MID MORNING MARKETS 22-08-18

The ASX200 is down 27 points in mid-morning trade, though off the lows, with lots on in and out of market. IT & Telcos best, Utilities worst, banks all 1%+ lower. New AMP CEO, TPM merger spec, results from WOR, A2M, SYD. Ex-div AGL 63.0c, AMP 10.0c #ausbiz

m1m2m3TODAY

  • Ex-dividend – AGL Energy (AGL) 63.0c, AMP Limited (AMP) 10.0c, CVC 8.0c, Link Administration Holdings (LNK) 13.5c, Mount Gibson Iron (MGX) 3.0c, Pact Group Holdings (PGH) 11.5c
  • Economic data – Westpac Leading Index, Construction Work Done

TONIGHT

  • US economic data – Existing Home Sales

COMPANY NEWS

  • AMP – New CEO Francesco De Ferrari from Credit Suisse (CEO South East Asia). Certainty is positive, and he comes with experience across wealth management and business turnaround.
  • TPG Telecom (TPM) – Potential merger of equals with Vodafone. The TPG Board notes that there is no certainty that any transaction will eventuate or what the terms of a transaction would be. TPG makes this statement, and will continue to keep the market informed, in accordance with its continuous disclosure obligations.
  • Transurban (TCL) – ACCC will make a decision on the WestConnex review by August 30. Consensus is that TCL’s bis is superior to rival bidder IFM Investors but the NSW government has been unable to sign a deal without clearance from the ACCC. (TCL owns most of the Sydney toll roads)
  • The A2 Milk Company (A2M) – Total revenue up 68% to $922.7m, EBITDA up 101% to $283.0m, Net profit after tax up 116% to $195.7m; Strong cash conversion with operating cash flow up 131% to $231.1m; EBITDA to sales margin of 31% – up from 26% in the pcp; EPS 27.0 cents (from 12.7c); Infant formula share strengthening to 5.1% in China and 32% in Australia; Substantial physical distribution growth to ~10,000 stores in China and ~6,000 stores in the US; Enhanced strategic partnerships with Synlait and Fonterra. Higher operating and marketing costs in FY19 but EBITDA to sales ratio for FY19 still to be broadly consistent with that achieved for FY18.
  • Lendlease Group (LLC) – NPAT up 5% to $792.8m earnings per stapled security up 5% to 136.1c; ROE 12.7%, towards the upper end of 10-14 per cent target range; Full year distributions of 69 cents per stapled security, up 5%; Development pipeline of $71.1nm, up $21.8bn or 44%. FY18 result was driven by strong performance across both the Development and Investments segments. “We have future earnings visibility and expect our offshore projects to make a greater contribution over the medium term.”
  • Adelaide Brighton (ABC) – 1H result. Half year revenue up 11.7% to $807.2m; Underlying strength in the east coast markets of New South Wales, Queensland and Victoria continued to drive revenue. Excluding the acquisitions completed in 2017, revenue grew 7.7% on 1H17. NPAT up 17.7% on 1H17 to $84.5m. Underlying NPAT up 9.8% to $85.2m; EBIT +15.3% on 1H17 to $122.5m; Underlying EBIT increased 9.3% to $123.5m supported by improved volumes and prices and improved operating efficiency offsetting an increase in energy costs; Operating cash flow increased 39.4% on 1H17, to $107.6m; Net debt to equity gearing declined to 33.7% with net debt increasing marginally to $414.5m; Basic EPS increased 18.2% to 13.0c; Dividend of 9c, up from 8.5c, with special dividend of 4c. Outlook – Expects strong demand for construction materials. Full year Underlying NPAT $200-$210m.
  • Ardent Leisure Group (AAD) – Pro forma revenue from continuing businesses up 16.1% to $59.7m, Pro-forma net loss of $88.6m from FY17 loss of $62.6m; Results affected by impairment charges associated with Theme Parks and Main Event; Full year Main Event constant centre revenue growth of 1.6% on a like-for-like basis; Sale of two businesses completed: Bowling & Entertainment ($160m) and Marinas ($126m); Strong balance sheet to fund Main Event growth and new Theme Park attractions; Distribution of 8.5 cents per stapled security for the financial year; Simplified reporting of financial results
  • Lovisa Holdings Ltd (LOV) – Revenue increased by 21.4% to $217.0m, Gross Margin lift to 80.0% with Gross Profit up 23.3% to $173.6m, EBIT increased by 25.5% to $51.1m, +6.8% comparable store sales growth, 38 net new stores opened during the year, 326 at year end, Cash conversion of 104% with operating cash flow of $60.6m, Fully Franked Final Dividend of 14.0c. Strong comparable store sales delivered over the last 4 years makes comparable ccc momentum in FY18 more challenging. Seeing positive comparable store sales growth for the first 7 weeks of FY19, but currently trading below our long-term target range of 3-5%. Expect to accelerate the store rollout in the coming year, with the increase in number of stores for FY19 to be higher than FY18. Forecast going into Christmas trading with at least 7 stores in each of the US, France, and Spain markets as we continue to build our presence.
  • SYD Airport (SYD) – Sydney Airport welcomed 21.6 million passengers in 1H18, up 3.3%; international passengers grew 5.2%; EBITDA up 8.1% to $623.4m, Growth across all businesses with total revenue increasing 7.9%; Prudent cost control, total expenses excluding security and normalised for hotels, 2.5%; Capital investment of $179.6m, delivering aviation capacity, service and customer facility improvements, improved airport access and an improved customer experience; Strong balance sheet with robust BBB+/Baa1 grade credit metrics. Significant balance sheet flexibility with over $1.4 billion in undrawn facilities as at 30 June; Full year 2018 distribution guidance reaffirmed at 37.5 cents per stapled security, an increase of 8.7% on the 2017 distribution, subject to external shocks to the aviation industry and material changes to forecast assumptions.
  • Wisetech Global (WTC) – Recurring revenue 99% (CargoWise One), Annual attrition rate of <1% by CargoWise One customer; EBITDA of $78.0m, up 45%; EBITDA margin 35% (48% excluding acquisitions), Dividend 1.65c, up from 1.2c. Guidance: FY19 revenue of $315m – $325m, revenue growth of 42% – 47%, EBITDA of $100m – $105m and EBITDA growth of 28% – 35%.”

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  • Cedar Woods Prop. (CWP) – Cedar Woods has continued to experience strong sales across the portfolio, with a record level of presales to be carried into future financial years. Presales for FY19 and FY20 stand at more than $320 million (excluding the $58 million presale of Target) compared to $260 million at the same time last year. A strong uplift in net profit is expected in FY19. A number of new projects are expected to contribute to earnings in FY19, including the Target office at Williams Landing (Vic), 111 Overton Road & Lancaster Apartments (Vic), St. A (Vic) and Glenside (SA). A number of other projects in the portfolio are expected to contribute for the first time from FY20, providing a positive medium-term growth outlook.”

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  • Inghams (ING) – FY2019 Outlook: Demand for poultry products continues to grow. Strategy implementation remains on track with further opportunities identified and Project Accelerate benefits expected to continue to underpin cost reduction, profit improvement and cash generation. Cost increases due to rising feed and energy costs are expected to continue and, where they are unable to be offset, will flow through to market price increases. The New Zealand market dynamic remains challenging and this is expected to continue into 1H FY19. Capital Management plans will be progressed as above.

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  • Vocus Communications (VOC) – FY18 revenue and underlying earnings in line with guidance; Underlying EBITDA +7% to $366.1m, with EBITDA growth ahead of revenue growth; Much improved cash conversion at 88%; Enterprise, Government & Wholesale division gaining momentum with EBITDA growth of 15% on 11% revenue growth; Debt refinance completed in June 2018; Net debt of $1 billion at the end of the period was better than guidance; Vocus Australia Singapore Cable (ASC) construction complete and Ready For Service in midSeptember; Over 2.5Tbps of capacity sold on the ASC, including to a major global OTT customer; Board renewal – two new non-executive directors announced today (Bruce Akhurst and Matthew Hanning); Leadership renewal – five new executive team appointments, including CEO, since 28 May 2018
  • APA Group -NO further updates on the CKI offer. APA expects FY19 EBITDA of $1,550-1,575m and net interest costs $500-510m. In the event that the CKI proposal does not proceed and APA remains as a stand-alone listed company for the full financial year, total distributions per security expected 46.5c.

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  • National storage (NSR) – Results and trading halt ahead of capital raising. A-IFRS profit after tax of $145.8m; FY18 underlying earnings up 12.5% to $51.4m; FY18 underlying EPS up 4.3% to 9.6 cps in line with guidance; Total Return for FY18 of 19.9%; Final distribution of 4.9 cps bringing total FY18 istribution to 9.6 cps; 23% increase in total assets under management to $1.4bn; Net tangible assets increased by 13% to $1.51 per stapled security; $155m in acquisitions settled in FY18 and new strategic initiatives announced; FY19 underlying EPS guidance of 9.6 – 9.9 cps ($62.5–64.5m). Also $175m equity raising, comprising a $50m Institutional Placement and $125 million pro-rata accelerated non-renounceable Entitlement Offer (together, the “Offer”). Offer proceeds will be used to strengthen NSR’s balance sheet, reducing gearing levels to 30% from 38%, and provide longer-term funding. The Offer Price is $1.66, 6.5% discount to the last closing price of $1.775.
  • Folkestone (FLK) – Statutory NPAT up 3.3% to $13.9m, Statutory EPS up 3.3% to 9.4cps; Normalised NPAT up 48.1% to $13.9m; Normalised EPS up 48.8% to 9.4cps; NAV up 4.8% to $1.13, FUM up 26.1% to $1.6bn; Takeover from Charter Hall at $1.39 ($1.3548 per share; and a special dividend of $0.036 per share)

RESULTS SEASON SCORECARD

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OVERNIGHT

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SPI FUTURES -4

US EQUITIES – S&P500 +10 (+0.46%), Dow Jones +98 (+0.38%), Nasdaq +42 (+0.54%).

Main themes

  • The S&P has reached a new record high and has tied for the longest bull market from October 1990 to March 2000. Tomorrow it reaches 3,453 days and will break that record. It has risen over 300% since the low on March 9, 2009.
  • The US dollar weakness continued after US President Trump reiterated criticism of the Fed. Bonds reversed some of Monday’s gains however.
  • Michael Cohen (US President Trump’s former personal lawyer) has struck a deal with federal prosecutors.

EUROPEAN MARKETS – Mostly higher. UK FTSE -0.34% the exception, German DAX +0.43%, French CAC +0.54%.

CURRENCIES

  • The US dollar was down 0.7% at 95.22
  • The Aussie dollar is stronger at 73.68.

BONDS – Sold off after Monday’s big rally. 2-yr: +2 bps to 2.61%, 5-yr: +3 bps to 2.73%, 10-yr: +3 bps to 2.85%, 30-yr: +3 bps to 3.01%

COMMODITIES

  • WTI crude futures closed up US92c higher or 1.4% at US$67.35 a barrel, on expectations of price support from sanctions against Iran and optimism about US-Chinese trade talks.
  • Iron Ore – IRESS reports iron ore unchanged at US$67.50 a tonne. The CommSec site says China Import (Fines 62% Fe) was down US$1.35 at US$66.60/dry ton. (CFR Tianjin port)
  • LME metals – Mixed. Cu +0.89%, Ni +0.00%, Al -0.02%

ECONOMIC DATA, NEWS & POLITICS

  • Fed Speak – Dallas Federal Reserve President Robert Kaplan (non-voter) said he expects neutral rates to be reached after three or four more rate hikes
  • New tariffs on European car imports

.

TODAY

  • Ex-dividend – AGL Energy (AGL) 63.0c, AMP Limited (AMP) 10.0c, CVC 8.0c, Link Administration Holdings (LNK) 13.5c, Mount Gibson Iron (MGX) 3.0c, Pact Group Holdings (PGH) 11.5c
  • Economic data – Westpac Leading Index, Construction Work Done

TONIGHT

  • US economic data – Existing Home Sales

QUOTE OF THE DAY

“Each generation takes the earth as trustees. We ought to bequeath to posterity as many forests and orchards as we have exhausted and consumed.” – Julius Sterling Morton, American scientist born this day in 1832. Died 27 April 1902.

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