MID MORNING MARKETS 27-08-18

The ASX200 is up 5 points in mid-morning trade, with the focus on Powell comments and impact of USD and commodity prices. Materials and Telcos up, Banks, staples and industrials down. ADH, GEM and RWC key results. PRY 5.5c, CCL 21c key ex-divs #ausbiz

m1m2m3TODAY

  • Ex-dividend – Aurizon Holdings (AZJ) 13.1c, GWA Group (GWA) 9.5c, Greencross (GXL) 5.5c, HiTech Group Australia (HIT) 4.0c, Primary Health Care (PRY) 5.5c, Shriro Holdings (SHM) 4.0c, Summerset Group Holdings (SNZ) 4.6c, Coca Coal Amatil (CCL) 21.0c
  • Chinese Industrial Profits

COMPANY NEWS

  • BWX – The Bain consortium (which has offered $6.60 per share) has requested an extneion to mid-September to complete due diligence.
  • Aveo Group (AOG) – Strategic Review. Will examine options and various initiatives to close the value gap between the price of Aveo’s listed securities and the underlying value of Aveo’s retirement properties. The review will include an evaluation of the potential introduction of capital partners into the retirement business.
  • Michael Hill (MHJ) – Operating revenues up 4.4% to $575.5m, Group same store sales from continuing operations up 0.4% to $526.0m (FY2017: 2.1% increase); Statutory NPAT down 85.9% to $4.6m, with one-off costs, including the Emma & Roe and US closure costs, materially impacting the result; Group NPAT from continuing operations down 21.1% to $34.8m; Normalised EBIT declined 16.6% to $40.1m; Normalised EBIT for continuing retail segments (Australia, New Zealand and Canada) down 1.6% to $89.1m (FY2017: $90.5m); Cash flow up 38.1% to $54.9m (FY2017: $39.8m); Net debt reduction of 28.9% to $28.0m (FY2017: $39.4m); Equity ratio reduced to 50.4% (FY2017: 52.0%); e-commerce sales up 57.4% to $10.3m (FY2017: $6.5m); Branded collection sales increased to 18.0% of total product sales, up from 14.2% on the prior year; FY dividend unchanged at 5c
  • G8 Education (GEM) – Revenue up 7.6% notwithstanding lower occupancy levels – driven by fee increase, acquisitions and new centre openings; Underlying EBIT of $48.1m, in line with market consensus but 21% lower than the prior period largely due to higher Q1 wage costs from regulatory changes to required staff ratios. Wage ratios were back within prior year levels by May, setting up for an improved wage outcome in the second half; Average like-for-like CY18 H1 occupancy was down 2.5%pts to 70.1%, however, the current occupancy growth rate off the January/February seasonally low base is tracking ahead of the same period last year; Successful transition to the new federal funding policy known as Jobs for Families Child Care Package, expected to stimulate demand over time, with July and August 2018 occupancy evidencing continued above trend seasonal improvement; Despite evidence of moderating supply, short-term supply conditions are forecast to remain challenging; With strong EBIT cashflow conversion (99%), the balance sheet refinancing being on track and the early adoption of the previously announced proportionate dividend policy, the Group is well positioned to drive the current growth phase while maintaining conservative gearing levels. Outlook – we are not forecasting a material improvement in market conditions until mid to late 2019 and are adopting a conservative approach in relation to occupancy growth forecasts in CY18 H2. The H1/H2 earnings split is forecast to be similar to prior years, being approximately 34 : 66.

m1

  • Reliance Worldwide (RWC) – Net sales  increase  led  by  double  digit  growth  in  core  SharkBite  Push‐To‐Connect  (“PTC”)  fittings and accessories, first full year inclusion of Holdrite and inclusion of one month of John Guest sales EBITDA of  $150.9 million at lower end of $150-155m. Outlook – FY2019 EBITDA to be $280-290m, including $10m of actual synergies expected to be realised in FY2019 and excluding $10 million of one‐off integration costs expected to be incurred to achieve the synergies.

m2

  • Amasim (AYS) – Record statutory net revenueup 76.8% to $577.6m, driven by strong 12-month contribution of energy, subscriber growth across the Group and new product launches; Diversification strategy is delivering growth and resilience in the business; energy represents ~54% of Group’s statutory net revenue; Good progress on cross-sell; resulting in approximately 17,000 customers purchasing products from more than one vertical; Statutory EBITDA of $37.6 million (up 11.0%); Underlying EBITDA of $47.8 million (up 9.8%); Underlying NPATA of $22.4 million (down 11.2%) driven by increased depreciation of technology investment and financing costs related to acquisition funding; Statutory NPATA of $12.8 million (down 17.6%); Underlying operating cash flow after capex increased $13.8 million to $52.7 million, implying a cash conversion of 110% of underlying EBITDA; Doubled brand awareness with “Just What You Need” marketing campaign; Industry leading customer satisfaction and mobile plans – winning 2 gold Money Magazine Best of the Best 2018 awards; 2018 CommsDay Edison Award for “Best Virtual Network Operator”; and maintained high customer referral rate of 90%
  • Sydney Airport (SYD) – Preliminary Draft Master Plan 2039.
  • Netwealth (NWL) – Proforma NPA $29.0, 6.3% ahead of prospectus forecasts and up 72.7% on FY17. Platform revenue $81.5m, Total income growth was 35.9%, primarily driven by growth in FUA, and improved margins. Outlook – Benefiting from from structural changes in the industry. FY19 inflows expected to increase from FY18.
  • Adairs (ADH) – Sales up 18.8% to $314.8m, Like for like sales growth +14.3% (cycling -1.4% of FY17); Total stores at 167 with 8 new stores, 5 upsized and 2 refurbished, and 1 closed; Online continuing to grow strongly, with sales up 75.1% to $41.5 million; Gross Profit up 20.9% to $189.6m; EBIT up 46.9% to $45.3m; NPAT up 45.4% to $30.6m; Strong operating cash flow with net debt reduced by $15.4m; Final FY18 dividend of 8.0 cps fully franked, to be paid on 26 September 2018, with total FY18 dividends up 68.8% to 13.5 cps fully franked. Trading update – lfl sales growth of 5.4% across its stores and online over first 7 weeks. The new season range has just landed Guidance – Total stores between 171 and 173, Sales $345-360m, Gross margin 59-61%, EBIT between $47.5-51.5m, Capital investment $8-10m. “We expect to generate 5 –8% like for like sales growth underpinned by growth in both our store and online channels.
  • Japara Healthcare (JHC) – Total revenue up 3.0% to $373.2m; EBITDA down 15.8% to $50.7m; NPAT down 21.5% to $23.3m; Final dividend of 3.75c total dividends for FY2018 to 7.75c; Expects FY2019 EBITDA to be 5% to 10% up on FY2018, subject to no material changes in market or regulatory conditions, as operational initiatives gain further traction, occupancy continues to normalise, the Riviera Health portfolio acquisition and recently completed developments contribute a full year of earnings and ACFI indexation recommences.
  • Galaxy Resources (GXY) – Trading Halt pending an announcement regarding the sale of a package of tenements located on the northern area of the Salar del Hombre Muerto in Argentina to POSCO
  • Metcash (MTS) – Signed a legally binding Heads of Agreement with Foodland Supermarket, 10 years, conditional on Metcash entering into an agreement for lease for the new distribution centre by no later than 21 December 2018. Does not include Drakes Foodland supermarkets in South Australia. Metcash now has long-term supply agreements in place with retailers representing the majority of its Supermarket sales in that state (excluding sales to Drakes Foodland supermarkets).

ANALYST CHANGES

  • Brambles (BXB) – We expect constant-currency sales revenue growth in the mid-single digits, primarily driven by the ongoing conversion of customers to pooled solutions and expansion across geographies. Looks to be at the top end of expectation and allays some concerns. Expects to deliver Underlying Profit growth in excess of sales revenue growth through the cycle. Will separate its IFCO RPC business through demerger (or sale)
    • Deutsche bank has a Hold recommendation with a target price of $10.00. The analyst notes that CHEP Americas is struggling with cost inflation, while the EMEA business made solid progress in 2H. They are not surprised at the demerger news although not convinced this is the right move.
    • Morgans has a Hold recommendation with a target price of $10.18 (form $9.89). The result was generally in line with the analyst, with the main negative being CHEP Americas where cost pressures continue to have an impact. They have downgraded FY19 estimates for operating earnings by 5% and continue to believe the stock is fully valued given a modest growth outlook.
    • UBS has a Buy recommendation with a target price of $11.80 (from $11.30) – Revenues up 7% in 2H and earnings down 3% was a better outcome than the analyst expected. They note the CHEP (-15%) was offset by 6% growth for rest of the group, while price increases offset half the impact of cost increases. The IFCO demerger will help reduce capital intensity, and they think shares are undervalued.

c1

  • Costa Group (CGC) – Revenue up 10.2% to $1,002m and Transacted Sales up 13.3% to $1,336m; Statutory NPAT of $115.2m (includes African Blue acquisition, including $48.3m gain from the consolidation of the 49% interest previously held); EBITDA before SGARA and material items +30.9% to $150.8m; NPAT before SGARA and material items up 26.3% to $76.7m.
    • Morgans has a Hold recommendation with a target price of $7.03 (form $7.57). The analyst notes that FY18 profit growth was strong but fell short of lofty expectations. The “miss” reflected the challenges across the domestic and international berry operations because of poor seasonal conditions. FY19 guidance is for low double-digit net profit growth. Despite seasonal risk, they think risks in the individual produce categories are manageable.
    • UBS has a Neutral recommendation with a target price of $8.20 (from $8.40). The result was about 5% below the analyst’s forecasts due to a one in forty year weather event in Morocco. FY19 should see normalisation. They think FY19 guidance of low double-digit growth is conservative but prudent at the beginning of the period. They forecast 17%pa compound earnings growth over the next three years…but think shares are well priced.

c2

  • Medibank Private (MPL) – Group NPAT of $445.1 million, down 1.0% from $449.5 million (at the bottom end of analyst range); Group operating profit $548.8 million, up 9.7%; Final div 7.2c; Health Insurance Operating profit $535.6m, up 7.7%, Premium revenue growth 1.2%, Medibank Health Operating profit up by $11.6 million (32.5%) to $47.3m.
    • Credit Suisse has a Neutral recommendation with a target price of $3.10. FY18 results were in line with the analyst although NPAT of $445.1m was a little below. Key was the ongoing slowdown in claims inflation, which with premium rate increases of 3-4% led to a 50bps gross margin expansion in 2H. They expect subdued claims growth in FY19 so margins should hold or even expand further. They have raised underlying NPAT for FY19 by 0.5%.
    • Deutsche Bank has a Buy recommendation with a target price of $3.40. The analyst thinks the core health business is on track. Operating profit grew 10% from the savings of the productivity program.
    • Morgan Stanley has an Underweight recommendation with a target price of $2.40. FY18 results were broadly in line with the analyst’s expectations. They note revenue growth is subdued and think upside from continued softening of claims trends appears unlikely. Elevated reserve releases are unlikely to be repeated as well and they see the risk of heavier regulatory intervention in an election year.
    • Morgans has a Hold recommendation with a target price of $3.00. FY18 net profit was below the analyst’s expectations, mainly due to lower investment income. They are cautious about the outlook for health insurance margins and they’ve downgraded FY19 and FY20 estimates by 1-2% on lower margin assumptions.
    • UBS has a Sell recommendation with a target price of $2.60. Profit was broadly in line with the analyst’s expectations, with underlying claims trends surprisingly weak which boosted margins. If the trend continues, FY19 margins will benefit. They note insurers have been the key beneficiaries of a challenging private health care backdrop and expect a step-down in premiums in the next round of price setting in April.

c3


LAST WEEK

  • Global markets last week – China bounces (+2.27%), Europe outperforms and US market (+0.86%) driven by NASDAQ (+1.66%). US bond markets rally and USD flops (-1%) after Trump/Fed stuff, commodities up on USD weakness,

m1

  • Local markets last week – Small Ords (+2.24%) again overwhelms big companies (-2.15% 50L). Banks smashed on political carrying-ons and WBC NIM issues (4 of the 5 worst performers in the Top20), Telcos up on TPM, Vodafone rumours, resources and energy lower on commodity prices. Good results from IT sector.

m2m3


THIS WEEK

  • It is quiet on the economic front – In Australia, CAPEX on Thursday along with building permits, China – Official PMI numbers on Friday, Japan – household spending and retail sales on Thursday, unemployment and IP on Friday, US – Second estimate of GDP, PCE prices, Chicago PMI
  • Results season finishes up officially – Some of the big names Harvey Norman (HVN), Bellamy’s (BAL), Bega Cheese (BGA), Virgin (VAH), Ramsay Health Care (RHC).

m4m5


RESULTS SEASON SCORECARDm6


OVERNIGHT

m10m11

SPI FUTURES -1

US EQUITIES – S&P500 +18 (+0.62%), Dow Jones +133 (+0.52%), Nasdaq +68 (+0.86%).

Main themes

  • Fed Chairman Jay Powell speaks at the Jackson Hole Symposium – supports gradual rate hikes
  • The S&P500 and Nasdaq reached record highs

EUROPEAN MARKETS – All higher. UK FTSE +0.19%, German DAX +0.23%, French CAC +0.24%.

CURRENCIES

  • The US dollar was down 0.5% at 95.16 on Powells comments.
  • The Aussie dollar has bounced and Is now trading at 73.31.

BONDS – Not much action! 2-yr: UNCH at 2.60%, 5-yr: UNCH at 2.71%, 10-yr: UNCH at 2.82%, 30-yr: -1 bp to 2.97%%

COMMODITIES

  • WTI crude futures closed up 89c or 1.3% at US$68.72 a barrel. It finished the week around 4% higher. The Baker Hughes rig count fell 9.
  • Iron Ore – IRESS reports iron ore unchanged at US$67.50 a tonne. The CommSec site says China Import (Fines 62% Fe) was up US75c at US$66.40/dry ton. (CFR Tianjin port)
  • LME metals – Mostly lower. Cu +1.98%, Ni +1.05%, Al +0.96%

ECONOMIC DATA, NEWS & POLITICS

  • US economic data – July Durable Orders -1.7% (consensus -0.6%; prior 0.7%) and Durable Orders excluding transportation 0.2% (consensus 0.4%; prior 0.1%)
  • North Korea – President Trump cancelled the scheduled visit to Korea by Secretary of State Mike Pompeo due to insufficient progress on North Korea’s disarmament.
  • European data – German Q2 GDP +0.5% (as expected, last 0.5%) to be +2.3%yoy (as expected, last 2.3%), Spanish July PPI +4.6% (last 4.1%)
  • The PBoC will return to using the countercyclical factor when fixing the yuan

QUOTE OF THE DAY

“Governments have never learned anything from history, or acted on principles deducted from it.” – Georg Wilhelm Friedrich Hegel, German philosopher born this day in 1770. Died 14 November 1831.

m12

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s