MID MORNING MARKETS 6-8-18

The ASX200 is up 26 points in mid-morning trade. Materials lead, Telcos and consumer Disc lower. AMC trading halt on acquisition, SEK impairments and guidance update. RC starts up again. Big week for the RBA, AMP and CBA results, Diggers&Dealers.  #ausbiz

M1m2M3TODAY

  • Domestic data – ANZ Job Advertisements
  • Royal Commission resumes – the focus on this round is superannuation.

COMPANY NEWS

  • Amcor (AMC) – Trading halt ahead of acquisition announcement. Expected to related to $7bn purchase of US-based rival Bemis Company, a plastics packaging group, and a US listing. Bemis operates 57 packaging plants in 12 countries but most of its operations are in the US.
  • Seek (SEK) – Updated guidance and significant items of $142m – Includes impairment charges for Brasil Online ($119m), OCC ($59m) and non-cash gain on investment in Maimai (+$36m).  M1.png
    • FY19 guidance – Revenue growth in the range of 16 to 20% (FY19 v FY18), EBITDA growth in the range of 5% to 8% (FY19 v FY18). Reported NPAT (including cost of investments in ESVs) to remain broadly similar to FY18 Reported NPAT
  • Downer EDI (DOW) – 3 year $120m contract with Cobar Management (subsidiary of Gelncore)for the provision of mining services at the CSA mine, an underground copper mine Cobar, Central Western NSW.
  • Breville Group (BRG) – Martin Nicholas has been appointed Group Chief Financial Officer (
  • Northern Star (NST) – Strategy Day

ANALYST CHANGES

  • APN Outdoor (APO $6.30) – Citi has a Sell recommendation with a target price of $4.95. The analyst notes that out of home advertising has grown at around twice the pace of advertising in general over the past five years. They think the sector will continue to outperform. A new analyst thinks the ACCC is likely to approve APN Outdoor/JCDecaux merger, but acknowledges there is significant downside risk should the ACCC block the deal.

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  • Commonwealth Bank (CBA $75.21) – Morgans has an Add recommendation with a target price of $79.00. The analyst expects underlying income growth of 4.4% and underlying expenses growth of 6.1%. The have trimmed forecasts by 0.3% and 0.6% respectively for FY18 and FY19. They are also looking for clarity on the capital position in light of wealth management and mortgage broking demerger.

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  • Nib (NHF $5.60) – Has acquired QBE’s travel insurance business (Australia’s fourth largest travel insurer) for $25m. It includes the distribution and claims capability of QBE Travel, but excludes capital supporting the business and the QBE brand. It is immaterial to earnings per share. Credit Suisse has a Neutral recommendation with a target price of $5.35. The analyst points to nib moving away from Australian private health insurance. They point out that these adjacent businesses offer lower returns and bring integration risks.

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  • ResMed (RMD $14.45)  – 4Q earnings of $109.8m. Profit 76c. Earnings, adjusted for amortization costs and non-recurring costs, were 95c. Above consensus of 90c. Revenue up 12% to $623.6m (above estimates of $616.4m. For the year, profit was $315.6m or $2.19 per share. Revenue was up 13% to $2.34bn. Quarterly dividend increased by 6% to $0.37 per share
    • Credit Suisse has a Neutral recommendation with a target price of $13.60 (from $12.75). The result was around 2% below the analyst’s forecasts but US device and mask growth was robust. They think strength in the US market is due to increased awareness of its cloud-connected offering. But competitors are in the early stages of launching new masks and they don’t see further market share gains in the short term
    • Deutsche Banks has a Buy recommendation with a target price of $14.45. The analyst notes good growth in the Americas and in masks and accessories, although the 4Q missed revenue and net profit forecasts. They have a positive outlook, with earnings supported by a growing awareness of obstructive sleep apnoea, expansion in current & new markets and growth in the SaaS business.
    • Morgans has an Add recommendation with a target price of $16.41. The result was broadly in line with the analyst’s estimates. Increased adaptation of cloud-based devices has led to market share gains, They think a growing installed base of connected devices and focus on resupply should bode well for continued strength in the high-margin mask/accessories category.

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LAST WEEK

  • Global Markets – Asian markets weaker, US market outperforms (tech stocks part of that), commodities weaker, Aussie 10 year +8bp,

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  • Australia – ASX200 (-1.04%) Underperforms global peers (US and most of Europe). Banks and materials worst, Telcos best (TLS +2.2%). Big caps underperform (Top20 -1.68%). CCP (+18.9%) rallies on results, ALQ (+12.2%) on +ve AGM guidance, NEC (+8.2%) and FXJ (+7.5%) on merger digestion.

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THIS WEEK

  • Major economic Events – RBA meeting on Tuesday and Statement on Monetary Policy on Friday (housing finance and NAB business confidence), Chinese trade data and inflation, UK and Japanese GDP, US inflation data

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  • Earnings – Transurban (TCL) Tuesday CommBank and AMP on Wednesday, AGL on Thursday and James Hardie on Friday.

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OVERNIGHT

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SPI FUTURES +21

US EQUITIES – S&P500 +13 (0.46%), Dow Jones +136 (+0.54%), Nasdaq +9 (+0.12%).

Main themes

  • Employment data (+157K) missed expectations (190K) but previous months were upwardly revised. YOY average weekly eanrings unchanged at 2.7%.
  • Trade trade-off – Chinese officials have prepared a list of $60 billion worth of U.S. goods that may become subject to new tariffs (between 5-25%). Many of the goods are agricultural-related, with others on various metals and chemicals. Larry Kudlow said there had been some communication “at the highest level” on trade between the United States and China in recent days.

EUROPEAN MARKETS – Lower. STOXX 600 +0.65%, UK FTSE +1.10%, German DAX +0.55%, French CAC +0.33%.

CURRENCIES

  • The US dollar was flat at 95.16
  • The Aussie dollar is weaker at 74.02
  • Yuan – the PBoC fixed the yuan at an eleven-year low, but later announced that the foreign exchange risk reserve requirement ratio will be increased to 20.0% from 0.0%. The announcement accelerated a rebound in the yuan from the low of 6.893, which began a few hours after the lower fix.

BONDS – 2-yr: -2 bps to 2.63%, 5-yr: -4 bps to 2.82%, 10-yr: -3 bps to 2.95%, 30-yr: -3 bps to 3.09

COMMODITIES

  • WTI crude futures fell 47c to US$68.49. Concerns about Chinese demand after state oil major Sinopec cut its purchases of US crude. Unipec (the trading arm of Sinopec) has suspended imports from the US due to trade tariff issues. The Baker Hughes rig count was down 2 to 859
  • Gold futures were up US$3.10 at $1,223.20.
  • Iron Ore – IRESS reports iron ore down U$1.00 at US$67.50 a tonne. The CommSec site says China Import (Fines 62% Fe) was up US$1at US$67.45/dry ton. (CFR Tianjin port)
  • LME metals – Mostly higher. Cu +1.08%, Ni +1.65%, Al -0.39% the exception

ECONOMIC DATA, NEWS & POLITICS

  • US economic data – July Nonfarm Payrolls 157K (consensus 190K; prior 248K revised form 213K), Nonfarm Private Payrolls 170K (consensus 187K; prior 234K), Unemployment Rate 3.9% (consensus 3.9%; prior 4.0%), Average Hourly Earnings 0.3% (consensus 0.3%; prior 0.1%), Average Workweek 34.5 (consensus 34.5; prior 34.6), June Trade Balance -$46.30bn (consensus -$45.60bn; prior -$43.20 bln); July ISM Services 55.7 (consensus 58.5; prior 59.1)
  • US Earnings – Kraft Heinz (+8.55%) better than expected earnings, GoPro (+17.7%), CBS (+0.8%), Shake Shack (-11.9%
  • European data – Eurozone June Retail Sales +0.3% (expected 0.4%; last 0.3%) to be +1.2%yoy (expected 1.4%; last 1.6%). July Services PMI 54.2 (expected 54.4; last 54.4); German Services PMI 54.1 (expected 54.4; last 54.4); French Services PMI 54.9 (expected 55.3; last 55.3). Italian Services PMI 54.0 (expected 53.6; last 54.3). June Retail Sales -0.2% (expected 0.1%; last 1.1%) to be +1.5%yoy (last 0.8%); Spanish Services PMI 52.6 (expected 54.4; last 55.4). July Consumer Confidence 106.1 (last 107.0)
  • UK – July Services PMI 53.5 (expected 54.7; last 55.1)

QUOTE OF THE DAY

“It is bad policy to regulate everything… where things may better regulate themselves and can be better promoted by private exertions; but it is no less bad policy to let those things alone which can only be promoted by interfering social power.” – Friedrich List, German economist born this day in 1789. Died 30 November 1846.

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