MID MORNING MARKETS 24-7-18

The ASX200 is up 34 points in mid-morning trade, the US session led by techs (results) and banks (rates). All sectors +ve, H’care & Materials top, banks OK. ILU Q, KGN trading update. AMP +ve technically, WES not so.  #ausbiz

M3M4M5TODAY

  • Atlas Arteria (ALX) Q2 traffic stats, Iluka (ILU) Q report
  • Japanese data – Nikkei Manufacturing PMI Flash, Coincident Index Final, Leading Economic Index Final

TONIGHT

  • European data – Markit Composite, Markit Manufacturing PMI, Markit Services PMI
  • UK – CBI Industrial Trends Orders
  • US economic data – FHFA Housing Price Index
  • US earnings – 3m (MMM), Harley Davidson (HOG), Kimberly-Clark (KMB), Peabody Energy (BTU), Verison (VZ). After market – AT&T (T), Chubb (CB).

COMPANY NEWS

  • Iluka (ILU) – Q report.

M1

  • Kogan (KGN) – The Company produced a net operating cash flow of $24.53 million in the quarter (4QFY18). Expectations  – FY revenue growth of more than 40% ; FY EBITDA growth more than ; Active Customers of 1,388,000 as at 30 June 2018 (compared with 955,000 as at 30 June 2017); Continued to strategically invest in marketing activities in 4QFY18, which are expected to provide a strong return on investment in the short term; Strong financial position with cash of $41.99 million, and access to a $10.0m undrawn bank facility; Inventories of $50.2 million (comprised of $9.8 million of inventory in transit and $40.4 million of inventory in warehouse).
  • Atlas Arteria (ALX) – Toll revenue and Traffic Stats. Weighted average toll revenue and traffic for the June 2018 quarter1 increased by 5.9% and 3.5% respectively on pcp, reflecting increased aggregate traffic levels, primarily at APRR, and revised toll schedules implemented over the past 12 months. For the six months to 30 June 2018, weighted average toll revenue grew 5.7% while traffic over the same period was 3.4% above pcp
  • Primary Health Care (PRY) – Board changes. Chairman and independent Non‐executive Director, Mr Rob Ferguson, will retire, to be succeeded by Mr Rob Hubbard. Ms Sally Evans has also been appointed as an independent Non‐executive Director.
  • Westpac (WBC) – Board appointment. Anita Fung has been appointed to the Westpac Board, subject to completion of all relevant regulatory and Australian visa requirements
  • Resolute Gold (RSG) – Q report
  • Mineral Resources (MIN) – Update on Investor Discussions

M2


ANALYST CHANGES

  • AMP ($3.56) – Citi has a Neutral recommendation with a target price of $3.90 (from $4.15). The analysts suggest investors might be being too harsh on AMP and things might not be as bad as currently priced in. But with lots of uncertainty, it’s just speculative at this stage. They have a point from a technical perspective, with the MACD indicator on the verge of a Buy signal and RSI telling the same story.

C1

  • Megaport (MP1 $3.80) – Deutsche Bank has initiated coverage with a Buy recommendation with a target price of $3.80. The analyst expects global spending on data networks, infrastructure and software to accelerate. They see leverage to strong structural growth in data consumption.

C2

  • Nufarm (NUF $7.48) – Trading update yesterday with dry weather having a significant impact on the A/NZ business, Now expects group FY EBIT of $255-270m (down 10-15%).
    • Citi has a Buy recommendation with a target price of $9 (from $10). The analyst was surprised at the deterioration in conditions and notes that there is no decision on the derogation in France. But they thought the share price reaction takes these negative implications into account.
    • Credit Suisse has an Outperform recommendation with a target price of $9.12 (from $9.45). The analyst thinks the impact of the drought is likely to expend beyond 2H18, while other headwinds include elevated inventory, the shift to lower margin product and lack of progress in France with the derogation application for the use of neonicotinoid-based seed treatment. They have reduced forecasts down for FY18, while FY19 estimates include a partial recovery and a full recovery of Australasian contributions to earnings is factored in by FY20. Medium term opportunities including Omega-3, footprint expansion in North America and acquisitions in Europe.
    • Deutsche Bank has a Sell recommendation with a target price of $6.75. The downgrade was larger than the analyst had expected and impairments are implied. They think other positives (European acquisitions, Omega-3 and recent transactions) will be discounted and focus will return to sustainable earnings, valuation multiples and leverage.
    • Morgans has an Add recommendation with a target price of $9 (from $10). The size of the downgrade was larger than the analyst was expecting, while a delay in approvals for an EU derogation application has also affected earnings. They have downgraded FY18 EBIT estimates by 15.5%, noting challenging seasonal conditions in most regions amid a plant shutdown and product ban. They think shares are oversold but a re-rating will take time.

C3

  • Wesfarmers (WES $49.35) – Coles demerger update. Target November 2018; WES to retain 15% of Coles and 50% of flybuys; Coles balance sheet; net debt of approximately $2.0 billion to support a Baa1/BBB+ credit rating; Coles dividend payout ratio 80-90%. Tecnhically, shares are a Hold at best, with the MACD indicator about to trigger a Sell signal (moving into negative territory) and the RSI also heading below 70, also a Sell signal.
    • Citi has a Sell recommendation with a target price of $43.50. They analysts suggest Coles might have to take on additional debt to secure dividends for shareholders given the necessity of more capex spending but will have some room to spend on store refurbishment etc. They raise longer term questions about the sustainability of high capex combined with high dividend payout strategy.
    • Deutsche Bank has a Hold recommendation with a target price of $46. The analyst thinks the debt and pay-out guidance point to a rational industry. They don’t expect Coles will be over geared while the dividend guidance suggests all free cash will be paid out.
    • Morgans has a Hold recommendation with a target price of $47.34. The analyst view remains unchanged.

C4


OVERNIGHT

M10M11

SPI FUTURES +19

US EQUITIES – S&P500 +3 (+0.18%), Dow Jones -14 (-0.06%), Nasdaq +22 (+0.28%).

Main themes

  • Strong performance from the tech sector. Alphabet (+3.2% in after-hours trade)
  • Banks also performed well as bond yields ticked up and the yield curve steepened.
  • Most other sectors were lower.

EUROPEAN MARKETS – Generally lower. STOXX 600 -0.19%, UK FTSE -0.30%, German DAX -0.10%, French CAC -0.37%.

CURRENCIES

  • The US dollar was up 0.2% to 94.65
  • The Aussie dollar is weaker at 73.84

BONDS – 2-yr: +2 bps to 2.62%, 5-yr: +6 bps to 2.83%, 10-yr: +7 bps to 2.97%, 30-yr: +7 bps to 3.10%

COMMODITIES

  • WTI crude futures closed down US30 or 1.4% at US$67.89 with little response to rising tensions between the US and Iran.
  • Gold futures were down US$5.50 at $1,225.60 due to the higher US dollar.
  • Iron Ore – IRESS reports iron rose US50to US$67.00 a tonne. The CommSec site says China Import (Fines 62% Fe) was up US40c at US$65.20/dry ton. (CFR Tianjin port)
  • LME metals – Mostly weaker. Cu -0.28%, Ni -0.96% and Al +1.97% the exception.

ECONOMIC DATA, NEWS & POLITICS

  • US earnings – Halliburton (+8.1%) on below consensus profit.. After market – Alphabet (+3.2% in after-market trade). 17% of S&P 500 companies have now reported earnings, with 82% of those beating analyst expectations. Overall, expectations are for 20% yoy growth.
  • US economic data – June Existing Home Sales 5.38m (consensus 5.45m; prior 5.41m)
  • US GDP the is Friday – some economists suggest the risk to the reading (consensus 4.1%) is to the upside, with even a 5 handle possible.
  • Brexit – Dominic Raab said Britain will not pay the £39bn Brexit bill if the EU rejects the UK’s trade deal
  • European data – June Consumer Confidence -0.6 (expected -0.7; last -0.6)
  • Germany – The Bundesbank monthly report showed an uptick in economic momentum during the late spring. The manufacturing sector was a driving force behind economic growth while household consumption remained at a healthy level.
  • Greek economy stabilising – Standard & Poor’s affirmed Greece’s B+ rating and raised the outlook to ‘Positive’ from ‘Stable’

QUOTE OF THE DAY

“The most difficult thing is the decision to act, the rest is merely tenacity. The fears are paper tigers. You can do anything you decide to do. You can act to change and control your life; and the procedure, the process is its own reward.” – Amelia Earhart, American aviator born this day in 1989. Died 2 July 1937.

M12

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