The ASX200 is +2pts in mid-market trading, losing the initial gains. OPEC decision opaque but oil and Energy rallies. Banks lower ahead of RC. Lots of corporate news – CBA demerger, new GTY offer, OML gets Adshel (HT1), MTS results, KMD guidance. API acquisition. AUD at 74.35c #ausbiz
TODAY
- Ex-dividend – Ardent Leisure (AAD) 6.5c
TONIGHT
- US new home sales
COMPANY NEWS
- ANZ – Lina Bank has acquired ANZ’s retail and commercial business in PNG for PNG24.2m (AUD10m). Includes 15 retail branches, 72 ATMs, 1800 EFTPOS terminals.
- Gateway (GTY) – Revised offer from Hometown at $2.35. Already holds 18.3% as at 23 June. Hometown’s initial offer at $2.10 was met by an offer from Brookfield at $2.30.
- Metcash (MTS) – FY result and Buy-back. Group sales revenue up 4.3% to $14.5bn; Underlying profit after tax up 10.7% to $215.6m (FY17: $194.8m); Statutory loss after tax of $149.5m (prev profit after tax of $171.9m); Statutory loss includes impairments of goodwill and other net assets of $345.5m (post tax); Group EBIT up 9.2% to $332.7m (FY17: $304.8m); This includes Food EBIT broadly flat at $188.6m – improved earnings after adjusting for 53rd trading week, Hardware EBIT up $20.5m to $69.0m – includes full year of HTH earnings and related synergies, Liquor EBIT up $1.4m to $68.4m – continued growth in the IBA network; Working Smarter program delivering further savings ; Strong operating cashflows; Strong balance sheet – Net cash position of $42.8m (FY17: Net debt of $80.8m); Final dividend of 7.0 cents per share, fully franked; ~$125m Off-Market Buy-Back announced.
- HT&E (HT1)/oOoh! Media (OML) – HT1 will seel its aDshel business to OML for $570m (subject to ACCC approval). Comes after an initial offer from OML at $470m, followed by 2 offers from APO at $500n and then $540m. APO is itself fending off a $1.1 billion proposal from French competitor JCDecaux. HT1 will conduct an on-market buy-back ($55m) and pay a special fully-franked dividend ($220m) and repay debt ($195m).
- Incitec Pivot (IPL) – Gas sales agreement with Central Petroleum for at least 20 T/J/d of gas to commence on commencement of commercial operations on the Northern Gas Pipeline (ex Dec18). Also JV with Central’s for fast tracking of the Old Acreage. IPL will contribute up to $20m for appraisal drilling costs during the initial exploration period. See APA below for info on the Northern Gas Pipeline
- Australian Pharmaceutical Industries (API) – Has acquired Clearskin clinics for $127.4 to be paid in instalments over 3 years. API will initially acquire a 50.1% controlling interest in the clinic business and will take 100% ownership of the skincare products business. It will move to 100% ownership of the clinic business by September 2021. Clearskincare Clinics provides non-invasive aesthetic services such as laser hair removal, skin treatments and cosmetic injectables. 42 clinics in Australia, 2 in New Zealand and an exclusive skincare product range. Offers a more diversified business with accelerated growth potential. Funded through debt. Expected to be earnings accretive in FY19. It is expected to generate pro forma revenue and EBITDA of approximately $48 million and $14 million respectively in FY19.
- Vocus Communications (VOC) – New and increased syndicated debt facility of A$1,270 million and NZ$150 million. Whilst interest cover and gearing ratios remain unchanged, the Net Leverage Ratio has been amended to provide financial headroom and flexibility. Currently 3.75x, moving to 3.5c in 2019, 3.25x at June 2020 and 3x as at 31 Dec 2020. Dividends will not be paid until NLR is below 2.25x for two consecutive testing dates
- CBA – Intends to demerge wealth management and mortgage broking business and will undertake a strategic review of its CommInsure general insurance business (including potential sale). The demerged business, CFS Group, will include CBA’s Colonial First State, Colonial First State Global Asset Management (CFSGAM), Count Financial, Financial Wisdom and Aussie Home Loans businesses; CFS Group will benefit from a separate listing and ability to pursue its own growth strategies; CBA will benefit from an enhanced focus on its core banking businesses in Australia and New Zealand; As an independent business, CFS Group can enable CFSGAM to realise its full potential for its customers and staff. The previously announced Initial Public Offering of CFSGAM will no longer proceed. CBA shareholders will receive shares in CFS Group proportional to their existing CBA shareholding, while retaining their existing CBA shares.
- APA – Landmark deal with Incitec Pivot. The contract (on commercial operations on the Northern Gas Pipeline), will deliver gas from the Mereenie field in southern Northern Territory, to IPL’s fertiliser plant at Gibson Island, Queensland, through some 3,300km of gas pipelines, the majority of which is APA’s East Coast Grid.
- Kathmandu (KMD) – Trading update and FY18 profit guidance. Full year FY2018 earnings (after $2.0m Obōz acquisition transaction costs) are currently expected to be: EBIT $72-$77 million (last year $57m), NPAT $48-$52 million (last year $38m). Sales year to date to 24 June 2018 are 7.7% above last year (Aust). In addition, Kathmandu gross profit margin is 240 bps (2.4%) above last year due to improved full price sell through, and a higher average selling price
ANALYST CHANGES
- ANZ ($28.65) – 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.
- Deutsche Bank has a Hold recommendation with a target price of $29.00. The analyst expects further capital management initiatives as more divestments are completed over the next 12-18 months.
- Morgan Stanley has an Equal-weight recommendation with a target price of $27.60. The move is ahead of the analyst’s expectation but they believe capital management is necessary to mitigate the dilution to earnings from the asset sales.
- Credit Corp (CCP $17.46) – Morgans has upgraded to an Add (form Hold) recommendation with a target price of $23.00 (from $21.14). The analyst does not believe there are any legitimate concerns raised from the recent anonymous report published on Credit Corp. Despite the attempt to damage the company’s reputation, it is unlikely the risk of access to funding has increased. They think any withdrawal of mainstream banks would see alternative, albeit more expensive, funding options. They think the fundamentals are solid and the three-year growth profile attractive.
- Fletcher Building (FBU $6.37) – FBU has reaffirmed FY18 EBIT guidance. Macquarie has a Neutral recommendation with a target price of NZ$6.56 (from NZ$6.54). They see guidance suggests a stable earnings outlook. Dividend policy continues to be 50-75% of net profit but now references available cash flow. They expect the market to focus on Australian margins and execution on defensive capital expenditure.
THIS WEEK – It’s pretty quiet on the economic front. Highlights are European inflation, US PCE prices 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 PCE prices on Friday and 2 different readings of consumer confidence – the Conference Board and the University of Michigan measures,
LAST WEEK
OVERNIGHT
SPI FUTURES +13
US EQUITIES – S&P500 +5 (+0.19%), Dow Jones +119 (+0.49%), Nasdaq -20 (-0.26%).
Main themes –
- Oil and energy shares spike after OPEC decision to raise output.
- Trade concerns again in focus – Reports the White House is trying to restart talks with China but Trump tweeted about a 20% tariff on European cars.
- The largest 35 U.S. banks passed the first round of the Federal Reserve’s stress test
EUROPEAN MARKETS – All higher. STOXX 600 +1.09%, UK FTSE +1.67%, German DAX +0.54%, French CAC +1.34%
CURRENCIES
- The US dollar was down 0.2% at 94.52
- The Aussie dollar has rallied to US74.45c.
BONDS – 2-yr: +2 bps to 2.55%, 5-yr: +1 bp to 2.78%, 10-yr: +1 bp to 2.91%, 30-yr: +1 bp to 3.05%
COMMODITIES
- WTI oil futures rallied US$3.01 or 4.6% to US$68.56. OPEC said it would return to previously agreed output cuts (which it had been overshooting). Saudi Arabia said this would translate into a nominal output increase of 1mbpd, while Iraq said the real increase would be around 770kbpd as some countries would struggle to reach full quotas. Other analysts say the supply increases are more likely to fall in a range between 600,000 to 800,000 bpd. The Baker Hughes rig count declined by one rig to 862, the first reduction in 12 weeks
- Gold futures were up 20c at US$1,270.70.
- Iron Ore – IRESS reports iron unchanged at US$66.50 a tonne. The CommSec site says China Import (Fines 62% Fe) was up 5c atUS$63.90/dry ton. (CFR Tianjin port)
- LME metals – Cu +0.24%, Ni +1.94% and Al +0.42%.
ECONOMIC DATA, NEWS & POLITICS
- EU – migration discussions ahead this weekend.
- European data – Services PMI 55.0 (expected 53.7; last 53.8), Manufacturing PMI 55.0 (as expected, last 55.5); German Services PMI 53.9 (expected 52.2; last 52.1), Manufacturing PMI 55.9 (expected 56.3; last 56.9); French Services PMI 56.4 (expected 54.3; last 54.3), Manufacturing PMI 53.1 (expected 54.0; last 54.4).
QUOTE OF THE DAY
Our educational system is like an automobile which has strong rear lights, brightly illuminating the past. But looking forward things are barely discernible. Hermann Oberth, Austro/Hungarian born German scientist born this day in 1894. Died 28 December 1989.
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