The ASX200 is down 5 points in mid-morning trade. Energy ↓ on oil slump, IT, H’care and Materials ↓. Gold the best, Staples and banks ok. WES halted on Coles demerger, BPT guidance. Retail sales today, US jobs tonight #ausbiz
- Ex-dividend – Clime Capital (CAM) 1.3c, Concentrated Leaders Fund (CLF) 1.3c, HT&E (HT1) 72c
- Economic data – AIG Construction Index, Retail Sales
- Japanese data – Household Spending, Average Cash Earnings, Coincident Index Prel, Leading Economic Index Prel
- UK data – Halifax House Price Index, Labour Productivity QoQ Final
- US data – Nonfarm Payrolls, Unemployment Rate, Avg. Hourly Earnings, Average Workweek, Trade Balance
- Wesfarmers (WES) – Trading halt in court hearing on 5 October 2018 in relation to the proposed demerger of Coles Group Limited. Will resume trading Tuesday.
- Monadelphous (MND) – Has been appointment to the Hunter Water Corporation Complex Capital Works Design and Construct Panel for an initial term of 4 years. Contract worth $450m.
- Dexus (DXS) – Has conditionally agreed to acquire a 28.5% interest in Heathley Limited, the external manager of the Heathley Healthcare REIT), a new stapled vehicle proposed to list on the ASX for $11.3m with option to acquire a further 21.5%. DXS will also take a 10% interest in the REIT at $2.00 for $37.3m. Expected to have an immaterial impact on DXS’s distribution, Adjusted Funds from Operations (AFFO) and gearing.
- Beach Energy (BPT) – Guidance Update. BPT has updated guidance following the announcement of the proposed sale of a 40% interest in its Victorian Otway interests to OGOG (Otway) Pty Ltd,
- Automotive Holdings (AHG) – Macquarie has downgraded to an Underperform (from Neutral) recommendation with a target price of $2.00 (from $2.50). The analyst notes new vehicle sales fell 4.9% in the Sep Q and the numbers have been negative in all of the last six months. SUVs were the only bright spot (+4.2% in the Q) but they note the 10.6% decline in private sector demand is of most concern. With tighter credit conditions, continued challenging conditions suggest downside risk to consensus earnings forecasts.
- Bank of Queensland (BOQ) – Cash earnings after tax down 2% to $372m, Statutory NPAT down 5% to $336m, Net Interest Margin up 5 basis points to 1.98%; Cost to Income ratio up 90 bps to 47.5%; Core operating expense growth of 1%; Loan Impairment Expense down 15% to $41 million or 9 bps of gross loans; Common Equity Tier 1 (CET1) capital ratio of 9.31%; Basic earnings per share down 3% to 94.7 cents; Return on average ordinary equity down 50 bps to 9.9%; Fully franked final dividend maintained at 38 cents per ordinary share. Slightly better than analysts expectations.
- Citi has a Buy recommendation with a target price of $11.00. The FY18 result was in line with the analyst’s expectations. They note revenue growth is expected to remain below cost growth. Management has flagged accelerated investment in digital to improve the offering and customer experience. The positives continue to be strong capital and dividends, while there remains the prospect of participating in regional bank acquisitions.
- Macquarie has an Underperform recommendation with a target price of $10.50 (from $10.75). The result beat analyst’s expectations due to lower funding costs but the analyst thinks the outlook is challenging as front-book discounting restrains revenue, and a low returns profile mixed with an elevated payout ratio is pressuring the bank’s capital position. Balance sheet growth is constrained by mortgage outflows and the broker suggests risk of a dividend cut.
- Morgans has an Add recommendation with a target price of $11.30 (from $11.50). Cash earnings were ahead of the analyst’s. No special dividend was declared, contrary to expectations. The broker believes this is explained by the CET1 ratio being weaker than expected and uncertainty around the completion of the sale of the St Andrews life business. They think the bank’s relatively inferior mortgage fulfilment times in the broker channel will continue to work against credit growth and it will be difficult to achieve system home loan growth without compromising margins.
- UBS has a Sell recommendation with a target price of $9.80. The analyst thought the result was reasonable but tarnished by the decision to take several items below the line, including software write-offs, regulatory and legal costs. A indication of the 2H result was the CET1 ratio, which fell 11 basis points to 9.31%. They have upgraded FY19 EPS estimates by 7%, given the delayed St Andrews insurance sale.
- Carsales (CAR $14.10) –
- Citi has double upgraded to a Buy (from Sell) recommendation with a target price of $16.65 (up 19%). The analyst’s further in-depth research means they now expect CAR to enjoy acceleration in car dealer depth penetration combined with continued volume growth. Earnings estimates have been upgraded, with 3-year EPS CAGR of 12% expected.
- Credit Suisse has upgraded to an Outperform (from Neutral) recommendation with a target price of $16.00 (from $15.00). The analyst expects higher pricing and penetration of depth products to drive revenue growth in FY19. Associated yield improvements should contribute to a forecast 7.5% increase in core private revenue and an 8.5% increase in dealer segment revenue over FY19. They see upside form here.
- Domain Group (DHG $3.47) – Credit Suisse has downgraded to a Neutral (from Outperform) recommendation with a target price of $3.50. The analyst sees the decline in new listing volumes at the start of FY19 a headwind for the business although consistent with expectations. While 2018 volumes are likely at the low point of the range seen over the last five years and therefore downside risk is limited beyond 2018. Shares are trading close to target, hence the downgrade,
- REA Group (REA $82.70) – Credit Suisse has a Neutral recommendation with a target price of $85.00 (from $83.00). The analyst is comfortable that yield and mix benefits will continue to offset subdued volumes. In 2018 so far volumes for both the national market and capital cities are at the bottom of the range. They don’t expect softness in the housing markets of Sydney and Melbourne will have additional downside impact on listing volumes.
- Netwealth (NWL $7.94) – UBS has a Sell recommendation with a target price of $7.15 (from $7.00). UBS expects the Hayne Royal Commission to increase momentum towards platform providers such as Netwealth, but they are cautious given the price.
- Seek (SEK $20.53)
- Citi has a Sell recommendation with a target price of $16.90 (from $15.00). The analyst expects depth revenue growth to accelerate but not completely offset slower volume growth in the core business. They have upgraded EPS estimates by 3-5% in FY19-21 but think shares are expensive.
- Credit Suisse has upgraded to a Neutral (from Underperform) recommendation with a target price of $19.10 (from $17.50. The analyst thinks the slowdown in volume growth in domestic job advertisements at the beginning of FY19 is primarily driven by tough comparables, as domestic labour market fundamentals remain robust. They expect mid single digit volume growth in domestic employment business for the remainder of the financial year.
SPI FUTURES -27
US EQUITIES – S&P500 -24 (-0.82%), Dow Jones -201 (-0.75%), Nasdaq -146 (-1.81%).
Main themes –
- Markets drop on rising bond yields.
- Rate-sensitive sectors (banks) outperformed
- Technology sector underperforms on news that China had infiltrated supply chains of key companies (including Apple -1.76% and Amazon -2.22% ) by implanting a spy chip in their servers. Netflix -3.55%, Google -2.84%, Facebook -2.20%
EUROPEAN MARKETS – Lower. STOXX500 -1.08%, UK FTSE -1.22%, German DAX -0.35%, French CAC -1.47%.
- The US dollar has settled lower at 95.76.
- The Aussie dollar is significantly weaker at 70.80c. (daily chart over the last 12 months).
BONDS – 2-yr: +6 bps to 2.86%, 5-yr: +8 bps to 3.02%, 10-yr: +10 bps to 3.16%, 30-yr: +11 bps to 3.32%
- WTI crude futures closed up US$2.08 or 2.7% at US$74.33 as markets finally responded to negative news over the last 24 hours, including reports Saudi Arabian output had increased to near a record high, reports Russia and Saudi Arabia struck a private deal to produce more oil, and inventories rose more than 4 times analysts’ expectations.
- Iron Ore – Chinese holiday. 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 – Mixed. Cu +0.37%, Ni -2.19%, Al -1.65%.
ECONOMIC DATA, NEWS & POLITICS
- US economic data – Weekly Initial Claims 207K to near a 49 year low (consensus 210K; prior 215K) and Continuing Claims 1650K (prior 1663K); Factory Orders (actual 2.3%; Briefing.com consensus 1.8%; prior -0.5%)
- Fed Speak – Fed Chairman Jay Powell’s speech yesterday was very upbeat about the current state of the US economy. He also said the Fed had a long way to go before interest rates hit neutral, suggesting more hikes could be on the horizon.
QUOTE OF THE DAY
“I don’t comment on the physics errors of ‘Star Wars,’ all right. I just – you let that one go.” – Neil deGrasse Tyson, American astrophysicist, author, and science communicator. Born this day in 1958