The ASX200 is +39pts in mid-market trading, despite o/s weakness & TLS plunge. 8K jobs gone, guidance < consensus and divorce plans. WBC kills grandfather, SYD traffic #s and $A73.86c. BoJ meets today #ausbiz
TODAY
- BoJ Monetary Policy Meeting Minutes
- Japanese economic data – All Industry Activity Index
TONIGHT
- UK CBI Industrial Trends Orders
- US economic data – Current Account Balance, Existing Home Sales
Telstra (TLS) – Investor day today. This was what we were expecting.
- JPMorgan recently upgraded to an Accumulate from Hold recommendation with a target price of $3.30. The analyst expects the company to announce an additional $500m-1bn of cost savings and new product bundling initiatives at its strategy today’s briefing. There is also the chance of a game-changing announcement such as a structural separation. (infrastructure assets in one vehicle, which would be defensive, mature and high yielding – and retail assets, which would be higher growth, in the other)
- Citi has a Sell recommendation with a target price of $2.70. The analyst thinks the dividend is unsustainable and only half is backed by genuine operation cashflows, meaning it could be cut or put on watch. They point to negative EPS earnings growth, a falling DPS, growing competition and inadequate strategy for the future.
- UBS also upgraded to a Buy (from Neutral) recommendation with a target price of $3.00. The analyst continues to believe the $0.22 dividend is unsustainable and a reduction from as early as FY20 is likely. However, with the downside largely known and the full 5G/NBN upside being factored in by the market they have upgraded. The strategy day could be a positive, as the company has flagged that it will show how its $3bn strategic capital expenditure and cost reduction program will allow it to be more “bold”. UBS speculates on an NBN bypass and an aggressive push on market share.
Telstra (TLS) – Investor Day. This is what we got. The headlines are focused on the 8,000 jobs and removing 4 layers of management.
But the lower consensus range of $8.7-$9.4bn is 14% below consensus (the lower end) which is after most analysts have already lowered forecasts over the last few weeks. Expect to see further downgrades to dividends going forward.
Plans so far are not concrete and appear arbitrary, with little detail.
The positive might be the digestion of the “InfraCo” which could be a positive for the company going forward.
COMPANY NEWS
- Northern Star (NST) – Has announced that yesterday hit its production rate target of 600,000ozpa. Production for the June quarter to date is 150,000oz. This takes the total for the financial year to date to 540,000oz, meaning Northern Star is on track to beat the top end of its FY2018 guidance of 540,000-560,000oz. All-in sustaining costs will be within the guidance range of A$1000-1050/oz.
- Growthpoint (GOW) – Has commenced of a new office development at the Botanicca Corporate Park in Richmond, Victoria. The new development is 19,300 sqm of A-grade office accommodation across two towers in Melbourne’s CBD-fringe office market. The buildings were designed by Gray Puksand to achieve a 5-star NABERS energy rating and a 5-star Green Star rating. Growthpoint has appointed Hacer Group under a design and construct contract. The development is expected to achieve practical completion in the second half of CY20.
- Westpac (WBC) – Has announced the removal of grandfathered payments in relation to its BT products. BT will honour its contractual obligations to external financial advisers who are currently receiving grandfathered payments in respect of a BT financial product but will assist them to make similar changes. More than 140,000 customer accounts will benefit from the changes to their BT superannuation, investment, insurance and platform products. The financial impact of these changes would have represented $14 million of 1H18 cash earnings.
- Boral (BLD) – Board changes. Dr Brian Clark will retire as Chairman and Non-executive Director on 30 June 2018 due to health reasons. Current Non-executive Director Kathryn Fagg will succeed Dr Clark as chairman, effective 1 July 2018.
- Sydney Airport Traffic – May. Passenger numbers up 2.6%, international growth of 5.6%, driven by seat capacity. Vietnam (+24.3%), USA (+12.8%), India (+9.1%), and China and Hong Kong (+6.3%) saw strong growth. Australian growth was also strong at 6.7%.
- Whitehaven Coal (WHC) – Has completed the acquisition of the remaining 25% interest in the Winchester South Project and can now move forward with the EIS and other studies required to develop the project as quickly as possible.
BROKER CHANGES
- Graincorp (GNC $8.25) – Morgans has a Hold recommendation with a target price of $7.50 (from $8.00). The analyst has revised forecasts following ABARES’ 2018/19 winter crop forecast. GNC will likely face two consecutive seasons that are well below average. Extremely low carry-over grain will also affect FY20. They think existing shareholders need to be patient to ride out the seasons, while new investors might see and entry level at $7.00. Technically, shares look to be trading close to horizontal support, and might be close to giving a MACD buy signal. It’s very hard to get too excited though.
- Insurance Australia Group (IAG $8.42) – Has sold its operation in Thailand, Indonesia and Vietnam. An after-tax profit of at least $200m for FY19 is expected and the sale will add at least 13 basis points to IAG’s Common Equity Tier 1 (CET1) ratio.
- Credit Suisse has a Neutral recommendation with a target price of $7.50. The analyst will remain on the sidelines until there is increased confidence around the premium rate environment.
- Macquarie has an Underperform recommendation with a target price of $6.50. The transaction is sooner than the analyst expected and supports capital management ($400m buyback at next result?) There are still assets in Malaysia, India and China and the nature of these JVs make this more difficult to exit. The transaction is positive but they see risk.
- Morgans has a Hold recommendation with a target price of $7.54 (from $7.19). They think the sale price was a good outcome. They think IAG is executing well on its cost reduction plans amid potential for capital management but they see it as expensive for an insurance company and think significant expectation is built into the share price.
- Morgan Stanley has an Overweight recommendation with a target price of $8.00. The analyst currently assumes no buybacks or special dividends and suggests the sale will be a factor in determining capital management initiatives
- Shares have had a significant run. The MACD is on the verge of giving a Sell signal, while shares are approaching oversold levels on RSI.
- Rio Tinto (RIO $82.14) – UBS has a Buy recommendation with a target price of $90.00. The site visit in the Pilbara continues. The UBS analyst has found no surprises. They not the continuous improvement in infrastructure (from mine to port) but note this is becoming more difficult and cost pressures are mounting. RIO is positive about the market, given supply-side Chinese reforms and environment policy. AutoHaul is tracking towards completion by the end of this year. Shares are at the top end of the uptrend channel, which is firmly in place. The MACD indicator suggest slowing momentum, which might provide a more attractive buying opportunity. Hard to get excited here.
- Metcash (MTS $2.75) – Credit Suisse has an underperform recommendation with a target price of $2.65 (from $2.70). The analyst thinks the challenges will continue and the current valuation is supported by as yet unidentified strategies. They see the reinvestment is not fully appreciated and a short-term injection of capital could be reconsidered of the upcoming results. They still see share price risks in the near term from capital management. Shares look to be bottoming (or close to) at these levels, and there have been a couple of positive short term indicator moves, but it would be a brave move.
OVERNIGHT
SPI FUTURES +29
US EQUITIES – S&P500 -11 (-0.40%), Dow Jones -287 (-1.15%), Nasdaq -21 (-0.28%).
Main themes –
- Shares partially recover from earlier lows
- Concerns dominated by escalating trade dispute between the US and China.
EUROPEAN MARKETS – Lower. STOXX 600 -0.70%, UK FTSE -0.36%, German DAX -1.22%, French CAC -1.10%
CURRENCIES
- The US dollar was up 0.2% at 95.01
- The Aussie dollar under more pressure, down at US73.79c.
BONDS – Bonds rally and yield curve flattens further.2-yr: -2 bps to 2.53%, 5-yr: -5 bps to 2.75%, 10-yr: -5 bps to 2.88%, 30-yr: -5 bps to 3.01%
COMMODITIES
- WTI oil futures fell US68c or 1.2% to US$65.07 ahead of Friday’s OPEC meeting, where expectations for increased production range from 300-600mbpd from some analysts, compared with Russia mention of 1.5mbpd. Threats of tariffs on oil are also having an impact, with China taking 20% of all US exports..
- Gold futures were down 0.15% to US$1,278.20.
- Iron Ore – IRESS reports iron ore unchanged at US$67.50 a tonne. The CommSec site says China Import (Fines 62% Fe) was down US$1.75 to US$64.25/dry ton. (CFR Tianjin port)
- LME metals – Substantially lower. Cu -1.78%, Ni -2.14% and Al -2.19%.
ECONOMIC DATA, NEWS & POLITICS
- Trade war escalates. From Trump – If China “refuses to change its practices” and insists on continuing with the new tariffs it recently declared, then the additional levies would be imposed. From the Chinese Commerce Ministry “”The United States has initiated a trade war that violates market laws and is not in accordance with current global development trends,”
- US economic data – Housing Starts 1350K (consensus 1323K; prior 1286K) and Building Permits 1301K (consensus 1343K; prior 1364K)
- Asian markets sold off heavily yesterday on the news that the US said it would impose tariffs of 10% on a further US$200bn worth of Chinese imports
- German Chancellor Angela Merkel and French President Emmanuel Macron will establish a eurozone budget and turn the European Stability Mechanism into a European monetary fund that will offer loans to struggling EU countries.
- European data – Current Account surplus €28.40bn (expected €30.3bn; last €32.8bn)
- Central Bank Fest – European central bankers are meeting this week in Sintra, Portugal. ECB President Mario Draghi said that longer-term inflation expectations were well-anchored, but that the economy required monetary policy within the euro area “to remain patient, persistent and prudent.”
QUOTE OF THE DAY
“I’ve never had any problem with criticism. I’ve given a lot, and I’ve copped a lot. But I believe I’ve got a role to play by insisting that women be judged by their contribution – not somebody’s view of what they should be about.” – Joan Kirner, former Victorian premier born this day in 1938. Died 1 June 2015
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