The ASX200 is up 21 points in mid-morning trade with “not as bad as feared” excuses. Resources rule. CSL fall continues, Banks ok. CGC upgrade, IVC acquisition. WEB ex-div, BoJ meets #ausbiz


  • Ex-dividend – Apiam Animal Health (AHX) 0.8c, Axsesstoday (AXL) 2.9c, Clime Investment Management (CIW) 1.5c, Homeloans (HOM) 0.9c, Johns Lyng Group (JLG) 1.9c, Konekt (KKT) 1.0c, Pacific Smiles Group (PSQ) 3.8c, Webjet (WEB) 12.0c
  • RBA – Speech by Christopher Kent, Assistant Governor (Financial Markets) “Money – Born of Credit?”
  • Japanese data – Balance of Trade, Imports/Exports
  • BoJ Interest Rate Decision


  • European data – Construction Output, Current Account
  • UK Inflation Rate, PPI Output
  • US economic data – Building Permits, Current Account Balance, Housing Starts


  • Invocare (IVC) – Has acquired Harrison Funerals in Ballarat, Victoria. The acquisition is anticipated to complete by the end of September 2018. Harrison Funerals operate from a single location servicing the Ballarat region of Victoria. The business conducts approximately 150 funeral services and generates revenue of circa $1.0 million per annum. The assets purchased include a fully equipped funeral home with chapel and mortuary, freehold properties and prepaid contracts.

Macquarie on the Aged Care Sector – Given the increased scrutiny and attention operators will receive in FY19, Macquarie believes there is increased risk of falling occupancy and rising costs.

  • Japara Health Care (JHC $1.43) Downgraded to an Underperform (from Neutral) recommendation with a target price of $1.33 (from $1.77). The analyst sees Macquarie believes there is increased risk for the company’s strategy of reducing staff costs and the risk of falling occupancy throughout FY19. The earnings impact from a change in occupancy is greater for Japara Healthcare than its listed peers.


  • Estia Health (EHE $2.47) – Downgraded to a Neutral (from Outperform) recommendation with a target price of $2.70 (from $3.60) – EHE is preferred due to its balance sheet and consistent conservative growth but the analyst has a cautious view on the aged care sector and thinks shares are unlikely to outperform due to negative coverage.


  • Regis Healthcare ($3.07) – Underperform recommendation with a target price of $2.57 (from $3.43). The analyst notes the company’s balance sheet and a mature portfolio that is already facing pressure,



  • Costa Group (CGC $6.54) – UBS has Upgraded to a Buy (from Neutral) recommendation with a target price of $8.20. The analyst has upgraded after recent underperformance, supported by stronger wholesale produce pricing and the growth projects. They expect upside (although limited) to the FY19 guidance for low double-digit net profit growth, and suggests there could be a large skew to the second half. However the outlook is generally seen as priced in as expectations have been re-based post the FY18 result.


  • Orica (ORI$16.41) – Morgan Stanley has an Overweight recommendation with a target price of $18.90 (form $20.10). The analyst thinks the full impact of ORI’s manufacturing issues are yet to be fully reflected in the shares but it will still benefit from cyclical environment. They see little evidence that the Burrup plant will contribute meaningful volumes in FY19. They have reduced estimates for FY19-20 EPS by 6-8% but see FY18 as the low in earnings.


  • Kathmandu (KMD $2.88) – Result yesterday.
    • Morgan Stanley has an Equal-weight recommendation with a target price of $3.00 (from $2.85.). The analyst notes that FY18 earnings were in line with guidance and there was some moderation in same-store sales growth and margin in the second half. Momentum is expected to continue into the first half as the company cycles softer comparables and clearance activity. They see the 3 drivers of growth as online sales, Oboz and international sales. While more positive they are conscious of the rapidly changing environment and they’d like to be more comfortable with in-store gains and international expansion.
    • Credit Suisse has a Neutral recommendation with a target price of NZ$3.25 (from NZ$3.10). The result was in line with guidance and above CS forecasts. The analyst thinks this is a strong result that reflects robust same-store sales growth in Australia and better gross margins. There was less discounting and higher average selling prices. While noting the actions taken to reduce operating risk and recent margin improvement, they don’t see sufficient upside to support a more positive view.
    • Macquarie has an Outperform recommendation with a target price of $3.13 (from $2.98). The analyst thinks KMD is executing well against its strategy. Sales growth in FY18 was supported by the Oboz acquisition and new stores. Group sales rose 11.7%, or 6.1% excluding the Oboz acquisition. Gross margin improved 1.4% to 63.4%, supported by less discounting and higher selling prices.


  • TPG Telecom (TPM) – Underlying revenue +0.5%, and NPAT +3.7%. Significant headwinds from the migration of DSL customers to lower margin NBN services, loss of gross profit from home phone services as customers migrate to NBN bundled services and electricity price increases. The main contributors to this growth came from the Corporate Segment, TPG FTTB (‘fibre to the building’) services, and cost savings from the ongoing integration of iiNet.
    • Morgan Stanley has an Overweight recommendation with a target price of $6.70. In line result. The analyst notes lack of commentary on the merger with Vodafone Australia. Revenue was up 1% and operating earnings (EBITDA) were up 1%. FY19 guidance for operating earnings of $800-820m (ex-mobile) is in line with the analyst’s estimates.
    • Morgans has an Add recommendation with a target price of $10.70. In line with pre-released numbers, with earnings coming in slightly ahead of guidance. No news on the main event!. No change in view, although they upgraded on the merger announcement given the significant synergies the broker sees being generated over time.
    • UBS has a Sell recommendation with a target price of $7.00 (from $7.50).In ln line result and FY19 guidance of $800-820m considered slightly conservative after factoring in NBN headwinds and the reversal of promotional pricing benefits that were received in FY18. The analyst thinks the Vodafone merger makes sense, given highly complementary businesses from a customer perspective, asset mix and opportunity for cost synergies. The analyst assumes the deal will be approved but there are potential risks with the ACCC if it defines the relevant market as “converged” fixed and mobile telecommunications rather than more narrowly as mobile.
    • Citi has a Sell recommendation with a target price of $6.75 (ffrom $5.20). the result beat the analyst’s forecasts with lower CAPEX. They see a further three years of earnings decline in the consumer division, with scope to grow from FY21 once NBN is complete and legacy voice and iiNet revenues are out of the system. Prior to this, earnings growth will be required from mobile and cost synergies from the merger with Vodafone Australia.
    • Macquarie has research restrictions but notes FY18 operating earnings were marginally ahead of recent guidance. The analyst sees next year’s guidance of $800-820m in earnings positive, given $65m in headwinds from the NBN roll-out to be absorbed, the loss of iiNet legacy fixed lines, as well as a $10m negative impact from accounting changes.





US EQUITIES – S&P500 +16 (+0.54%), Dow Jones +185 (+0.71%), Nasdaq +60 (+0.76%).

Main themes

  • Tariffs apparently not as bad as feared. The US will initially place a 10% tariff on $200m worth of goods, rising to 25% at the end of the year. If China retaliates, against famers or other industries, phase 3 will be tariffs on another $267b of imports.
  • China retaliated with tariffs targeting more than 5,000 US products that will go into effect on September 24. But the levy on some goods will be reduced to 10% tariff from 20%.

EUROPEAN MARKETS – Mostly higher. STOXX500 +0.11%, German DAX +0.51%, French CAC +0.28%. UK FTSE -0.03% the exception,


  • The US dollar rose 0.1% to 94.62.
  • The Aussie dollar is 0.6% higher at 72.20c.

BONDS – Sold off with the 1- year back above 3.0%. 2-yr: +1 bp to 2.79%, 5-yr: +3 bps to 2.93%, 10-yr: +4 bps to 3.04%, 30-yr: +4 bps to 3.18%



  • WTI crude futures closed up US94c or 1.4% to US$69.85 as the market watched for the impact of tariffs on oil demand. Other major influences were an upcoming meeting between OPEC and non-OPEC ministers in Algeria on Sunday (to discuss compliance with production cuts), US sanctions on Iran and expectations of an increase in US shale output.
  • Iron Ore – IRESS reports iron ore was unchanged at US$68.50 a tonne. The CommSec site says China Import (Fines 62% Fe) was unchanged at US$69.50/dry ton. (CFR Tianjin port)
  • LME metals – Slight rebound. Cu +2.37%, Ni +1.31%, Al +0.15%.


  • US economic data – NAHB Housing Market Index 67 (consensus 66; prior 67)
  • Italian July Industrial Production -1.0% (expected -0.4%; last 0.3%) to be +2.9%yoy (expected 1.4%; last 1.4%)
  • BofA/Merrill Lynch survey – Cash balance rose to 5.1% form 5.0% (4.5% average over the last 0 years). Net 24% of investors think growth will slow over the next 12 months, up from 7% in August and the worst outlook for the global economy since December 2011.


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