MID MORNING MARKETS 22/6/18

The ASX200 is +2pts in late morning trade, boosted by the banks. Int’l markets still in doldrums. BoE gains a new hawk, ANZ increases buy-back, BVS new contract, APO revises offer for HT1, HSN trading downdate. Quiet week ahead bar RC#4 #ausbiz

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  • Japanese – Inflation Rate, Nikkei Manufacturing PMI Flash

TONIGHT

  • European data – Markit Composite PMI Flash, Markit Manufacturing PMI Flash, Markit Services PMI Flash
  • OPEC Meeting tonight

COMPANY NEWS

  • Bravura (BVS) – Has signed a long-term contract with Legal & General Investment Management.
  • Aveo Group (AOG) – Has upgraded FY18 EPS guidance to 21.6 cps from previous guidance of 20.4cps due to higher than expected development profits arising from the flagship retirement community development at Newstead, Brisbane. EPS growth is now expected to be 14% higher than the reported FY17 EPS of 18.9 cps. Aveo also confirmed that its FY19 EPS is expected to be 20.4 cps, in line with its initial FY18 guidance. In February 2018, Aveo expected to have about 550 new units on its balance sheet at 30 June 2018, largely from the delivery of 456 new units in May and June. The latest forecast is 565. Given the recent slowing in the residential market in most Australian states, the Board believes it is prudent to reduce forecast FY19 new units delivered from the annual target of 500 to 418.
  • ANZ – Will increase share buy-back by $1.5bn to $3bn following the receipt of $1bn as part of the first tranche of the sale of its Australian Life Insurance Business
  • HT&E (HT1) –  Revised proposal from APN Outdoor Group Limited of $230m cash and 54.1 million APN Outdoor shares. Based on APN Outdoor’s 5 day VWAP of $5.73, prior to the announcement of the non-binding indicative proposal received from JC Decaux to acquire APN Outdoor on 21 June 2018, the proposed consideration values Adshel at $540m APN Outdoor has also stated it expects any transaction to deliver high-single digit FY18PF EPSA accretion. HT&E is continuing to engage with other parties in relation to its Adshel business and expects to receive offers for Adshel from other interested parties.
  • Fletcher Building (FBU) – Bruce Hassall to succeed Sir Ralph Norris as Chairman

ANALYST CHANGES

  • Credit Corp (CCP) – CCP shares are in a trading halt in response to an anonymous report making several accusations against the company. Morgans has downgraded to a Hold (from Add) recommendation with a target price of $23.00. The analyst thinks the credibility of the sell thesis is low, but secondary and reputation risks have potential to materialise. The primary basis of the report is that the company is avoiding regulatory scrutiny in its lending division by offering a product which is not classified as a small account credit contract (pay-day) loan under consumer regulation. They think short term weakness is likely to result from negative sentiment but they are positive on the long-term growth prospects and management of the company.

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  • Metcash (MTS) – Citi has downgraded to a Sell (from Neutral) recommendation with a target price of $2.50 (form $2.80). Feedback from industry makes the analyst concerned that MTS may lose another retailer in 2019 following on from Drakes’ departure. They say Metcash needs to restore positive sale momentum in order to avoid operating deleverage. New management is a possible positive. They see further downside risk to earnings.

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  • Ramsay Healthcare (RHC) – Asset write-downs and updated guidance. Charge of £70 million (A$125 million) net of tax, consisting of an onerous lease provision and asset write-downs related to certain UK sites. FY18 Core EPS growth is now expected to be approximately 7% (previous guidance of 8% to 10%). In the UK, “NHS demand management strategies are having a significant negative impact on volumes despite the significant and increasing number of people in the UK awaiting treatment.” Australia – weaker growth rates in procedural work and inpatient admissions in its Australian operations in recent months as well as delays in the rollout of the Ramsay Pharmacy franchise network. Expects conditions to remain challenging. Expects trends to continue into FY19.
    • Credit Suisse has an Underperform recommendation with a target price of $54.00 (from $56.50). They note affordability remains a core concern and there is low government appetite to drive reforms in Australia. Meanwhile, a softer UK operating environment prevails as a result of restrictions on NHS admissions.
    • Deutsche Bank has upgraded to a Buy (from Hold) recommendation with a target price of $63.92. The analyst thinks the next two years will be challenging but likes the operating performance, high returns on equity and appealing valuation versus offshore peers.
    • Macquarie has an Outperform recommendation with a target price of $71.50. The analyst has factored in lower growth assumptions in Australia relative to historical averages but maintain their position due to expectations for contributions from brownfield developments and procurement savings.
    • Morgans has a hold recommendation with a target price of $62.28 (from $69.78). The analyst continues to believe the core fundamentals for the longer term are sound and there is value, but finds it difficult to determine when volumes will revert and the earnings outlook improve.

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NEXT WEEK

It’s pretty quiet on the economic front. Highlights are European inflation and the final GDP reading in the UK and US. Otherwise we have the next round of the Royal Commission into Banking to keep us occupied. In corporate news, we have earnings from Metcash (MTS) and Collins Foods (CKF) as well as some big ex-dividends from the REITS and infrastructure stocks.

  • New home sales and Private Sector credit on Friday are the only significant domestic economic releases.
  • Cinese data is limited to Industrial Profits
  • The key releases in Japan include retail sales on Thursday followed by unemployment, industrial production and housing starts on Friday.
  • European inflation is out on Friday, with expectations we will see a drop to 1.7% form 1.9% last month. There is also a bunch of sentiment and confidence readings on Thursday.
  • The final reading of UK GDP is out on Friday along with business investment and the current account and credit data, while consumer confidence and house prices are Thursday.
  • In addition to the third estimate of GDP on Thursday, we have 2 different readings of consumer confidence – the Confernce Board and the University of Michigan measures,

Corporate Calendar

  • Monday – Metcash (MTS) earnings
  • Tuesday – Collins Foods (CKF) earnings
  • Wednesday – CSR AGM, Aurizon (AZJ) investor day
  • Thursday – A bunch of AREITS go ex-dividend. As well as Sydney Airport (SYD 18.5 and Transurban (TCL) 28c

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SHORT CHANGED

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Ignoring the moves in Macquarie Atlas Roads (MQA) becoming Atlas Arteria (ALX), the key increases are for iSelect (ISU) which has seen its percentage shorted triple over the last month. Metcash (MTS), Greencross (GXL) and Technology One (TNE) are also noteworthy.

A big short covering in APN Outdoor (APO), from over 10% shorted a month ago to around 3% last week Convenient right! Also big moves for BWX and Retail Food Group (RFG).


OVERNIGHT

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SPI FUTURES -31

US EQUITIES – S&P500 -18 (-0.637%), Dow Jones -196 (-0.80%), Nasdaq -69 (-0.88%).

Main themes

  • Supreme Court ruled that states can force online shoppers to pay sales tax – Amazon -1.13%, ebay -3.18%
  • Energy sector underperformed ahead of 2 day OPEC/Russia meeting in Vienna
  • Industrial sector underperformed on trade concerns, further extending its big weekly decline

EUROPEAN MARKETS – Lower. STOXX 600 -0.90%, UK FTSE -0.93%, German DAX -1.44%, French CAC -1.05%

CURRENCIES

  • The US dollar was down 0.2% at 94.85
  • The Aussie dollar was a bit stronger at US73.82c.
  • GPD stronger after hawkish “dissent” at the BofE

BONDS – 2-yr: -4 bps to 2.53%, 5-yr: -3 bps to 2.77%, 10-yr: -3 bps to 2.90%, 30-yr: -2 bps to 3.04%

COMMODITIES

  • WTI oil futures fell US17c to US$65.54 ahead of tonight’s OPEC meeting. Iran has now signalled it would support a small increase in crude output. An increase of 500-1m bpd is said to be the range being considered.
  • Gold futures were down US$4.00 at US$1,270.50.
  • Iron Ore – IRESS reports iron down US$1 at US$66.50 a tonne. The CommSec site says China Import (Fines 62% Fe) was down 40c atUS$63.85/dry ton. (CFR Tianjin port)
  • LME metals – Mixed. Cu +0.19%, Ni +0.10% and Al +0.60%.

ECONOMIC DATA, NEWS & POLITICS

  • US Economic data – Weekly Initial Claims 218K (consensus 220K; prior 215K), Continuing Claims 1723K (prior 1701K), and June Philadelphia Fed Survey 19.9 (consensus 27.0; prior 34.4); FHFA Housing Price Index 0.1% (prior 0.2%); Leading Indicators 0.2% (consensus 0.4%; prior 0.4%)
  • Trade – A trip by China Energy Investment Corp to discuss a planned $83.7bn investment in West Virginia was cancelled, while India has joined China and the EU by increasing duties on various commodities imported from the United States.
  • Bank of England – Voted 6-3 to keep the official cash rate and asset purchase program at their respective 0.50% and £435bn. This surprised – there are normally the usual 2 dissenters. The shift pushed the pound higher
  • European data – Consumer Confidence -0.5 (expected -0.1; last 0.2); French Business Survey 110 (expected 108; last 109)
  • UK data – Public Sector Net Borrowing £3.36bn (expected £5.10bn; last £5.27bn)
  • Bank of Mexico – Increased the overnight rate by 25bp to 7.75%. The move was unexpected.
  • Intel (-2.4%) fell after news chief executive Brian Krzanich will step down after violating the company’s non-fraternisation policy.

QUOTE OF THE DAY

“Grace, respect, reserve, and empathetic listening are qualities sorely missing from the public discourse now.” Meryl Streep, American actress born this day in 1949.

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