RBOS -3.35%

EUROPEAN MARKETS – Big moves lower. STOXX 600 -1.37%, German DAX -1.53%, French CAC -1.29%. Italian MIB -2.65%

CURRENCIES

  • The US dollar is significantly stronger due to the “flight to safety”, up over 0.7% at 94.86.
  • The Aussie dollar is lower at US75.02c.

BONDS – US bonds rallied 2-yr: -11 bps to 2.37%, 5-yr: -14 bps to 2.62%, 10-yr: -13 bps to 2.80%, 30-yr: -10 bps to 2.99%. European yields continue to come under pressures. The Italian 10 year yield rose a further 41 basis points to 3.07% to their highest since late 2013.. (Comes after 22 basis points increase from Friday).

COMMODITIES

  • WTI oil futures closed down another US$1.13 or 1.7% to US$66.73 a barrel (were down as much as 3% earlier) on expectations that OPEC and non-OPEC producers will raise output (by around 1mbpd) when it meets in June, to deal with falling production in Venezuela and US sanction on Iran. The spread between Brent and WTI stands at nearly $9 a barrel, its widest since March 2015, meaning US exports are globally more competitive.
  • Gold futures were down $4.70 at $1299 with uncertainty in Europe offset by renewed hopes 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 – All stronger except copper. Cu -0.36%, Ni +0.85%, Al +0.14

ECONOMIC DATA, NEWS & POLITICS

  • P. Morgan Co-president Daniel Pinto said trading revenue in the second quarter will probably be flat from a year ago, saying at a conference “The core activities will be up let’s say mid single digits. Then we have a series of one-offs that overall take that back down to flat.”
  • US economic data – March S&P Case-Shiller Home Price Index 6.8% (consensus 6.4%; prior 6.8%); May Consumer Confidence 128.0 (consensus 127.5; prior 125.6)
  • US results – Q results from HP and Salesforce after the close. Tomorrow some key names report including Michael Kors (KORS), Dick’s Sporting Goods (DKS), and Sears (SHLD)
  • Italian politics – The Italian president Sergio Mattarella named a caretaker (ormer International Monetary Fund official) interim prime minister to plan for early elections and pass the next budget but the decision has received push-back from all political parties. The key concern is that repeat elections (the next could be as early as August) could strengthen the euroskeptic parties further by acting as a referendum on the euro or put pressure on Italy’s €2.3tr in debt.
  • European data – April M3 Money Supply +3.9% (as expected, last 3.7%). Private Sector Loans +2.9% (expected 3.2%; last 2.9%); French Consumer Confidence 100 (expected 101; last 101); Italian Business Confidence 107.7 (expected 107.2; last 107.7) and Consumer Confidence 113.7 (expected 116.5; last 116.9)

QUOTE OF THE DAY

“Sometimes when you start losing detail, whether it’s in music or in life, something as small as failing to be polite, you start to lose substance.” – Benny Goodman, American musician born this day in 1909. Died 13 June 1986. Yes it’s always the attention to detail that count.

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