The ASX200 is up 30 points in mid-morning trade with banks the only key drag with MS saying super cycle over. MTS impairment charge, NAN study results, bids for BHP shale assets. GDP today #ausbiz
TODAY
- Ex-dividend – ALS (ALQ) 9.0c, James Hardie (JHX) 31.9c
- Adelaide Brighton (ABC) – WA site visit today
- Economics – GDP Growth Rate
- Japanese data – Average Cash Earnings
TONIGHT
- European data – Retail PMI
- US economic data – Trade Balance, Productivity-Rev., Unit Labor Costs – Rev.
COMPANY NEWS
- BHP Billiton (BHP) – Media reports that BHP has received early bids worth US$7-9bn from majors including BP, Chevron and Royal Dutch Shell.
- Metcash (MTS) – Impairment charge of $352m in the Supermarkets & Convenience pillar, $318m of goodwill and other intangibles, and $34m of other net assets, following a review of the carrying value of its assets which has included issues to do with Drakes Supermarkets in South Australia, as well as weakness in the Western Australian economy and the ongoing intensity of competition in the sector.
- Nanosonics (NAN) – American study identifies necessity for broader ultrasound probe decontamination due to non-compliance with required guidelines
- Corporate Travel (CTD) – MS Emerging Companies Conference. Updated guidance
FY18 Activity update – key observations. 1. Synchronised global growth in key CTM markets, with the exception of London specific clients. 2. AUD versus USD/GBP/HKD
Client Activity by region: Asia, ANZ, NA – Broad based client activity increases in line with long term trends (2-3%); London specific clients – short term activity decline, awaiting certainty on Brexit
CTM continues to be highly leveraged to a global growth and has meaningful exposure in the world’s largest evolved corporate markets
FY18 Guidance update.
Trading and Guidance Update: CTM continues to win market share at an accelerating rate in 2HFY18, and is executing to business plan; Underlying FY18 EBITDA expected to be circa $125m. (>27% on the p.c.p.); Implies 2H organic EBITDA growth of over 20% and good momentum into FY19
Operating cash flow conversion: Timing of BSP payments has the biggest impact on cash flow only (1-7 day swing); Consistently expect approximately 100% operating cash conversion each year, with 2H18 being
100%++; Reporting normalised cash flow conversion to compare on a ’like for like’ basis
- Magellan (MFG) – Total FUM was up 1.74% to $67.354m. Net outflows were $47 million, including net retail outflows of $57m and net institutional inflows of $10m.
- Estia Health (EHE) – Morgan Stanley conference.
- ASX – May activity report. total capital raised was $12.8bn, up 224% on pcp; Average daily number of trades was 2% higher than the pcp; The average daily value traded onmarket of $4.5bn was down 3% on the pcp; Volatility (as measured by the average daily movement in the All Ordinaries Index) was 0.3% in May on par with the previous month (0.3%); Expected future volatility (as measured by the S&P/ASX 200 VIX) in May was an average of 12.0 (compared to 13.3 in April); Average daily futures and options on futures volumes were up 14% on the pcp. Average daily futures volume was up 15% and average daily options volume was down 37% on the pcp; Average daily number of exchange-traded options was down 11% on the pcp. Single stock options average daily contracts traded were down 16% and index options average daily contracts traded were up 44% on the pcp
- Transurban (TCL) – Has reached financial close on the purchase of A25 toll road in Montreal.
- GPT Group (GPT) – Withdrawing Wollongong Central from the market. Reaffirms guidance of 3% for both FFP per security and distribution for security.
THE BANKS
Morgan Stanley says the “Super cycle” for Aussie banks has come to an end and they will face increasing operating headwinds and regulatory scrutiny. Housing risk has increased and credit rationing in the mortgage market will add to this. The analyst has lowered its EPS estimates (base case) by 2.5% for FY19 and 5% for FY20
- ANZ – Equal-weight recommendation with a target price of $27.60 (from $29.00).
- Bendigo and Adelaide Bank (BEN) – Underweight recommendation with a target price of $9.90 (from $10.20). The analyst sees downward pressure on mortgage margins, modest volume growth and higher costs growth
- Bank of Queensland (BOQ) – Underweight recommendation with a target price of $9.50 (from $10.30). The analyst notes BOQ has benefited from good margins and cost control and improved franchise performance but sees margins as vulnerable and shares fully valued.
- CBA – Underweight recommendation with a target price of $64 (from $70). The analyst’s least preferred bank with EPS growth, falling ROE and risk of further de-rating.
- National Australia Bank (NAB) – Underweight recommendation with a target price of $25.50 (from $27.10). Vulnerable due to its business mix, reinvestment pressure and high pay-out ratio. A dividend cut is likely.
- Westpac (WBC) – Equal-weight recommendation with a target price of $27.50 (from $30.50).
ANALYST CHANGES
- APN Outdoor Group (APO $5.70) – Morgans has a Hold recommendation with a target price of $5.68 (from $5.35). APO has right to operate 50 central Sydney billboard sites for NSW Roads and Maritime Services. The analyst sees these become accreditive from FY19, with most of the benefit from FY20 as the screens are converted from static to digital.
- Domino’s Pizza (DMP $53.38) – UBS has a Buy recommendation with a target price of $57.00. The analyst thinks DMP has grown market share in Australia for the first time on 2 years. Digital sales are now 70% in A/NZ and 40% in Europe. (France/German remain soft). They think the high FY18 guidance might actually be achievable and again there is mention of a potential boost from the World Cup.
- Mortgage Choice (MOC $1.48). Macquarie has an Underperform recommendation with a target price of $1.55 (from $2.40). Franchising review. The analyst sees a rebasing of the pricing model important in ensuring the viability of the business and have cut EPS forecasts for FY19 and FY20 by 23% and 21% respectively.
- Seek (SEK $20.20) – Morgans has a Reduce recommendation with a target price of $19.07. Robert Walters and Page Group are new partners for SEK’s Premium Talent Search database. The more users the more value, although the impact is likely to be small initially. The reduce recommendation is based on premium to valuation.
OVERNIGHT
SPI FUTURES +10
US EQUITIES – S&P500 +2 (+0.07%), Dow Jones -14 (-0.06%), Nasdaq +31 (+0.41%).
Main themes –
- Financials
- NASDAQ outperforms on strength in tech. Amazon +1.78%, Apple +0.68% and Netflix +1.37%, Twitter +5.07% on news it will joining the S&P500 on June 7.
- More strength for the retailers. Macy’s +7.95%, JC Penny +4.08%, Target +2.82%
- Trade concerns continuing theme.
- Mexico announced tariffs targeting products like pork, cheese and steel.
- Talk Trump may negotiate separately with Canada and Mexico (as opposed to trilateral NAFTA negotiations).
- Reports China would buy $70b of US agriculture and energy products if the US holds off tariffs on Chinese goods.
EUROPEAN MARKETS – Mixed. STOXX 600 -0.31%, German DAX +0.13%, French CAC -0.22% Italian MIB -1.18%
CURRENCIES
- The US dollar was down 0.2% at 93.81.
- The Aussie dollar is lower at US76.20.
BONDS – 2-yr: -3 bps to 2.48%, 5-yr: -2 bps to 2.76%, 10-yr: -2 bps to 2.92%, 30-yr: -1 bp to 3.08%
COMMODITIES
- WTI oil futures rose US73c or 1.2% to US$65.52, despite news that the US asked other global producers to increase production (by around 1 million bpd).
- Gold futures rose US$4.90 to US$1302.20.
- Iron Ore – IRESS reports iron ore up US50c at US$66.0 a tonne. The CommSec site says China Import (Fines 62% Fe) was down US85c to US$63.85/dry ton. (CFR Tianjin port)
- LME metals – Mostly higher. Cu +1.78%, Ni +1.71%, Al -0.09
ECONOMIC DATA, NEWS & POLITICS
- US economic data – JOLTS Job Openings 6.698m; prior 6.663m) and May ISM Services 58.6 (consensus 58.0; prior 56.8)
- European Central Bank – reports the meeting next week will discuss plans to end asset purchases.
- Italian bond sold off after Prime Minister Giuseppe Conte called for universal basic income and a fairer tax system in his inaugural address. He called on the European Union to review sanctions against Russia and stated his aim to improve Italy’s fiscal standing by stimulating growth rather than cutting spending. The 10-year yield +27bp to 2.76%.
- European economic data – Retail Sales +0.1% (expected 0.5%; last 0.4%) to be +1.7%yoy (as expected, last 1.5%), May Services PMI 53.8 (expected 53.9; last 53.9); German Services PMI 52.1 (as expected, last 52.1); French Services PMI 54.3 (as expected, last 54.3).
- UK Services PMI 54.0 (expected 52.9; last 52.8)
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