MID MORNING MARKETS 12-7-18

The ASX200 is up 28 points in mid-morning trade, despite negative leads from global markets on trade war concerns. Healthcare on top and banks positive, Energy and Materials lag. MOC guidance, trading updates from A2M, FNP, and NBL (let confession season begin), IVC acquisition, APE result. #ausbiz

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TODAY

  • Ex-dividend – Bentley Capital (BEL) 0.5c
  • Chinese data – FDI (YTD), New Yuan Loans, Outstanding Loan Growth
  • Japanese Tertiary Industry Index

TONIGHT

  • European data – Industrial Production
  • Fed Speak – Minneapolis Fed President (non-voter) Neel Kashkari, Philadelphia Fed President (non-voter) Patrick Harker

COMPANY NEWS

  • Resolute Gold (RSG) – FY18 Production and FY19 Guidance. 284koz at AISC of A$1,355/oz (US$1,051/oz) in FY18; FY19 Guidance of 300koz at AISC of A$1,280 (US$960/oz); Syama and Ravenswood to ramp up in FY19; +A$110m in cash, bullion and listed investments.
  • A2Milk (A2M) – Group revenue for FY18 up 68% to ~$922million. Also expects EBITDA/sales of 30%.
  • Invocare (IVC) – Will acquire Archer & Sons Funeral Homes. Archers operate from 2 sites located at Bunbury and Manjimup in the south west region of Western Australia – includes two fully operational funeral homes complete with mortuary facilities. The business conducts around 330 funeral services and generates revenue of circa $2.4m per annum.
  • Healthscope (HSO) – There are media reports that HSO is close finding a buy for its pathology business
  • Sydney Airport (SYD) – David Gonski appointed to SYD board.
  • Cleanaway (CWY) – Entered into a JV with ResourceCo Holdings Pty Ltd to acquire a 50% interest in ResourceCo’s new Resource Recovery Facility located at Wetherill Park in western Sydney. The Facility is licensed to receive up to 250,000tpa of dry commercial and industrial waste. The purchase price for the 50% interest includes a $25m payment at completion plus an earn out of up to a further $25m payable in two instalments over two years once the Facility generates agreed EBITDA targets.
  • Mortgage Choice (MOC) – New broker remuneration schedule. Increase in the average commission payout rate on residential lending from 65% to 74%; unique hybrid trail commission structure which pays the best monthly outcome on either a flow or book basis; and designed to reduce income volatility, providing better protection for franchisees in the event of a market downturn. Also operating efficiency program to reduce operating expense base by 10%. Guidance update: NPAT for FY2018 $23.2-$23.4m after accounting for one‐off costs associated with redundancies and the change in CEO. Also oneoff, noncash negative adjustment of approximately $30m to IFRS NPAT for FY2018 to reflect the higher level of franchisee share of future trail revenue. Taking into account the new remuneration model and operational changes being introduced across the business, FY2019 cash and IFRS NPAT to be approximately $16.5m
  • Cedar Woods (CWP) – Has sold a third office building in Williams Landing, Victoria (107 Overton Road) to Hellenic Property Investments Pty Ltd, a subsidiary of the Hellenic Club of Canberra, for $25.93 million, reflecting a strong yield of 5.4%.
  • Praemium (PPS) – Record annual inflows with FUA past $8bn. Combined quarterly gross inflows of $760m, the third highest on record; 34% higher than the prior year’s corresponding period; Australian gross inflows of $566 million, the third highest on record; International gross inflows of $194 million, the fourth highest on record; Record annual gross inflows of $3.0 billion, 50% higher than the prior financial year; and Funds under administration (FUA) up 35% on last year to $8.3 billion.
  • Rural Funds Group (RFF) – Conditional agreements with JBS Australia, Australia’s largest lot feeder and cattle processor.
  • Atlas Iron (AGO) – June Q production report. 2.1m wmt shipped inJunQ; C1 cash costs of A$42/wmt FOB; Full cash cost of A$62/wmt CFR; Average realised price of A$59/wmt CFR, inclusive of hedging gains and provisional pricing adjustments; Net cash utilised by operations of A$6m in the June Quarter, after interest and financial instruments; Cash on hand of A$57m at 30 June 2018 following operating loss and adverse working capital movements (31 March 2018: A$64m cash on hand plus A$14m inReserve Account); First shipments of lithium DSO and manganese lump completed; Atlas Board unanimously recommends Hancock Offer . ASIC has also extended the deadline for sending target’s statement.
  • AP Eagers (APE) – Expects a record NPBT result up 2.1% to $69.5m for 1H18 (from $68.1 million ion pcp 17).
  • Noni-B Limited (NBL) – Trading update. Key highlights for FY2018: Like-for-like sales for the period grew by 4.5%; Total sales grew to approx. $364m; The Group’s store network increased from 614 stores at the start of the period to 641 stores; Online grew to 5.8% of total sales. Guidance: EBITDA for FY2018 to be up 70% to $37m, consistent with broker analyst expectations.
  • Freedom Foods (FNP) – Trading update. Continues to experience strong demand across its business activities in Australia, China and SE Asia. However there were some delays in implementing the product range for certain new products. Net sales for FY 2018 expected to be $353 million, up 35% on pcp. This is below the upgraded net sales revenue target of $360-$380m but FNP says it’s very pleased with the result having regard to the positive market trends. Based on the current portfolio, product range and new contracts for key customers coming on stream in the 1st half of FY 2019, the Company expects net sales revenue in FY 2019 to be in the range of $500 to $530 million.

ANALYST CHANGES

  • AGL – ACCC report on the energy sector. Includes a series of reforms across generation, transmission and retail to restore efficiency, fairness and competition to the national electricity market.
    • Macquarie has a Neutral recommendation with a target price of $22.50. The analyst estimates the ACCC’s electricity price recommendations, which imply -$37-62MWh lower prices, would cost AGL $0.47-1.09 in value. They had already fctored in this sort of scenario so no changes to view. They also think the valuation decrease would be at the lower end of this range to the reaction yesterday was overdone.

C1

  • Corporate Travel (CTD $27.58) – Acquisition of 75.1% of Lotus Travel and $40mcapital raising.
    • Macquarie has a Neutral recommendation with a target price of $26.00 (from $24.10). They note that the acquisition makes CTD the biggest player in Hong Kong and expect multiple synergies across cost, suppliers and systems. They think more M&A is required to drive scale and offshore growth, and with a strong balance sheet, they assume the raising is to provide near term acquisition flexibility.
    • UBS has a Buy recommendation with a target price of $27.50. The analyst thinks Europe and North America are the next areas of focus for CTD. They note momentum within the broader business is strong and market share gains are expected to accelerate in the second half. They expect strong growth opportunities from the roll-out of the technology in Asia and North America in the short to medium term.

C2

  • Invocare (IVC $13.90) – Citi has downgraded to a Neutral (from Buy) recommendation with a target price of $14.25 (from $14.00). The downgrade results from share price appreciation 9and a change in analyst at Citi)

C3

  • Sydney Airport (SYD $7.05) – Credit Suisse has downgraded to an Underperform (from Neutral) recommendation with a target price of $6.75 (from $6.80). The analyst sees regulatory and contracting risk ahead and expect dividend growth for the next five years to be lower than the growth over the past five years. They expect SYD to start paying tax in 2021 and expect management to smooth dividend growth to avoid any decline post 2021. They have cut dividend estimates 5% and 3% for 2019 and 2020 respectively.

C4

  • Treasury Wine Estates (TWE $17.55) – Citi has a Sell recommendation with a target price of $14.50 (from $13.30). The analyst notes a big 2016 vintage in Australia which should contribute $82m to EBITS (around 60% of their FY19 growth estimates). The have raised EPS estimates by 2.5% for FY19 and 1.5% for FY20. But they think shares are expensive.

C5

  • Ramsay Health Care (RHC $54.06) – UBS has a Neutral recommendation with a target price of $54.00 (from $64.00). A new analyst has reduced forecasts by 4-7% over the longer term. They believe a combination of lower volume growth, adverse shift in mix and pricing pressures in Australian hospitals will offset the benefits from procurement and brownfield additions.

C6

  • Healthcare sector – Citi has a new health care analyst and they’ve gone through the sector ahead of results season. They are more positive where there is international exposure.
    • Ansell (ANN $26.99) – Neutral recommendation with a target price of $27.00 (from 24.25).
    • Cochlear (COH $196.39) – Neutral recommendation with a target price of $196.50 (from $175.00)
    • CSL – Buy recommendation with a target price of $232.00 (from $215). CSL is the key pick and earnings risk is seen to the upside.
    • Fisher & Paykel (FPH $13.56) – Downgraded to a Sell (from Neutral) recommendation with a target price of NZ$12.50 (from NZ$13.40).
    • Primary Healthcare (PRY) – Sell recommendation with a target price of $3.30 (from $3.20).
    • ResMed (RMD $14.43) – Neutral recommendation with a target price of $15.00 (from $13.80).
    • Sonic Healthcare (SHL $25.12) – Upgraded to a Neutral (from Sell) recommendation with a target price of $26 (from $21.75).

OVERNIGHT

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SPI FUTURES -8

US EQUITIES – S&P500 -20 (-0.71%), Dow Jones -219 (-0.88%), Nasdaq -43 (-0.55%).

Main themes

  • US-Chinese trade concerns – The US market responds to the list of new products, representing $200bn of imports from China, to be subject to a 10% tariff.

EUROPEAN MARKETS – All lower. STOXX 600 -1.26%, UK FTSE -1.30%, German DAX -1.53%, French CAC -1.48%.

CURRENCIES

  • The US dollar was up 0.6% at 94.73
  • The Aussie dollar has dropped to US73.69c.

BONDS – 2-yr: +1 bp to 2.58%, 5-yr: -3 bps to 2.74%, 10-yr: -3 bps to 2.84%, 30-yr: -2 bps to 2.95%

COMMODITIES

  • WTI crude futures fell US$3.73 or 5% to US$73.40 (the biggest drop in over a year). New tariffs, and the risk that China could tax US crude imports, were in focus, as was increasing OPEX production and Libyan disruption being resolved.
  • Gold futures were down US$11.00 at $1,244.40.
  • Iron Ore – IRESS reports iron unchanged at US$66.50 a tonne. The CommSec site says China Import (Fines 62% Fe) was down 50c at US$62.70/dry ton. (CFR Tianjin port)
  • LME metals – All significantly lower. Cu -2.96%, Ni -1.94% and Al -1.44%

ECONOMIC DATA, NEWS & POLITICS

  • Economic data – Weekly MBA Mortgage Index 2.5% (prior -0.5%), June PPI 0.3% (consensus 0.2%; prior 0.5%) and Core PPI 0.3% (consensus 0.2%; prior 0.3%); May Wholesale Inventories 0.6% (consensus 0.5%; prior 0.1%)
  • Key point from the PPI data is that producers are facing increased cost pressures throughout all stages of production. This will either cause profit margin pressures (if they don’t pass those costs onto customers) or concerns about consumer inflation pressures (if they do).

QUOTE OF THE DAY

“What we do during our working hours determines what we have; what we do in our leisure hours determines what we are.” – George Eastman, American inventor born this day in 1854. Died 14 March 1932.

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