MID MORNING MARKETS 13-08-18

The ASX200 is down 16 points in mid-morning trade after Turkish turmoil. Banks and Materials both weaker. Defensive Staples and Utilities outperform. LOTS ON!!!. APA and CZZ takeovers, Results +ve for DHG, BEN, JBH, NHF guidance update. Wages and jobs later in the week #ausbiz

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TODAY

  • Chinese Foreign Direct Investment

COMPANY NEWS

  • South32 (S32) – Has completed the acquisition of Arizona Mining.
  • Primary Health Care (PRY) – Notes media speculation today in the AFR and confirms Underlying NPAT expected to be towards the lower end of the guidance range of $92-$97m. Continues to review its capital management options and potential acquisition opportunities in conjunction with its strategic investment plans. Net debt is expected to be in line with the level reported at 31 December 2017 ($770.6 million).
  • APA – Acquisition from CKI Consortium (CK Infrastructure Holdings Limited, CK Asset Holdings Limited and Power Assets Holdings Limited) at $11.00. Doesn’t affect final distribution, Board recommends.
  • Wesfarmers (WES) – Selling Kmart Tyre and Auto Service business to Continental AG for $350m. Will report a pre-tax profit on sale of approximately $270-$275m
  • Freedom Foods (FNP) – Has acquired the Crankt Protein brand for $3.5m (cash consideration of $2.3m after deductions for working capital loans and other offsets). The gross purchase value of $3.5m is estimated to equate to a price to gross sales multiple of 0.5x on FY 2019 forecast sales.
  • JB Hi-Fi Limited (JBH) – Total sales up 21.8% to $6.9bn; EBIT up 14.5% to $350.6m; NPAT of $233.2m, up 12.3% on underlying NPAT in the pcp (up 35.3% on statutory NPAT in the pcp); EPS up 9.2% to 203.1 cps; Total dividend up 11.9% to 132 cps. July 2018 sales update: Total sales growth for JB HI-FI Australia was 2.9% (July 2017: 9.3%) with comparable sales growth of 0.3% (July 2017: 6.5%); Total sales growth for JB HI-FI New Zealand was -2.1% (July 2017: -0.7%) with comparable sales growth of 3.4% (July 2017: -7.6%); and Total sales growth for The Good Guys was 2.7% (July 2017: 6.8%) with comparable sales growth of 1.4% (July 2017: 5.7%).“July sales results were pleasing given the cycling of strong sales in the pcp and the impact of the FIFA World Cup bringing forward TV sales into June”. FY19 Guidance: Open five JB HI-FI Australia stores, two The Good Guys stores and close one JB HI-FI New Zealand store; Total Group sales to be circa $7.1bn, comprising: JB HI-FI Australia $4.75bn, JB HI-FI New Zealand (NZD) $0.22bn; and The Good Guys $2.15bn.
  • GPT Group (GPT) – NPAT of $728.5m, down 3.0% on pcp; Funds From Operations (FFO) up 3.2% of $289.4m, Total revaluation gains of $457m; Distribution per security growth of 2.5%; NTA up 5.4% on 31 Dec to $5.31; Total Return of 13.9%
  • Domain Holdings Aus (DHG) – Statutory Results: Revenue of $286.6m, Net loss after tax of $6.2m (including significant items); Significant items after tax totalling $29.6m loss. Pro Forma Results (excluding significant items): Revenue up 11.5% to $357.3m, EBITDA up 12.5% to $115.7m; EBIT up 3.9% to $89.5m; NPAT up 7.7% to $52.9, EPS up 7.3% to 9.2c. Jason Pellegrino, new Managing Director and CEO, starts late August. FY19 Outlook: “The first six weeks of FY19 H1 saw a subdued listings environment in Sydney in July against a high base of year-on-year comparison. FY19 digital revenue is expected to benefit from initiatives being undertaken to continue FY18’s strong growth in depth penetration. There are early positive results from depth penetration sales improvement initiatives in Victoria. For FY19, Domain’s pro forma underlying costs (excluding investment in new transactions businesses) are expected to increase mid-single digits. Pro forma total costs are expected to increase high-single digits.
  • Capilano Honey (CZZ) – Results and takeover from Bravo HoldCo (“Wattle Hill”) and ROC Partners at $20.06. The net operating profit before tax up 19.6% to $14,046k (excluding last year’s one off non-operating capital gain of $2.07m from asset sales). Positive cash flow $1.3m positive while also increasing stock levels over $7m.
  • Praemium Limited (PPS) – Record gross asset inflows of $3.0bn, up 50% increase on FY2017; 35% increase in FUA to a record $8.3 billion; 22% increase in revenue and other income to $43.2m ; and Record underlying EBITDA up 40% to $8.8m
  • BlueScope Steel Ltd (BSL) – NPAT up 119% to $1,569.1m (including unusual and one-off benefits of $743.1m). Underlying NPAT1 was $826.0m. Dividend 8c, $250m buy-back in 1H19. Outlook for 1H FY2019 – Underlying EBIT to be around 10% higher than 2H FY2018 (which was $745.0 million). Expectations are subject to spread, FX and market conditions.
  • Bendigo and Adelaide (BEN) – After tax statutory profit up 1.1% to $434.5m; Underlying cash earnings up 6.4% to $445.1m; Cash EPS up 3.6c to 92.1c; Fully franked final dividend up 1c to 35c. Highly competitive markets, margin growth (up 14bp to 2.36%), funding 80.2% form retail deposits. CET1 up 35bp. $17m returned to communities.
  • Nib Holdings (NHF) – Updated FY18 guidance. Group Underlying Operating Profit will be approximately $184.0m (Statutory Operating Profit of approximately $169.0m. Previous guidance was minimum of $165.0m (Group Statutory Operating Profit at least $148.0m).

ANALYST CHANGES – So much to focus on today so in the interests of time, I will publish this later.


SHORT CHANGED

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THIS WEEK

Local employment data Thursday, wages data and Westpac consumer confidence Wednesday, Major overseas data includes UK employment and inflation, Eurozone GDP and inflation, and US retail sales

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US earnings – Walmart (WMT), Home Depot (HD), Macy’s (M), Nordstrom (JWN), J.C. Penney (JCP).

Earnings Seasons continues. Some of the key ones this week.

  • Monday – Bendigo and Adelaide (BEN), BlueScope Steel Ltd (BSL), JB Hi-Fi Limited (JBH), Seven West Media (SWM)
  • Tuesday – Challenger Limited (CGF), Cochlear Limited (COH), Domino Pizza (DMP)
  • Wednesday – Computershare Ltd (PU), CSL, Fairfax Media Ltd (FXJ), Wesfarmers Limited (WES), Woodside Petroleum (WPL)
  • Thursday – Origin Energy (ORG), Primary Health Care (PRY), QBE Insurance Group (QBE) Telstra Corporation (TLS), Treasury Wine Estate (TWE)

LAST WEEK

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RESULTS SEASON SCORECARD

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OVERNIGHT

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SPI FUTURES +11

US EQUITIES – S&P500 -20 (-0.71%), Dow Jones -196 (-0.77%), Nasdaq -53 (-0.67%).

Main themes

  • Turkish lira weakness extended (down 23% over the week), resulting in safe haven buying of US dollar and Treasuries
  • European banks under pressure on concerns about exposure to Turkey.
  • Yield curve flattened, weighing on financials
  • Intel (-2.6%) after Goldman downgraded to a ‘Sell’, and Microchip (-10.9%) issuing disappointing revenue guidance

EUROPEAN MARKETS – UK FTSE -0.97%, German DAX -1.99%, French CAC -1.59%

BONDS – Big flight to safety rally. 2-yr: -5 bps to 2.60%, 5-yr: -8 bps to 2.73%, 10-yr: -8 bps to 2.86%, 30-yr: -7 bps to 3.02%

CURRENCIES

  • The US dollar was up 0.8% at 96.271
  • The Aussie dollar is much lower at 73.05, after having hit a low of US72.81c on Friday night. The Aussie has broken through key support and is oversold on the RSI.

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COMMODITIES

  • WTI crude futures closed up US82c or 1.2% at US$67.63, as sanction against Iran look to tighten supply. Iranian exports are predicted to fall 500,000-1.3m bpd and on barrels per day and buyers in Japan, South Korea and India have already started cutting orders. Oil still finished the week down 1.4%, the 6th consecutive week of losses. The Baker Hughes rig count increased by 10 (to 869), the highest level since March 2015.
  • Iron Ore – IRESS reports iron ore down US50c at US$69.500 a tonne. The CommSec site says China Import (Fines 62% Fe) was down U65c at US$68.75/dry ton. (CFR Tianjin port)
  • LME metals – Mixed. Cu -0.56%, Ni +0.99%, Al +1.30%

ECONOMIC DATA, NEWS & POLITICS

  • US economic data – July CPI (actual 0.2%; Briefing.com consensus 0.2%; prior 0.1%) and core CPI (actual 0.2%; Briefing.com consensus 0.2%; prior 0.2%). CPI is up 2.9% yoy and core CPI +2.4%yoy, the largest annual increase since year ended September 2008.
  • Turkey – There was no progress with talks this week regarding the detainment of American pastor Andrew Brunson, who is accused of supporting a group blamed for an attempted coup in 2016. The Turkish lira reached a fresh record low against the dollar, to be down 23.0% for the week and 42% over the week. Led to pressure on European banks. Turkey’s President Recep Tayyip Erdogan called on Turkish citizens to trade their gold and/or dollars for the lira as the country wages a “national battle.” US President Trump announced that tariffs on aluminum and steel imports from Turkey will be doubled. Turkey’s foreign ministry responded, saying it will retaliate as necessary.
  • ECB – The Financial Times reported that the ECB is especially concerned with the exposure of Spain’s BBVA, Italy’s UniCredit, and France’s BNP Paribas to the Turkish economy
  • European data – French Q2 Nonfarm Payrolls +0.2%qoq (expected 0.3%; last 0.2%). June Industrial Production +0.6% (expected 0.5%; last -0.2%)
  • UK data – Q2 GDP +0.4% (as expected, last 0.2%) to be +1.3%yoy (as expected, last 1.2%). Q2 Business Investment +0.5% (expected 0.3%; last -0.4%). June Construction Output +1.4% (expected -0.2%; last 2.9%) to be +2.2%yoy (expected 1.1%; last 1.5%). June Industrial Production +0.4% (as expected, last -0.2%) to be +1.1%yoy (expected 0.7%; last 1.2%). June Manufacturing Production +0.4% (expected 0.3%; last 0.6%) to be +1.5%yoy (expected 1.0%; last 1.5%). June trade deficit £11.38bn (expected -£12.05bn; last -£12.53bn)

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