MID MORNING MARKETS 14-03-19

The ASX 200 is +3 in mid morning trade amidst Brexit mess. Materials & Energy best, Consumer, h’care and banks ↓. CBA will clean up its house before passing the “bucks” (satire font). Divs denting. Chinese data ahead. #ausbiz

m1m2m3TODAY

  • Chinese data – Fixed Asset Investment, Industrial Production, Retail Sales, New Yuan Loans

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  • Ex-dividend – Air New Zealand (AIZ) 10.6c, Australian Leaders Fund (ALF) 2.0c, Ama Group (AMA) 0.5c, CPT Global (CGO) 0.3c, Data3 (DTL) 3.6c, DWS (DWS) 4.0c, EBOS Group (EBO) 29.4c, Embelton (EMB) 20.0c, G8 Education (GEM) 8.0c, Grange Resources (GRR) 1.0c, Heartland Group Holdings (HGH) 3.4c, Lindsay Australia (LAU) 1.0c, Laserbond (LBL) 0.5c, Legend Corporation (LGD) 0.9c, Metlifecare (MEQ) 3.0c, Midway (MWY) 9.0c, National Tyre & Wheel (NTD) 1.3c, Plato Income Maximiser (PL8) 0.5c, RedHill Education (RDH) 2.0c, Regional Express (REX) 4.0c, Spark New Zealand (SPK) 11.6c, Templeton Global (TGG) 2.0c, Tassal Group (TGR) 9.0c, URB Investments (URB) 1.8c,

TONIGHT

  • US economic data – Import Prices, Export Prices

COMPANY NEWS

  • Commonwealth Bank (CBA)- update on its remediation and demerger plans for its wealth management and mortgage broking businesses. CBA has suspended preparations for the demerger in order to support the focus on the priorities of implementing the recommendations of the Royal Commission. The cynic in me can’t help but think there is pressure to fix things before passing the “bucks”.
  • Myob (MYO) – Grant Samuel independent report has concluded that the scheme of arrangement for the proposed acquisition by KKKR is fair and reasonable, and therefore, is in the best interests of MYOB Shareholders, in the absence of a Superior Proposal. The board recommends the offer. The Federal Court approves the convening of the Scheme meeting on Wednesday 17 April.
  • Syrah (SYR) – Update on its expected Q1 2019 graphite pricing, production and cash position.
  • Ramsay Health Care (RHC) – Company presentation to UK investors. Has developed a “no deal” operational readiness plan.

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  • Stockland (SGP) – Non-core retail divestment strategy. Has divested two retail assets for a combined total of $143m at 2.9% premium to combined book value.

BROKER CHANGES

  • Corporate Travel (CTD) – Confirms that it has had preliminary discussions with Capita regarding its travel businesses. Early stage discussions and no certainty as to whether a transaction will be agreed nor as to the terms or timing. In this regard CTM, has not contemplated undertaking any acquisition this financial year. Morgan Stanley has an Overweight recommendation with a target price of $31.00. Morgan Stanley observes the company’s continued interest in acquisitions is consistent with its stated strategy. However, commentary does indicate that Corporate Travel is not prepared to make any acquisitions in the current financial year. If this transaction were to settle in FY19 this would create doubt around cash flow and perpetuate questions regarding cash conversion, in the broker’s view.

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  • Fisher & Paykel (FPH) – UBS has a Sell recommendation with a target price of NZ$12.60. After reviewing the Vapotherm results UBS believes the competitive threat to Fisher & Paykel is modest.  The company’s market position appears stable, although Vapotherm’s focus on emergency departments, where it has a better offering for undifferentiated respiratory distress, needs to be monitored.

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  • Invocare (IVC) – Ord Minnett has a Hold recommendation with a target price of $13.60 (from $13.70). InvoCare has completed the institutional portion of its capital raising at $14 per share, raising around $65m. Ord Minnett does not expect the additional capital to change the company’s expenditure plans for FY19. Instead, the broker suspects capital will be used for acquisitions. The broker assesses the slowdown in capital expenditure and an expected recovery in volumes should put the balance sheet in a better position by the end of 2019.

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  • Sigma Healthcare (SIG) – Has rejected the offer from API saying is can make it on a stand-alone basis with identified cost savings of over $100m
    • Morgan Stanley has an Underweight recommendation with a target price of 47c. Sigma still expects FY23 operating earnings (EBITDA) to return to similar levels as FY19. Without the merger, Morgan Stanley envisages a risk that profitability deteriorates in both companies, amid challenges in the industry. The broker had envisaged the bulk of synergies from the merger could come through rationalisation of the distribution centre/network.
    • UBS has a Neutral recommendation with a target price of 58c. UBS awaits a response from API and further detail regarding Sigma’s cost reduction plans at the FY19 results next week. UBS still considers the ACCC’s view would have been the biggest impediment to the deal.

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OVERNIGHT

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SPI FUTURES +20

US EQUITIES – S&P 500 +19 (+0.69%), Dow +148 (+0.58%), NASDAQ +52 (+0.69%)

Main themes

  • Brexit the major theme overnight with parliament voting to reject a no-deal Brexit
  • No major new stock related news but S&P closed about 2800.

EUROPEAN MARKETS – Mixed. STOXX500 +0.63%, UK FTSE +0.11%, German DAX +0.42%, French CAC +0.69%.

CURRENCIES

  • The USD is a lower at 96.49
  • The Aussie dollar is stronger at US70.97.

BONDS – 2-yr: unch at 2.44%, 3-yr: -1 bp to 2.40%, 5-yr: unch at 2.41%, 10-yr: unch at 2.61%, 30-yr: +2 bps to 3.01%

COMMODITIES

  • Oil – WTI futures were up US$1.50 or 2.4% at US$58.26 as the EIA reported inventories fell 3.9mb.
  • Iron Ore – IRESS reports iron unchanged at US$85.50 a tonne. CommSec reports iron ore was down 95c or 1.1% to U$84.10.
  • LME metals – Mostly higher. Copper +0.09%, nickel +0.57%, aluminium +1.41%

ECONOMIC DATA, NEWS & POLITICS

  • US economic data – Weekly MBA Mortgage Applications Index 2.1% (prior -2.5%), February PPI 0.1% (consensus 0.2%; prior -0.1%), Core PPI +0.1% (consensus 0.2%; prior 0.3%), January Durable Orders +0.4% (consensus -0.6%; prior revised to 1.3% from 1.2%), and Durable Orders ex-transportation -0.1% (consensus 0.1%; prior revised to 0.3% from 0.1%); January Construction Spending +1.3% (consensus 0.3%; prior revised to -0.8% from -0.6%)
  • The key takeaway from the PPI report is that year-over-year inflation trends tipped lower which will keep the Fed tipped toward a patient mindset. The key takeaway from the DO report is that it was constructive for the business investment outlook and Q1 GDP forecasts, with a 0.8% increase in orders for nondefence capital goods, excluding aircraft, and a 0.8% increase in shipments for that same metric.
  • Trade – President Trump says China trade deal moving along, but it has to be the right deal so no rush.
  • European data – Industrial Production 1.4% (expected 1.0%; last -0.9%), but -1.1%yoy (expected -2.1%; last -4.2%)

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