The ASX200 is up 10 points in mid-morning trade after quiet o’night session. Gold, Materials & Energy leading, AREITS & Financials ↓. VCX sells centres to SCP, halted for cap raise. Building permits later. Early start and needing nap (me not market) #ausbiz
TODAY
- Ex-dividend – Academies Australasia Group (AKG) 1.0c, Ausdrill (ASL) 3.5c, Briscoe Group Australasia (BGP) 7.3c, Collection House (CLH) 3.9c
- Economic data – AIG Services Index, Building Permits
- Japanese – Nikkei Services PMI
TONIGHT
- European Markit Composite PMI Final, Markit Services PMI Final, Retail Sales
- UK Markit/CIPS UK Services PMI
- US data – ADP Employment Change, ISM Services
RBA MEETING YESTERDAY
The RBA left the official cash rate at 1.5%, which hasn’t moved for over 2 years since August 2016. The commentary on housing is little changed. Conditions in the Sydney and Melbourne markets continue to ease and, while investor credit growth has slowed noticeably, owner-occupier credit growth is robust. Credit conditions are tighter, but mortgage rates are still low and there is strong competition for quality borrowers. Given the RBA and APRA’s goal of improving lending standards and achieving an orderly move in housing affordability, things appear to be going to plan.
COMPANY NEWS
- Wesfarmers (WES) – Media reports that WES will reveal full details of the Coles demerger in the next week. Ahead of Coles quarterly sales update on 15 October. Estimates are that the demerged Coles group will contain about $2bn in debt, an investment grade credit rating and a dividend policy of 90% payout ratio. The key for investors will be the new management teams focus on strategy – namely pricing strategy – and whether the competitive pricing strategy is the right move going forward. Woolworths has been winning out in the terms of supermarket sales growth but that should even out,
- Woolworths (WOW) – Looking to sell its petrol business in a $2bn float. Deciding whether to float or sell. Potential buyers are said to include UK group DCC and UK fuel retailer EG Group (backed by TDR Capital).
- Afterpay Touch (APT) – Following a business review, APT has sold its European e-Services business to Nelumbo Limited for $7.5m, payable in two tranches – $4.0m at completion and $3.5m within six months of completion.
- Bluescsope Steel (BSL) – Presentation related to UK and US investor roadshow released.
- Vicinity Centre (VCX) – Has announced the sale of a portfolio of ten Sub Regional and Neighbourhood shopping centres to SCA Property Group (SCP) and one Neighbourhood shopping centre to a private investor, for an aggregate sale price of $631.0m. The aggregate sale price of $631.0 million announced today reflects a 5.1% discount to the combined 30 June 2018 book values of the eleven assets. VCX has now divested 35 shopping centres for more than $2.5 billion at a 0.5% premium to book value. VCX’s FFO guidance for FY19 remains unchanged at 18.0 to 18.2 cents per security. Assuming the sale proceeds of the eleven non-core assets are used to repay debt in the short-term, gearing would be reduces by ~280bp.
- SCA Property Group (SCP) – Is in a trading halt adter $573m acquisition from VCX. Has increased forecast FY19 FFO guidance from 15.6cpu to 16.2cpu, and Distribution guidance from 14.3cpu to 14.7cpu. The acquisition funded by fully underwritten $259 million placement at $2.29 per unit2, and new debt facility.
- Perpetual (PPT) – Chris Green (currently Group Executive, Perpetual Corporate Trust) has been appointed Chief Financial Officer, replacing Gillian Larkin who has left to join the ASX.
- ASX – Gillian Larkins has been appointed as Chief Financial Officer
ANALYST CHANGES
- AMP – Shaw & Partners thinks AMP will be the biggest loser from the RC, due to its model being based on vertical integration and “grandfathered” commissions which allows for substantial risk of conflicted advice–areas targeted by the probe. Yet when grandfathering of previously agreed commissions is terminated, AMP’s higher-margin wealth management products become lower-margin new products issued by another provider and their intermediaries aren’t allowed to sell AMP products, and AMP is worth less. On the chart, there are some early indications that the worst is over, with the MACD indicator (the blue bar) moving from very negative to neutral. A switch to positive would be a buy signal, as would a move in the RSI (the red line) above the Oversold 30 level. But shares are still falling so no reason to go there for now.
- Bega Cheese (BGA) – Bell Potter has a Hold recommendation with a target price of $7.50 (down 13%). The $250m capital raising to help fund the acquisition of dairy facilities materially improves its balance sheet, but the analyst has cut the target price due to higher-than-expected acquisition costs and the equity dilution from the share offer. More positively, they see a waning of seasonal headwinds.
- Origin Energy (ORG $8.38) – Macquarie has an Outperform recommendation with a target price of $9.51. The analyst notes that the ACCC has published its LNG netback time series. Netback pricing averaged $11.20/gigajoule in the September quarter and pricing is expected to average around $12.20/gigajoule in 2019, ahead of expectations. The analyst expects the higher LNG netback price to progressively affect earnings for Origin Energy as legacy contracts with Esso in FY20 and Lattice in FY21/22 are re-priced. Technically, this looks interesting. It appears the the uptrend that ended in August might be on the verge of resuming. MACD indicator heading up and RSI ticked up from very oversold levels.
- Xero (XRO $49.96) – UBS has a Neutral recommendation with a target price of $45.50. The analyst suspects subscriber growth in 1H will be at record levels as, historically, there has been a high correlation between net subscriber growth by market and search trends on Google. They think subscriber momentum in Australia and the UK is accelerating while the US and New Zealand appear similar to FY18. Current forecasts are for net additions of over 205,000 in 1H and over 409,000 in FY19. On the chart, the uptrend is still firmly in place but is losing momentum. the MACD indicator (the blue bars) is flat and RSI (the red line) recently dipped below 70, which is a sell signal.
- IOOF (IFL) – Completed the acquisition of the ANZ Aligned Dealer Groups (ADGs). Bell Potter has upgraded to a Hold (from Sell) recommendation with a target price of $7.70 (form $7.61) – The analyst questions what shape the assets will be in given the major regulatory upheaval in the industry of late. A judicial probe into financial-industry misconduct didn’t tackle wealth in last Friday’s recent interim report, so uncertainty remains. There is absolutely no reason to be here from a technical perspective.
OVERNIGHT
SPI FUTURES +10
US EQUITIES – S&P500 -1 (+0.20%), Dow Jones +123 (+0.46%), Nasdaq -38 (-0.47%).
Main themes –
- Italian fiscal position again in focus.
- Positive speech from Fed chair
EUROPEAN MARKETS – All lower. STOXX500 +0.52%, UK FTSE -0.28%, German DAX -0.42%, French CAC -0.71%.
CURRENCIES
- The US dollar is stronger at 95.53.
- The Aussie dollar is weaker at 71.89c.
BONDS – 2-yr: -1 bp to 2.81%, 5-yr: -2 bps to 2.94%, 10-yr: -3 bps to 3.05%, 30-yr: -3 bps to 3.20%.
Italian bonds were weaker with 10 year yield up 15bp at 3.44%.
COMMODITIES
- WTI crude futures closed down US7c at US$75.23. Sanction against Iran and Saudi Arabia’s ability to fill the “gap” remain the key factors affecting markets.
- Iron Ore – IRESS reports iron ore was unchanged at US$69.50 a tonne. The CommSec site says China Import (Fines 62% Fe) was unchanged at US$69.50/dry ton. (CFR Tianjin port)
- LME metals – All higher. Cu +1.15%, Ni +0.32%, Al +1.58%.
ECONOMIC DATA, NEWS & POLITICS
- Italian Fiscal Position – Deputy Prime Minister Luigi Di Maio said the government will “not retreat even a millimeter” from its plan for a 2019 deficit of 2.4%. Di Maio added that the Italian government has no plans to leave the euro and accused European Union officials of deliberately upsetting capital markets through negative comments about the budget. “Some European institutions are playing … at creating terrorism on the markets.” The 2.4% budget target is less than the 3% that triggers concerns but with large debt and a limited growth outlook, the concern is that there is no room for error. This leads to fear in terms of the amount of Italian government debt held by the banks.
- European data – August PPI +0.3% (expected 0.2%; last 0.7%) to be +4.2%yoy (expected 3.9%; last 4.3%)
- UK September Construction PMI 52.1 (expected 52.8; last 52.9). September Nationwide HPI +0.3% (expected 0.2%; last -0.5%) to be +2.0%yoy (expected 1.9%; last 2.0%)
- Fed Reserve Governor Jerome Powell – Positive comments on the US economy. “I am glad to be able to stand here and say that the economy is strong, unemployment is near 50-year lows, and inflation is roughly at our 2% objective. The baseline outlook of forecasters inside and outside the Fed is for more of the same. This historically rare pairing of steady, low inflation and very low unemployment is testament to the fact that we remain in extraordinary times. Our ongoing policy of gradual interest rate normalisation reflects our efforts to balance the inevitable risks that come with extraordinary times, so as to extend the current expansion, while maintaining maximum employment and low and stable inflation.”
QUOTE OF THE DAY
“If having a soul means being able to feel love and loyalty and gratitude, then animals are better off than a lot of humans.” – James Herriot, English author born this day I 1916. Died 23 February 1995.
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