The ASX200 is +10pts in mid-market trading after global markets settled overnight. Energy the best sector after moves to stop US purchases or Iranian oil. Banks mixed amid RC. OML back online, AZJ investor day. Macquarie upgrades resources, AUD back at 73.90c. #ausbiz



  • Aurizon (AZJ) investor day
  • Chinese – Industrial Profits (YTD)


  • European – Loan Growth
  • US economic data – Durable Orders, Adv. Intl. Trade in Goods, Adv. Wholesale Inventories, Current Account Balance, Pending Home Sales
  • Fed Speak – Governor (FOMC voter) Randal Quarles, Boston Fed President (alternate voter) Eric Rosengren


  • Resolute Mining (RSG) –  Has acquired a 27% interest in Loncor Resources Inc (Loncor), involving a CAD $2.6m subscription in a placement of new Loncor shares and a ‘share swap’ of CAD $2.5m of Resolute shares for existing Loncor shares.
  • Aurizon (AZJ) – Investor Day. Has confirmed FY2018 guidance for EBIT ($900–$960 million) and above-rail coal volumes (210–220 million tonnes). In FY2019 a number of matters are expected to impact earnings including: Regulatory uncertainty with continued delays to the finalisation of the Queensland Competition Authority Access Undertaking (UT5) for the Central Queensland Coal Network; Regulatory uncertainty regarding Australian Competition and Consumer Commission approval of the sale of the Acacia Ridge Terminal and Intermodal Queensland (total consideration for the two transactions is $220 million). If the transactions are not approved then the Intermodal Queensland business will be closed, with closure costs likely to be incurred in FY2019; Cessation of Cliffs iron ore mine operations in June 2018, and the cessation of the Mt Gibson iron ore contract as expected in mid FY2019 with a combined EBIT impact in the order of $50 million in FY2019; Flat outlook in Coal with contracted volume growth and transformation benefits offset by one off increases in maintenance costs, costs for installing capacity for new volumes and volume impact of UT5 Draft Decision
  • OZMinerals (OZL) – Acceptances for Avanco offer now total 90.46%. Will commence compulsory acquisition. Also new exploration earn-in agreement targeting Iron Oxide Copper-Gold (IOCG) mineralisation in Norrbotten, Sweden.
  • Nanosonics (NAN) – Has established conformity of the trophon2 to European Union Requirements. This follows the review of the trophon2 technical documentation by its European notified body. The newly CE-marked trophon2 is planned to launch in Europe in the first quarter of the 2019 financial year, in a similar timeframe to the USA and Canada.


  • Macquarie on resources – The analyst has adjusted price forecasts, particularly for nickel, alumina, iron ore and manganese.
    • BHP Billiton (BHP $32.64) – Macquarie has an Outperform recommendation with a target price of $38.00 (from $36.20). They note the shale oil exit and resultant capital management is a near term catalyst for BHP, which has stronger earnings momentum than Rio Tinto.
    • Fortescue Metals Group (FMG $4.55) – Macquarie has an Outperform $5.40 (from $5.50). While still positive, the analyst expects low grade iron ore to remain in a tight range.
    • Iluka Resources (ILU $11.32) – Macquarie has a Neutral recommendation with a target price of $11.90 (from $11.00
    • Rio Tinto (RIO $81.73) – Macquarie has an Outperform recommendation with a target price of $94.00. While they have an outperform recommendation, they prefer BHP.
    • South32 (S32 $3.56) – Macquarie has an Outperform recommendation with a target price of $4.20 (from $4.00).
    • Sandfire Resources (SFR $9.36) – Macquarie has a Neutral recommendation with a target price of $9.30 (from $8.30)
    • Whitehaven Coal (WHC $5.58) – Macquarie has an Outperform recommendation with a target price of $5.80 (from $4.60)
    • Western Areas (WSA $3.43) – Macquarie has an Outperform recommendation with a target price of $4.40 (from $4.00)
  • APN Outdoor (APO $6.42) – Board recommended offer for JCD at $6.70 yesterday
    • Morgans has a Hold recommendation with a target price of $6.70 (from $5.68). The analyst sees little chance of a higher bid but think ACCC approval is a risk as it has previously intervened in the outdoor advertising sector. They think some investors may want to reinvest proceeds before the takeover bid is formally completed.


  • Collins Foods (CKF $5.60) – FY results yesterday. 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)
    • Deutsche has upgraded to a Buy (form Hold) recommendation with a target price of $6.30 (from $5.50). The analyst was disappointed with margins and thought comparables were soft. Margin weakness in Europe reflected the costs associated with establishing a presence in Germany and the Netherlands, although they still think this is a good long-term strategy. Otherwise, recent Australian trading has been more positive and FY18 will present an easier comparable base. The upgrade is valuation based.


  • James Hardie (JHX $22.19) – Deutsche Bank has a Buy recommendation with a target price of $25.35. At the recent investor briefing, the company said it was continue to grow, despite the turn in the housing market, due to new products, systems and efficiencies. The Deutsche analyst is positive about US primary demand growth but notes upside from new fibre cement revenue is largely dependent on R&D development that is some time away.


  • Bank of Queensland (BOQ $10.35) – Morgan Stanley has an Underweight recommendation with a target price of $9.50. BOQ is repricing variable mortgages by an average of 11.5bp, which the analyst estimates should boost FY19 net interest margin by fi5bp and earnings by around 5%. Despite this, they think earnings headwinds will offset the benefit, including competition for deposits as lower mortgage growth 9unless other banks follow suit).


  • Link Administration (LNK $7.16) – Morgan Stanley has initiated coverage with an Overwieght recommendation with a target price of $9.90. The analyst thinks the market underestimating the opportunity that exists for Link to build a leading European asset servicing franchise. They suggest the discount will unwind as Europe is a structural growth story and headwinds regarding Australian superannuation reforms can be navigated.


  • Metscash (MTS $2.80) – Result on Monday. Deutsche has downgraded to a Sell 9form Hold) recommendation with a target price of $2.50 (from $2.80). The analyst thinks the risks are still to the downside and the cost reductions are no longer sufficient to hold earnings flat. The loss of the Drakes contract is also an issue and there remains some risk for other large retailers to follow.


  • Nine Entertainment Co (NEC $2.45) – Credit Suisse has an Outperform recommendation with a target price of $2.60. There are media reports suggesting NEC has acquired the 2019 Australian Open broadcast rights, bringing forward its 2020-24 tennis deal. The cost is reported to be $48.5m (below the $60m per annum average under the original deal). The CS analyst sees this as a positive, reducing the risk of NEC’s summer schedule, but FY19 operating earnings (EBITDA) are reduced by 3% (FY20 is unchanged).


  • Rio Tinto (RIO $81.73) – Deutsche has a Hold recommendation with a target price of $89.00. After the recent site visit, the analyst thinks the current strategy, which involves a focus on value over volume centring on a flexible system to deliver the required products to market, will not be tested until the next steel downturn. They think RIO is ahead of its peers in technology and automation, and RIO believes higher volumes will offset inflationary cost pressures.





US EQUITIES – S&P500 +6 (+0.22%), Dow Jones +30 (+0.12%), Nasdaq +30 (+0.39).

Main themes

  • Trade war concerns – temporarily eased after comments from Peter Navarro on Monday that there were no plans to impose investment restrictions. But press secretary Sarah Sanders said “As the Secretary said, a statement would go out that targets all countries that are trying to steal our technology, and we expect that to be out soon.”
  • Energy the best sector after oil rallies on comments from State Department banning oil purchases from Iran
  • GE +7.8% after announcing plans to spin off its healthcare business and sell its stake in Baker Hughes. GE left the Dow Jones index, replaced by Walgreens Boots.
  • Trump threatened Harley-Davidson – If it moves overseas, “it will be the beginning of the end” and “they will be taxed like never before.”
  • Uber – London authorities have overturned ban, allowing Uber to operate

EUROPEAN MARKETS – Mostly higher. STOXX 600 +0.02%, UK FTSE +0.37%, German DAX -0.29% the main exception, French CAC -0.05%.


  • The US dollar was up 0.5% at 94.71
  • The Aussie dollar was weaker at US73.90c.

BONDS – 2-yr: +1 bp to 2.53%, 5-yr: +1 bp to 2.75%, 10-yr: UNCH at 2.88%, 30-yr: UNCH at 3.03%


  • WTI oil futures rallied US$2.45 or 3.6% to US$70.53 after the US State Department said purchases of Iranian oil were to be cut by early November as part of re-established sanctions. It comes amid production issues in Venezuela and short-term supply issues in Canada and Libya.
  • Gold futures were down 0.71% at US$1,259.90.
  • Iron Ore – IRESS reports iron unchanged at US$66.50 a tonne. The CommSec site says China Import (Fines 62% Fe) was up 6c atUS$64.65/dry ton. (CFR Tianjin port)
  • LME metals – Mixed. Cu -0.62%, Ni +0.37% and Al +0.12%.


  • US economic data – S&P Case-Shiller 20-city Index 6.6% (consensus 6.8%; prior 6.8%), Consumer Confidence 126.4 (consensus 127.1; prior 128.8)
  • US homebuilder Lennar (+6.3%) rallied after reporting better-than-expected quarterly results due to strong housing demand. Positive for Aust homebuilders or those with exposure in the US such as James Hardie (JHX) and CSR
  • Canada is reportedly preparing tariffs and quotas on steel imports from certain countries, including China
  • UK economic data – Gross Mortgage Approvals 39,200 (expected 38,200; last 38,300)


“I don’t care a damn for your loyal service when you think I am right; when I really want it most is when you think I am wrong.” – Sir John Monash, Australian military commander born this day in 1865. Died 8 October1931.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s