MID MORNING MARKETS 27-7-18

The ASX200 is up 56 points in mid-morning trade with Gold and Staples the key drags. BHP lift on US oil sale, AMP guidance and lots on next week – local retail sales, BoJ, BoE and FOMC meetings, Chinese PMIs, Euro GDP, CPI and u/e, US jobs and ISM. #ausbiz

M6M7M8TODAY

  • Australian economic data – PPI
  • Chinese data – Industrial Profits

TONIGHT

  • UK – Nationwide Housing Prices
  • US economic data – GDP-Adv., Michigan Sentiment – Final
  • Company earnings – Chevron (CVX), Exxon Mobil (XOM), Merck (MRK), Moody’s (MCO), Twitter (TWTR)

COMPANY NEWS

  • AMP – Update on its expected 2018 interim results and actions being taken to reset the business, prioritise customers and strengthen risk management systems and controls
    • Actions to reset the business: Accelerating advice remediation – 1H 18 result provision of A$290 million (post-tax); Improved value for around 700,000 super customers: through fee reductions to AMP’s flagship MySuper products in 3Q 18; Risk management systems and controls: increased investment of A$35 million (post-tax); Reprioritising the portfolio review: to realise capital from the manage for value businesses. AMP remains in active discussions with a number of interested parties.
    • 1H 18 results expectations: 1H 18 underlying profit $490–500 million; Growth across AMP’s core growth businesses, offset by recent deterioration in experience and capitalised losses in Australian wealth protection. Expected capital surplus A$1.8 billion at 1H 18; FY 18 dividend payout at the lower end of the 70-90% guidance range. To retain capital and strategic flexibility over the coming period, it is expected that the interim dividend may be outside this range.
  • BHP – Sale of onshore US Assets. Sale of its entire interests in the Eagle Ford, Haynesville, Permian and Fayetteville Onshore US oil and gas assets for US$10.8 billion, payable in cash. BP sales $10.5bn, Merit $0.3bn (Fayetteville). Completion expected by October. Net proceeds will be returned to shareholders (confirmed later). impairment charge of US$2.8 billion posttax as an exceptional item. Income tax US$0.2bn (estimated cash tax payable less than US$0.1bn after utilisation of carried forward tax losses held by the BHP US tax consolidated group). BHP has announced or completed more than US$18bn of divestments over the last six years
  • Updater (UPD) – Q activities report. Q2 2018 Bookings up 130% on Q1 to US$5.1m; Cash receipts up 50% to US$3.2m; significant cash balance US$39.1m and remains debt free; New PayTV/Internet and Full Service Moving features fully deployed across key US metros in time for moving season, with strong initial transaction rates; Reaffirmed CY2018 total revenue guidance of US$19m to US$23m.
  • OceanaGold (OCG) – Q2 results.
  • Downer (DOW) – Awarded an Engineering, Procurement and Construction (EPC) contract worth approximately $160 million for the Numurkah Solar Farm in northwest Victoria, a 128 megawatt (MW) renewable energy project supported by a 38MW Green Certificate Purchase agreement with the Victorian Government and a 15-year power purchase agreement with GFG Alliance’s SIMEC ZEN Energy.

ANALYST CHANGES

  • Catapult (CAT $1.20) – FY preliminary results. Group revenue up 26% to $76.8m (19% on pro-forma basis), in line with guidance. Group underlying EBITDA $0.6m (in line with guidance).
    • Morgans has an Add recommendation with a target price of $1.83 (from $1.76). Annual cash flow was slightly ahead of the analyst’s forecasts and they think financial risk is diminished now that CAT is at the peak of CAPEX and capable of funding its own operations.

C1

  • Fortescue Metals Group (FMG $4.39) – June Q report. Record iron ore shipments of 46.5mt and cash production costs (C1) of US$12.17 per wet metric tonne (wmt).
    • Citi has downgraded to a Neutral (from Buy) recommendation with a target price of $4.70 (from $4.90). Shipments for the quarter were in line, while realised prices of US$38/t were 58% against the index, which brought FY18 realisation to 64%. The analyst expects free cash generation of US$500m in FY19, falling to roughly break even in FY20 because of increased expenditure on Eliwana.

C2

  • Nine Entertainment (NEC)/Fairfax (FXJ) – Merger. Nine shareholders will own 51.1% of the combined entity with Fairfax shareholders owning the remaining 48.9%. Fairfax shareholders will receive consideration comprising: 0.3627 Nine shares for each Fairfax share held (Scrip Consideration) and $0.025 cash consideration per Fairfax Share (Cash Consideration).
    • Fairfax (FXJ 84c) – Citi has a Neutral recommendation with a target price of 78c. At around 62% of the current Fairfax valuation, the analyst considers most of what NEC is acquiring is the stake in Domain (DHG), which is the main game. They see little risk of regulatory intervention due to changed media laws, while the ACCC shouldn’t see an issue with any overlap. There is potential for a competing bid but they think it would be challenging for Seven West (SWM), given its higher debt levels and lower market cap.
    • Nine Entertainment (NEC $2.26) – Citi has a Sell recommendation with a target price of $1.90. As per comments for FXJ with the analyst also noting that the strong growth in TV advertising is cyclical rather than structural

C3

C4

  • Macquarie Group (MQG $121.70) – Shemara Wikramanayake, currently Group Head of Macquarie Asset Management, will replace MD and CEO Nicholas Moore effective 30 November. 1Q update – Operating groups performing well, in line with expectations; 1Q19 operating group contribution up on 1Q18 and down on a strong 4Q18;
    • Citi has a Neutral recommendation with a target price of $120 (from $110.25). The analyst think CEO succession fears are likely to be unfounded. They have revised FY19-21 EPS forecasts up by 1-15% to reflect improving momentum as well as a revision of the timing of sales and gains on sale of key assets.

C5

  • Villa World (VLW) – Guidance Update FY19 targeting a statutory profit after tax of approximately $40 million in FY19 and $42-44 in FY18. This figure assumes that revenue from certain stages of the above projects will move from FY19 to FY20, due to delays with planning authorities in Victoria.
    • Morgans has an Add recommendation with a target price of $2.48 (from $2.94). The analyst notes this guidance assumes the deferral due to planning authority delays is significant. The FY19-20 outlook is still supported by strong pre-sales and earnings from Donnybrook sale coming from FY20. They think the yield is  attractive but a valuation re-rating unlikely due to the cyclical exposure and recent residential cycle strength

C6

  • Newcrest Mining (NCM $20.92) – Q report
    • Citi has a Buy recommendation with a target price of $26.50 (from $26.00). The analyst thought the Q report was positive and has upgraded FY18 EPS. Updates its latest metal price forecasts has reduced EPS in FY19 and FY20 however.
    • Macquarie has an Underperform recommendation with a target price of $20. The analyst thought the report was strong with gold and copper output ahead of forecasts by 9% and 17% respectively. They remain cautious regarding the stock ahead of the release of the FY19 production and cost guidance and the Cadia expansion study on August 22.

C7

  • Event Hospitality and Entertainments (EVT $13.78) – Citi has a Neutral recommendation with a target price of $13.55 (from $13.20). The analysts have looked at how the cinema industry has responded to emerging content platforms (eg Netflix). The 2 key strategies are launching new entertainment formats and creation of loyalty programs. EVT has lifted its prices for around one third of its cinemas in H2 FY18, but the analyst remains sceptical about how that will play longer term. They think the risks are evenly balanced for the upcoming FY18 results release.

C8


SHORT CHANGED

M1


NEXT WEEK – After a couple of quiet weeks it is full on for next week. Local retail sales, Bank of Japan meeting, Chinese PMI numbers, Bank of England meeting, European GDP inflation and unemployment, Fed meeting, US jobs numbers, and ISM

M2M3M4M5


OVERNIGHT

M10M11

SPI FUTURES +27

US EQUITIES – S&P500 -9 (-0.30%), Dow Jones +113 (+0.44%), Nasdaq -80 (-1.01%).

Main themes

  • European Commission President Jean-Claude Juncker and US President Trump met – Trump agreed to not to impose car tariffs while the EU and US start talks on cutting other trade barriers.
  • Bond yields sold off, with the 10-year yield rising 4bp to 2.98%.
  • Tech sector underperforms, led by Facebook (-18.96%)

EUROPEAN MARKETS – All stronger. STOXX 600 +0.87%, UK FTSE +0.06%, German DAX +1.83%, French CAC +1.00%.

CURRENCIES

  • The US dollar was up 0.4% at 94.78
  • The Aussie dollar is significantly weaker at 73.80

BONDS – Sold off after UC/US trade discussion “success”. 2-yr: +3 bps to 2.69%, 5-yr: +4 bps to 2.86%, 10-yr: +4 bps to 2.98%, 30-yr: +4 bps to 3.10%

COMMODITIES

  • WTI crude futures rose US31c or 0.5% to US$69.61 after Saudi Arabia suspended shipments through a strait in the Red Sea after an attack on two oil tankers.
  • Gold futures were down US$6.10 at $1,225.70.
  • Iron Ore – IRESS reports iron unchanged at US$67.50 a tonne. The CommSec site says China Import (Fines 62% Fe) was down US35c at US$65.45/dry ton. (CFR Tianjin port)
  • LME metals – Mixed. Cu +0.02%, Ni +0.69% and Al ++0.24%.

ECONOMIC DATA, NEWS & POLITICS

  • US economic data – Advance International Trade in Goods -$68.30bn (consensus -$66.70bn; prior -$64.8bn), Advance Wholesale Inventories 0.0% (prior 0.4%), June Durable Orders 1.0% (consensus 3.2%; prior -0.3%), June Durable Goods -ex transportation 0.4% (consensus 0.4%; prior 0.3%), weekly Initial Claims 217K (consensus 215K; prior 208K), and Continuing Claims 1745K (prior 1753K)
  • Market enthusiasm about EU/US trade “agreement” was not tempered by the fact that while Juncker is an executive within the EU, he does not speak for the EU or any individual member state. However, tariffs on auto imports will be suspended during negotiations period (uncertainty on timing and potential success).
  • ECB meeting – No changes to interest rates corridor and reiteration of expectations to terminate asset purchases at the end of 2018
  • European data – German August GfK Consumer Climate 10.6 (expected 10.7; last 10.7); French July Consumer Confidence 97 (expected 98; last 97); Italian July Business Confidence 106.9 (expected 106.5; last 106.9) and Consumer Confidence 116.3 (expected 115.9; last 116.2); Spanish Q2 Unemployment Rate 15.3% (expected 15.8%; last 16.7%)

QUOTE OF THE DAY

“News, news, news – that is what we want. You cannot beat news in a newspaper.” – Arthur Christiansen, English journalist born this day in 1904. Died 27 September 1963.

M12

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