The ASX200 is up just 1 point in mid-morning trade after US market loses momentum. Resources lag, consumer stocks up. Banks mixed. BPT investor day. VIC holiday tomoz. #ausbiz
- Ex-dividend Acrow Formwork and Construction Services (ACF) 0.5c, Arena REIT (ARF) 3.4c, (BSA) 0.5c, Blackwall (BWF) 2.1c, Cabcharge (CAB) 4.0c, Credit Intelligence (CI1) 0.1c, Charter Hall Long Wale REIT (CLW) 6.4c, Countplus (CUP) 1.0c, EBOS Group (EBO) 28.7c, Energy One Limited (EOL) 2.0c, GBST Holdings (GBT) 2.5c, Garda Capital Group (GCM) 1.0c, Garda Diversified Property Fund (GDF) 2.3c, Japara Healthcare (JHC) 3.8c, Kirkland Lake Gold (KLA) 2.6c, Legend Corporation (LGD) 0.8c, Lycopodium (LYL) 18.0c, Macquarie Telecom Group (MAQ) 25.0c, Meridian Energy (MEZ) 9.9c, Prime Financial Group (PFG) 0.5c, Pioneer Credit (PNC) 7.7c, Rural Funds (RFF) 2.6c, Reject Shop (TRS) 11.0c
- Chinese data – Industrial Profits (YTD)
- UK – Nationwide Housing Prices, Gfk Consumer Confidence
- European data – Loan Growth, Business Confidence, Consumer Confidence Final, Economic Sentiment, Industrial Sentiment, Adv. International Trade in Goods
- US data – Adv. Retail Inventories, Adv. Wholesale Inventories, Durable Orders, GDP – Third Estimate, Pending Home Sales
- Fed Speak – Dallas Fed President (non-voter) Robert Kaplan, Chairman Jay Powell
- Beach Energy (BPT) – Investor Day
- Gateway Lifestyle (GTW) – Hometown has reached 43.89% of GTW)
- Syrah Resources (SYR) – The executed Mining Agreement which governs the Balama Operation has now been sanctioned by the Administrative Court in Mozambique.
- Nufarm (NUF) – Full year results. Results impacted by drought conditions in Eastern & Southern states. Revenue up 6%. Underlying NPAT down 28%
- Citi has a Buy recommendation with a target price of $8.00 (from $9.00). The analyst thought FY18 performance commendable, excluding the impact of the drought in Australia, and highlights the market share gains in North and Latin America. The decision to raise new capital restores the balance sheet and removes a persistent overhang. FY19 guidance is in line with expectations and they think its substantially undervalued.
- Credit Suisse has an Outperform recommendation with a target price of $8.96 (from $9.12). The analyst notes the downgrade to FY19 guidance is mainly related to the severe drought in Australia. The $300m capital raising secures near-term funding and appears to be a concession to pursuing growth in the face of drought likely extending into FY19. Regulatory approvals for Omega 3 canola also appear to be proceeding.
- Deustche Bank has a Sell recommendation with a target price of $6.10 (from $6.40). The results were weaker than the analyst expected. They believe there are several risks going forward including ongoing drought in Australia, Brexit, higher raw material costs, volatility in Brazil and US tariffs. They also think Sumitomo not taking up its entitlement in the $303m equity raising could create a share overhang.
- Morgan Stanley has an Overweight recommendation with a target price of $8.70 (from $10.65). The results were in line with expectations but the analyst was surprised by the equity raising. They see upside despite the upside. Looking to FY19, their forecasts are at the top of the guidance range, acknowledging the usual second half skew. They think the entitlement offer is prudent in the light of recent market uncertainty but they’ve lowered FY19 and FY20 forecasts by 23% and 20% respectively, largely driven by the dilution associated with the equity raising.
- Santos (STO) – Investor Day. Outlined plans to grow production to more than 100mbpoe by 2025, almost doubling current levels of production.
- Citi – The analyst thinks the target indicates the company is confident enough on execution to be able to provide such a number. Despite not listing all opportunities that could be developed, capital expenditure guidance is US$300m for the next two years in the Cooper Basin, and they think STO is either being conservative in its guidance, productivity is declining, or there is a preference to grow resources and reserves via exploration and appraisal. The GLNG production outlook also infers a slow ramp up.
- Morgan Stanley has an Overweight recommendation with a target price of $8.30 (from $7.00). The analyst thinks the new target is achievable and suspects the market will focus on the de-leveraging profile. They also suggest the recent Quadrant deal lowers break-even for free cash levels and makes the business more defensive. A further re-rating of the stock is expected should oil prices stay near current levels.
- UBS has a Sell recommendation with a target price of $5.70. The analyst notes that growth is largely within the company’s control, given around 70% of the target is driven by the proposed acquisition of Quadrant and a further 10% related to the ramping up of the Cooper Basin and GLNG equity fields. They think management is doing a good job managing declines in the cost base and now a plan to deliver growth. But at the current share price, the market may not be factoring in all the risks associated with growth.
- Sonic Healthcare (SHL $25.29) – UBS has a Neutral recommendation with a target price of $26.00. The analyst has updated modelling assumptions, noting some risk to German health insurance-funded volumes and US pricing headwinds for Medicare reimbursements. These should be mitigated by more stable conditions in Australian diagnostics. They think shares are fairly valued and delivery on operating leverage is required to justify the relative price/earnings premium.
SPI FUTURES -17
US EQUITIES – S&P500 -10 (-0.33%), Dow Jones -107 (-0.40%), Nasdaq -17 (-0.21%).
Main themes –
- FED raises rates – removes the word “accommodative”
EUROPEAN MARKETS – Mostly higher. STOXX500 +0.30%, UK FTSE +0.05% German DAX +0.09%, French CAC +0.61%.
- The US dollar was little changed at 94.28.
- The Aussie dollar is a bit higher at 72.65c.
BONDS – 2-yr: UNCH at 2.83%, 5-yr: -2 bps to 2.96%, 10-yr: -4 bps to 3.06%, 30-yr: -4 bps to 3.19%%
- WTI crude futures closed down US71c or 1% to US$71.57. EIA inventories rose 1.9mb, compared to expectations of a 1.3mb fall.
- Iron Ore – IRESS reports iron ore was unchanged at US$69.50 a tonne. The CommSec site says China Import (Fines 62% Fe) was up US20c at US$67.00/dry ton. (CFR Tianjin port)
- LME metals – Mostly weaker. Cu -0.57%, Ni -1.00%, Al -0.29%.
ECONOMIC DATA, NEWS & POLITICS
- FOMC meeting – Increased fed funds target range to 2.00%-2.25% from 1.75%-2.00%, as widely expected. Dot plot showed expectations for a slightly more gradual pace of rate hikes, with the fed funds rate reaching 3.25% in 2020, as opposed to late 2019 in the previous dot plot. The September dot plot projects a modestly higher longer-term terminal rate (3.00%) than the June forecast (2.75%). The FOMC Statement removed the reference to monetary policy being ‘accommodative’, but Chairman Powell said that change was simply a by-product of steady rate hikes and it does not reflect a change in approach. The slope of the yield curve flattened after the FOMC Statement,
- US economic data – August New Home Sales +3.5% to 629K (consensus 630K; prior 608K); Weekly MBA Mortgage Index 2.9% (prior 1.6%)
- North Korea back in the headlines – Secretary of State Mike Pompeo will visit North Korea next month
- Chinese tariffs – China will cut import tariffs on more than 1,500 items, lowering the overall tariff rate to 7.5% from 9.8%. Not sure if the cuts apply to goods from the US.