The ASX200 is -26pts in mid-morning market trading after big sell-off overnight on trade war issues. Banks holding up. Materials lower. APO accepts JCD offer at $6.70, CFK results, INA upgrade to guidance, NWH update, RC continues #ausbiz


  • Japanese data – Coincident Index Final, Leading Economic Index Final
  • Collins Foods (CKF) earnings


  • UK data – Finance Mortgage Approvals, CBI Distributive Trades
  • US economic data – S&P Case-Shiller 20-city Index, Consumer Confidence
  • Fed Speak – Atlanta Fed President (FOMC voter) Raphael Bostic, Dallas Fed President (non-voter) Robert Kaplan


  • APN Outdoor (APO) – Board recommends offer for JCD at $6.70
  • Collins Foods (CFK) – FY results. Revenue up 21.7% to $770.9 million (FY17: $633.6 million); KFC Australia SSS (same store sales) of 1.0% (FY17: 0.7%); Acquisition of 25 KFC Australia restaurants successfully completed and integrated (two completed post year end, one restaurant yet to complete); 33 KFC restaurants operating in Europe at year end: comprising 15 restaurants in Germany and 18 restaurants in the Netherlands; Statutory EBITDA up 14.7% to $89.6 million (FY17: $78.1 million); and underlying EBITDA up 16.4% to $94.5 million (FY17: $81.3 million); Statutory NPAT up 16.1% to $32.5 million (FY17: $28.0 million); and underlying NPAT up 13.3% to $38.9 million (FY17: $34.3 million); Operating cash flow up 23.1% (or $14.0 million) to $74.5 million (FY17: $60.6 million); Net debt of $227.2 million (FY17: $133.1 million) and Net leverage ratio of 2.14 (FY17: 1.59) due to funding of acquisitions in the Netherlands and Australia; Fully franked final dividend of 9.0 cents per ordinary share declared (FY17: 9.0 cps); and total FY18 fully franked dividend of 17.0 cps (FY17: 17.0 cps)
  • South32 (S32) – Samarco Update. Settlement achieved. No total value disclosed. “Samarco, Vale, BHP Billiton and the Brazilian government and other parties have agreed an arrangement which settles the BRL20 billion Civil Claim, enhances community participation in decisions related to the remediation and compensation programs under the Framework Agreement (Programs), and establishes a process to renegotiate those Programs over two years and to progress settlement of the BRL155 billion Civil Claim.”
  • Trade Me (TME) – CEO Jon Macdonald is stepping down in 6 months. A global recruitment process is under way.
  • Newcrest Mining (NCM) – Gosowong Contract of Work amended. PT NHM (NCM’s 75% subsidiary) will pay prevailing tax rates contained in the Indonesian Income Tax Laws law from 1 July 2018. Though the net impact of these changes in aggregate will negatively impact the value of Gosowong, the impact on cashflow is not expected to be material for Newcrest. Indonesian parties must own at least 51% of PT NHM within two years of signing the amendment agreement. As a result, Newcrest must divest at least another 26% interest from its current shareholding percentage of 75%.
  • Lendlease (LLC) – Chairman, David Crawford AO, will retire from the Board at the November AGMto be replaced by current non-executive Director and Chairman of the Sustainability Committee, Michael Ullmer
  • Bendigo & Adelaide Bank (BEN) – Bendigo and Adelaide Bank and hundreds of Australian communities will today mark 20 years of its pioneering and innovative Community Bank model.
  • Santos (STO) – Mira 6/2 Gas Production Update. Flow rate from the Mira 6/2 horizontal vertical-well combination has exceeded 1,400,000 scf/d (standard cubic feet of gas per day), with a water rate of only 30 bwpd (barrels water per day).
  • Ingenia Communities (INA) – Upgrade to Guidance. Guidance for FY18 underlying earnings per security (EPS)1 increased from >15.6 cps to >17.2 cps (up 10% on previous guidance and up 32% on prior year); Forecast 280-285 new home settlements for FY18, up 33% on prior year and above guidance; Close the year with 160 deposits and contracts in place (up 19% on prior year); Remain on track to deliver 350+ settlements in FY19 (up 25% on FY18); Debt facilities refinanced, providing longer tenure and increased loan capacity; Contracts exchanged for additional $24.5 million in non-core asset sales
  • NRW Holdings (NWH) – Company Operational Update. Due to $93 million Isaac Plains contract extension announced with Stanmore Coal last week, the recent $230 million Curragh contract extension and the $420 million Baralaba coal contract, both awarded in May, the total order book has now increased to near record levels at $2.05 billion.


  • CBA ($72.16) – 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.
    • Deutsche Bank has a Hold recommendation with a target price of $76.00. The analysts suggests there will be limited impact on the bank’s returns in the short term and lower likelihood of capital returns.
    • Macquarie Bank has a Neutral recommendation with a target price of $75.50. The analyst believes the earnings trends are challenging and there is uncertainty around the level at which earnings are likely to settle.
    • UBS has a Neutral recommendation with a target price of $74.00. The analyst isn’t surprised at the announcement and continues to support CBA given its strong franchise and market position. The outlook remains challenging nonetheless and they think risks are skewed to the downside.
    • Some very positive short-term technical indicators on the chart, with the horizontal support at $70.00 being respected, a bounce on the RSI and a move to positive MACD indicator. I’m a little more cautious ahead of the latest RC hearings).


  • Flight Centre (FLT $63.12) – UBS has a Buy recommendation with a target price of $69.00 (from $60.70). The analyst thinks earnings upgrades are needed for any outperformance and the main drivers will be robust travel markets and achievement of medium-term targets. FY18 results in August could be the next catalyst and they think guidance for pre-tax profit of $360-385m is conservative because it implies 5-6% underlying growth. The UBS estimates are around 2% above this range. Shares are looking a little toppy on the chart. The RSI has just dipped below the overbought level of 70 (a sell signal) while the MACD indicator (the blue bars)look ready to move into negative territory (also a Sell signal)


  • Metcash (MTS $2.85) – 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); ~$125m Off-Market Buy-Back announced.
    • Deutsche Bank has a hold recommendation with a target price of $2.80. The analyst notes the results from the food business were in line with the pre-announcement, while liquor and hardware were solid. The outlook commentary is in line with recent trends and they see the key issue is additional cost reductions beyond FY19 because to avoid further earnings declines in food.
    • Citi has a Sell recommendation with a target price of $2.55. The analyst think MTS may look “cheap”, but that is for good reason. They see ongoing risk of losing another major customer by 2020. They notes a lack organic growth while the cost cutting exercise is losing impact and they question whether a share buyback is the smartest option for the company’s cash.
    • Credit Suisse has an underperform recommendation with a target price of $2.51 (from $2.65). The analyst believes food distribution is vulnerable to a reduction in sales and the realisation of contingent liabilities on retail leases, debt guarantees and equity options. They also question why Drakes Supermarkets could find it financially rational to spend $80m on a new warehouse rather than being supplied by Metcash
    • Macquarie has a Neutral recommendation with a target price of $3.17 (from $3.50). The result was in line with the analyst’s expectations, driven by Hardware and efficiency savings, but they expect further efficiency savings will be partially offset by tough conditions in grocery and $10m in opex investment. They see limited growth and the risk of further contract losses.
    • UBS has a Buy recommendation with a target price of $3.00. The underlying FY18 results were in line with analyst’s estimates. They liked the improved trading in food, upgrade to hardware synergies and $125m buyback. They have cut underlying earnings by 5%, which is offset by the accretion from the buyback, and think the structural headwinds are more than priced into the stock.
    • Technically shares look like they might be ready to resume the uptrend, with the daily chart (not shown) looking particularly encouraging). The result has moved attention to the stronger businesses (hardware and liquor) which offer upside potential.


  • Kathmandu (KMD $2.65) – Trading update and FY18 profit guidance. Full year FY2018 earnings (after $2.0m Obōz acquisition transaction costs) 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.
    • Macquarie has an Outperform recommendation with a target price of $2.98 (from $2.78). The analyst has upgraded FY18 forecasts by 8.8%. based on the upgraded guidance and says recent improvement in the company’s momentum is being maintained.


  • Insurance Australia Group (IAG $8.57) – Credit Suisse has a Neutral recommendation with a target price of $750. After CBA announced a strategic review of its general insurance business, the CS analyst thinks IAG is a likely interested party due to its capital strength and the benefit of a strategic partnership with CBA. They think the environment remains favourable and management has a lot of options because of the balance sheet strength





US EQUITIES – S&P500 -38 (-1.37%), Dow Jones -328 (-1.33%), Nasdaq -161 (-2.09%).

Main themes

  • Dow was down as much as 496
  • Technology stock underperform (NASDAQ -2.09%). Netflix -6.5%, Amazon -3.1%, Facebook -2.7%
  • Trade war concerns dominate the volatility –
  • Media reports that Trump will bar Chinese companies from investing in US tech and block tech exports to China. Treasury Secretary Steven Mnuchin refuted the article, tweeting that planned restrictions on foreign investment in US technology will target all countries that are trying to steal US technology, not just China
  • Trump threatens with “more than reciprocity”
  • Losses were trimmed after trade adviser Peter Navarro said there were no plans to impose investment restrictions.
  • Reports Chinese President Xi Jinping told a group of CEOs of multinational companies that China will fight back against escalating trade rhetoric from US President Trump

EUROPEAN MARKETS – Big falls. STOXX 600 -2.04%, UK FTSE +-2.24%, German DAX -2.46%, French CAC -1.92%. Greek market +0.77% the exception.


  • The US dollar was down 0.2% at 94.30
  • The Aussie dollar was also weaker at US74.16c.

BONDS – 2-yr: -3 bps to 2.52%, 5-yr: -3 bps to 2.74%, 10-yr: -2 bps to 2.88%, 30-yr: -2 bps to 3.02%


  • WTI oil futures down US50c to US$68.06. Falls were limited by the likelihood that an outage at Syncrude Canada’s 360,000 bpd oil sands facility would last through July. The outage is expected to limit crude arriving at Cushing, Oklahoma, (which is the delivery point of the US futures contract)
  • Gold futures were down US$1.80 at US$1,268.90.
  • Iron Ore – IRESS reports iron unchanged at US$66.50 a tonne. The CommSec site says China Import (Fines 62% Fe) was up 70c atUS$64.60/dry ton. (CFR Tianjin port)
  • LME metals – Cu -0.50%, Ni -3.50% and Al -0.92%.


  • US economic data – New Home Sales +6.7% to 689K (consensus 666K; prior 646K (revised from 662K))
  • HarleyDavidson (+6.0%) after announcing it will move production overseas to counter the impact of the EU’s reciprocal tariffs.
  • Turkish elections – President Recep Tayyip Erdogan will serve a second term after receiving 53.0% support. He will have increased authority after the implementation of changes to Turkey’s constitution.


“Adolescents are not monsters. They are just people trying to learn how to make it among the adults in the world, who are probably not so sure themselves.“ – Virginia Satir, American psychologist born this day in 1916. Died 10 September 1988. Need to put this as a post-it on my bathroom mirror. They are not monsters, they are not monsters, they are NOT monsters


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