The ASX200 is UP 21 points in mid-morning trade. Banks and Materials both doing heavy lifting. Results from CBA, AMP, & TAH all +ve share response, not so BWX guidance. Chinese trade data, Lowe speech and housing finance later today. . #ausbiz


  • Domestic economic data – NAB Business Confidence, Housing Finance
  • RBA – Dr Philip Lowe speaks
  • Ex-dividend – AFIC (AFI) 14.0c, Australian Masters Yield Fund No 4 (AYK) 29.0c, Australian Masters Yield Fund No 5 (AYZ) 76.0c, Finbar Group (FRI) 3.0c, OceanaGold (OGC) 2.0c
  • Japanese data – Current Account, Bank Lending, Eco Watchers Survey Current, Eco Watchers Survey Outlook, Machine Tool Orders
  • Chinese data – Balance of Trade, Imports/Exports

RBA Meeting yesterday – The RBA left interest rates unchanged. Seemed happy with the outlook for the domestic economy but also considered to be a softer statement, mainly due to new comments about China slowing, inflation being downgraded and housing-related comments. Some observations

  • Noted slowing in China and easing of policy while paying attention to risks in the financial sector.
  • Comment on interest rates, noting money market rates are higher than start of the year but lower than end-June. These higher money-market rates have not fed through into higher interest rates on retail deposits. Some lenders have increased mortgage rates by small amounts, although the average mortgage rate paid is lower than a year ago
  • Mention of the drought
  • Employment expected to decline to 5% (no level stated previously).
  • Inflation outlook lowered to 1.75% for 2018 (from 2%) due to once-off declines in some administered prices in the September quarter.
  • Housing market – Full comment “Conditions in the Sydney and Melbourne housing markets have continued to ease and nationwide measures of rent inflation remain low. Housing credit growth has declined to an annual rate of 5½ per cent. This is largely due to reduced demand by investors as the dynamics of the housing market have changed. Lending standards are also tighter than they were a few years ago, partly reflecting APRA’s earlier supervisory measures to help contain the build-up of risk in household balance sheets. There is competition for borrowers of high credit quality.”


  • Commonwealth Bank (CBA) – Statutory NPAT down 4% to $9,375m; Cash NPAT from continuing operations down 4.8% to $9,233b (expected to be down 4.3% to $9.46bn); Operating income +2.6% at$25,907m; Net interest margin was 2.15%, up 5 basis points; Operating expenses up 9.2% to $11,599m, largely due to the AUSTRAC civil penalty of $700m; Loan impairment expense down 1.5% to $1,079m, equivalent to 15 basis points of gross loans and acceptances; Effective tax rate of 30.2%, expected to reduce to approximately 29% in FY19; Final dividend per share of $2.31 $2.30 expected), making a full year dividend of $4.31 per share, up 2 cents on FY17; EPS -6.2% to $5.29; ROE down 14.1% to 160bp; CET1 flat at 10.1%.
  • AMP – 1H 18 underlying profit down 7% $495m (1H 17: A$53m) and net profit of A$115m (1H 17: A$445m). Net profit reflects advice remediation provision announced on 27 July. Strong growth in AMP Bank with earnings up 20% on 1H 17; Continued momentum in AMP Capital; operating earnings up 2% on 1H 17 during period of investment in real assets capability and international expansion; Australian wealth management resilient in a challenging environment; operating earnings increased 6% to A$204m; AUM +6% to $132bn; Australian wealth protection profit margins of $46m (1H 17: $49m); operating earnings declined to $1m due to higher than expected claims activity and reserve strengthening on a large terminated group plan; Strong performance on controllable costs; on track to at least achieve FY 18 cost guidance; Surplus capital of $1.8bn above minimum regulatory requirements. Interim dividend of 10 cents per share, franked to 50 per cent.
  • Investa Office Fund (IOF) – Financial highlights: FFO of $184.0 million (up 0.8%), FFO per unit of 30.6c (up 3.0%); Statutory Net Profit of $521.6 million (up 10.6%); Distributions per unit of 20.3c (up 0.5%); NTA per unit of $5.47 (up 14.2%); 12 month Return on Equity of 18.4%. FFO guidance for FY19 is 29.2cpu, down 4.6% on FY18. Fixed rental increases and positive leasing fundamentals in Sydney are anticipated to be offset by the expected sale of 836 Wellington Street and vacancy at 388 George Street and 347 Kent Street while the refurbishment of these two properties is undertaken. Like-for-like NPI growth is anticipated to be -1.8% , or circa 2% excluding the impact of 347 Kent Street. The distribution is forecast to remain flat at 20.3cpu.
  • Nanosonics (NAN) – Has launched its 2nd generation trophon2 device in North America and Europe.New features of trophon2 include a redesigned chamber to facilitate existing and future probe designs as well as new functionality to further optimise point of care usage and improve clinical workflows. These enhancements include a large high definition colour touch screen with animations for ease of installation, training and use; whisper quiet operation; and a range of programmable options. Central to the new design is a totally new software platform which delivers superior capabilities including the all-new AcuTrace™ feature.
  • Folkestone Education Trust (FET) – Statutory profit -15.1% to $103.1m; Distributable income +10.8% to of $41.9m; Distribution +6.3% to 15.1c; NTA per Unit +10.8% to $2.78; Debt facility of $347.0m refinanced in August 2018 resulting in weighted average debt maturity increasing from 2.4 years at 30 June 2018 to 5.0 years; Six developments were completed, returning a completion value of $43.1 million resulting in a final development margin of 28.3 per cent. FET’s development pipeline remained constant with 29 sites with an approximate value of $170.3 million; Acquisition of 9 quality Brisbane childcare centres for a total value of $63.2 million;26 of 28, five year options were exercised, with new leasing transactions, acquisitions and completed developments, resulting in an increase of the portfolio’s WALE from 9.1 years to 9.9 years; and 19 existing assets were sold for a total of $45.6 million, an 8.9% premium to carrying values.
  • Tassal Group (TGR) – Has entered into discussions as to the possible purchase of an Australian aquaculture business comprising of prawn farms at Yamba, New South Wales, and Hamilton Bay and Mission Beach in Queensland, that is currently a supplier to Tassal. Negotiations are incomplete, no formal binding purchase agreement has been signed and accordingly, there is no certainty that a transaction will eventuate.
  • Dicker Data (DDR) –  Has been appointed as a distributor of the complete range of Micron Technology (NASDAQ: MU) for the Australian market. Micron Technology is a world leader in innovative memory solutions including DRAM, NAND and Flash memory.
  • BWX – Proft guidance – Underlying EBITDA expected to be $40-41m, representing an increase of 52% – 55% on pcp.
  • Beston Global Food (BFC) – Has signed a contract to supply a prominent Australian Company with 200 tonnes per month (on average) of Mozzarella cheese; the supply contract represents 30% of current production at BFC’s Jervois plant in South Australia; SQF Accreditation now achieved on state-of-the-art production plant in addition to Export Accreditation; A significant milestone for BFC, translating to revenue of more than $1million on average per month as from August 2018 for this single customer; Contract and quality accreditations confirm the premium quality of the “Edwards Crossing” Mozzarella being produced by BFC from its Jervois plant
  • Reliance Worldwide (RWC) – The new import duties already in place are not expected to have a material impact on EBITDA in future years. Based on currently available information, the estimated impact for FY2019 is expected to be less than US$1.5m. RWC will raise a one‐time charge of US$4.5m against its FY2018 EBITDA resulting from a reclassification of categories for products imported to the USA in FY2018 and prior years.  After this charge, EBITDA for FY2018 is still expected to be within the $150-$155 million (before any contribution from John Guest and transaction costs expensed for that acquisition).
  • A2 Milk (A2M) – Scott Wotherspoon (current Chief Executive – UK and Europe_ has stepped dwon.


  • Navitas Limited (NVT $4.30) – Revenue down 2.5% to $931.0m. EBIT down 99% to $1.1m. Loss of $55.8m.
    • Citi has a Neutral recommendation with a target price of $4.60 (from $4.90). The analyst thought the result was in line, after adjusting for restructuring charges relating to the Careers & Industry division. They cut FY19-20 earnings forecasts but think, after three years of declines, NVT will return to profit growth in FY19. They remain concerned about a lack of visibility in enrolment growth.
    • Macquarie has an Outperform recommendation with a target price of $4.80 (form $4.55). The results were in line with the analyst, and they estimate 7% growth in FY19. With earnings re-based, the visibility on the outlook has improved while the maintenance of 2020 targets is a key positive.
    • Morgan Stanley has an Equal-weight recommendation with a target price of $4.75. The results were in line with the analyst. They note the full-year dividend has been cut by 11% which they see as negative. They await the investor briefing on September 21 for outlook commentary.


  • Ramsay Health Care (RHC $54.65) – Spire Healthcare, a UK competitor, issued a negative trading update and suggested downside pressure has been tougher than expected and likely to remain.
    • Deutsche Bank has a Buy recommendation with a target price of $64.20. The analyst notes these comments reinforce just how difficult the NHS market is.
    • Macquarie has an Outperform recommendation with a target price of $71.00 (from $71.50). They have lowered volume growth assumptions for RMC UK operations but their investment view is based on an expectation of contributions from brownfield developments and procurement savings, which should support growth in FY19 and into FY20.
    • Morgan Stanley has an Equal-weight recommendation with a target price of $57.00. The analyst thinks the update signals downside risk for RHC. They expect the UK business to grow 5% in FY19.


  • Amcor (AMC $14.39) – Acquisition of Bemis at a fixed exchange ratio of 5.1 Amcor shares for each Bemis share, Amcor and Bemis shareholders owning approximately 71% and 29% of the combined company, respectively (US$6.8bn deal). Represents a premium of 25% to Bemis’ closing price of US$46.31 on August 2.
    • Citi has a Neutral recommendation with a target price of $14.85. The analyst notes that AMC sees substantial synergies. They see a risk in addressing Bemis’ revenue challenges and the price paid breaches AMC’s own strict valuation policy.
    • Deutsche Bank has a Buy recommendation with a target price of $17.00. The analyst thinks the market is too worried about the multiple implied for the acquisition of Bemis Corp in the US and that there may be positively surprise at the synergies achieved post integration as well as the positive contribution to Amcor’s longer term growth profile.
    • Macquarie has an Outperform recommendation with a target price of $16.10 (from $15.72). The analyst notes the rationale for the deal is synergy realisation, creating a clear global market leader in flexibles. They think revenue synergies, while not included in the proposed deal, are real given the complementary nature of the acquisition.
    • Morgan Stanley has an Overweight recommendation with a target price of $15.80. The analyst notes that the company is stepping away from its prior returns target of 15-20% over 3-5 years that has been a benchmark for more than a decade and that this is behind market concern.
    • Morgans has a Hold recommendation with a target price of $13.54. The analyst thinks the deal makes sense strategically but falls short on financial metrics including Amcor’s previously strict return targets.


  • Transurban Group(TCL $12.02) – FY19 distribution guidance of 59.0 cps, will be maintained in the event of a successful WestConnex bid; Statutory profit from ordinary activities of $468 million; Average daily traffic (ADT) grew by 2.2%2 Proportional toll revenue increased by 8.7% to $2,340m; Proportional EBITDA and before significant items increased by 10.2% to $1,796m;
    • Citi has a Sell recommendation with a target price of $10.39 (from $10.52), The analyst notes lower than expected FY19 dividend guidance which implies the company’s lowest dividend growth year since FY13. While the dip may be temporary, as was the case in FY13, they think headwinds are building with regard debt amortisation and tax. Management made no reference to any ACCC concerns.
    • Deutsche has a Buy recommendation with a target price of $13.00 (from $13.25). The analyst thinks TCL has plenty of growth opportunities but have reduced the price target due to lower CityLink growth forecasts. They think the shares are good value and they are unconcerned by the present uncertainty regarding WestConnex in Sydney.
    • Macquarie has an Outperform recommendation with a target price of $12.28. The result was in line with the analyst’s expectations. They note the outcome of WestConnex is unknown, while the uncertainty around the dividend impact has been addressed within FY19 guidance. They see potential upside to the dividend if the company’s bid for WestConnex is unsuccessful, as cash will grow through Citylink, A25, LegacyWay and Gateway. Further upside could come from opportunities in other avenues of investment in the medium term,
    • Morgan Stanley has an Equal-weight recommendation with a target price of $13.06 (form $13.16). FY19 guidance for distributions of $0.59 was below the analyst’s expectations but they thought the portfolio performance and growth strategy attractive. Offsetting this, cash flow is increasingly reliant on heavy vehicle traffic and high-occupancy toll pricing.
    • Morgans has an Add recommendation with a target price of $12.60 (from $12.62). The result was a little below the analyst expectations. FY19 distribution guidance of $0.59 generate a 4.9% yield at the current share price and they see 6% growth over FY19-21. They think the balance sheet has capacity to fund committed projects but significant construction, operating and funding risks of WestConnex suggests a capital raising will likely be required to support a successful acquisition. The WestConnex decision is the next key catalyst.





US EQUITIES – S&P500 +8 (0.28%), Dow Jones +127 (+0.50%), Nasdaq +24(+0.31%).

Main themes

  • Tesla (TSLA) halted ahead of pending announcement, after jumping on a Musk tweet that “Am considering taking Tesla private at $420. Funding secured.”

EUROPEAN MARKETS – All stronger. STOXX 600 +0.47%, UK FTSE +0.71%, German DAX +0.40%, French CAC +0.81%.


  • The US dollar was down 0.1% at 95.19
  • The Aussie dollar is stronger at 74.26

BONDS – 2-yr: +2 bps to 2.67%, 5-yr: +3 bps to 2.84%, 10-yr: +3 bps to 2.97%, 30-yr: +3 bps to 3.11%


  • WTI crude futures rose US14c to US$69.15 as US sanctions against Iran were introduced. Further sanctions (against oil exports) come into effect on November 4.
  • Gold futures were up US60c at $1,218.30.
  • Iron Ore – IRESS reports iron ore up US$1.50 at US$69.50 a tonne. The CommSec site says China Import (Fines 62% Fe) was up U55c at US$69.50/dry ton. (CFR Tianjin port)
  • LME metals – Mostly higher. Cu +0.68%, Ni +1.21%, Al -0.24% the exception


  • US economic data – June JOLTS — Job Openings 6.662m (prior 6.659m)
  • European data – German June Industrial Production -0.9% (expected -0.5%; last 2.4%). June trade surplus €19.30bn (expected €21.40bn; last €20.40bn). Exports 0.0% (expected -0.4%; last 1.7%) and Imports +1.2% month-over-month (expected 0.2%; last 0.7%); French trade deficit €6.30bn (expected -€5.60bn; last -€6.00bn)
  • UK data – Halifax House Price Index +1.4% (expected 0.2%; last 0.9%) to be +3.3%yoy (expected 2.7%; last 1.8%)
  • China – FX Reserves yesterday US$3.12tr (expected $3.10tr; last $3.11tr). Suggests that PoBC didn’t use reserves to defend the renminbi last month despite the rapid depreciation

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