MID MORNING MARKETS 15-03-19

The ASX 200 is flat in late morning trade after a quiet night. Gold, Materials and Financials lower. Industrials best. NAB respond to RC, CCL denies lion interest. FOMC, employment and Bank of Japan next week.  . #ausbiz

m1m2m3TODAY

  • Ex-dividend – Glennon Small Companies (GC1) 1.0c, Generation Development Group (GDG) 1.0c, Healius (HLS) 3.8c, Mineral Resources (MIN) 13.0c, Reject Shop (TRS) 10.0c
  • Chinese House Price Index
  • BoJ Interest Rate Decision

TONIGHT

  • European – Inflation Rate
  • US economic data – Empire State Manufacturing, Industrial Production, Capacity Utilization, Univ. of Michigan Consumer Sentiment – Prelim, JOLTS – Job Openings, Net Long-Term TIC Flows

COMPANY NEWS

  • Coca-cola Amatil (CCL) – Has responded to media commentary/speculation today regarding the Company’s potential involvement in and method of financing of an acquisition of the Lion Drinks and Dairy (LDD) portfolio, which is the subject of a sale process by Kirin Holdings Company Limited. Coca-Cola Amatil is not pursuing a bid for the LDD portfolio.
  • National Australia Bank (NAB) – Response to recommendations from the Royal Commission. NAB supported 72 of the recommendations and would work with Government and regulators with a view to taking positive action as quickly as possible on the remaining areas, which relate to broker arrangements, definition of small business and BEAR accountabilities. Had completed or was in the process of implementing 26 of the recommendations. Also extends the protections of the Code of Banking Practice to small businesses with less than $5 million in total borrowings, up from the previous agreed level of less than $3 million. The full list is contained in the release.
  • CIMIC Group (CIM) – Has been awarded a new contract for services on the Woodside Energy Limited operated Karratha Gas Plant (KGP).Revenue of $190m
  • Medibank Private (MPL) – Strategic pilot program between 1st Group and MPL, where MPL customers will be able to use the MyHealth1st platform to book online appointments with Medibank’s Members’ Choice Advantage dental clinics.
  • Ramsay Health Care (RHC) – Presentation on Ramsay General de Sante
  • Worley Parsons (WOR) – Has signed a five‐year framework agreement with Sonatrach in Algeria.

BROKER CHANGES

  • Domino’s Pizza (DMP) – Release of the Australian Parliamentary Inquiry into Franchising
    • Citi has a Neutral recommendation with a target price of $45.60. Citi analysts point out the report recommends “substantial changes” to the Franchise Code of Conduct. In addition, it will also provide more power to the ACCC. One of the direct consequences will be higher compliance costs for franchisors in Australia, predict the analysts. On top of this, a reduction in supplier rebates seems possible, but the analysts find the magnitude is hard to gauge at this stage. Citi calculates Domino’s Pizza may need 8-9pp in market share gains to offset the earnings risk from the Inquiry. More positively, Citi believes any impacts are unlikely to be seen until 2020 (elections, etc).
    • Deutsche Bank has a Sell recommendation with a target price of $35.00. Findings were largely as Deutsche Bank expected. Domino’s Pizza was specifically named and accounted for a significant proportion of submissions but was not called out as the most culpable. Recommendations focus on supplier rebates, marketing funds, financial disclosure to prospective franchisees, mandated expenditure and churn of stores. Deutsche Bank observes the two thirds of Australian income the company generates from non-royalty streams is at some risk. With margins falling on an underlying basis, the broker suspects the profit shift to franchisees has already begun and there is more to come.

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  • Medibank Private (MPL – Credit Suisse has downgraded to an Underperform (from Neutral) recommendation with a target price of $2.50. The analyst sees considerable uncertainty for FY20 and FY21 earnings and does not envisage much upside for the share price. The broker finds listed health insurers expensive. Private health insurance profit growth has been slowing recently, driven by a slowdown in premium growth and a stabilising of the margin. The main risks to the negative view are acquisitions, funded from the debt-free balance sheet.

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  • Nib Holdings (NHF) – Credit Suisse has an underperform recommendation with a target price of $4.90. Credit Suisse finds listed health insurers expensive. Private health insurance profit growth has been slowing recently, driven by a slowdown in premium growth and a stabilising of the margin. In addition to the political environment, nib Holdings also faces risks around potential changes to capital coming from APRA.

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  • Nufarm (NUF) Macquarie has an Outperform recommendation with a target price of $7.19 (from $7.67). Nufarm has pre-guided 1H result ahead of next week’s official result release so the key factor will be management’s outlook. With global peers painting a subdued picture of everything from weather to currency, the analyst has cut FY19/20 forecasts by -9% and -6%. The crop outlook in Australia remains grim. But the market has probably priced this in, and balance sheet concerns are unfounded post capital raising. There is little value being attributed to the planned omega-3 expansion, and they are still position a discount to peers the broker retains Outperform.

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NEXT WEEK

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OVERNIGHT

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SPI FUTURES +16

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

Main themes

  • Brexit extension approved.
  • Little change in major indices
  • Apple – positive analyst commentary
  • GE – earnings warning (but rose)

EUROPEAN MARKETS – Mostly higher. STOXX500 +0.78%, UK FTSE +0.37%, German DAX +0.13%, French CAC +0.82%.

CURRENCIES

  • The USD is a higher at 96.77
  • The Aussie dollar is weaker at US70.65.

BONDS – 2-yr: +1 bp to 2.45%, 3-yr: +1 bp to 2.41%, 5-yr: +2 bps to 2.43%, 10-yr: +2 bps to 2.63%, 30-yr: +4 bps to 3.05%

COMMODITIES

  • Oil – WTI futures were up US30c or 0.51% at US$58.56.
  • Iron Ore – CommSec reports iron ore was up US$3.00 or 3.6% to U$87.10.
  • LME metals – Mostly higher. Copper +0.09%, nickel +0.57%, aluminium +1.41%

ECONOMIC DATA, NEWS & POLITICS

  • US economic data – Weekly Initial Claims 229K (consensus 225K; prior 223K), Continuing Claims 1776K; prior 1758K), February Import Prices 0.6% (prior 0.1%), Export Prices 0.6% (prior -0.5%), Import Prices ex-oil 0.0% (prior -0.3%), and Export Prices ex-agriculture 0.7% (prior -0.3%); January New Home Sales 607K (consensus 623K; prior 652K).
  • Brexit – The British Parliament rejected a second Brexit referendum, but voted in favour of extending Article 50 until June 30 at the latest. The delay still needs to be approved by all 27 member states of the European Union.
  • European growth – The ifo Institute lowered its 2019 GDP growth forecast for Germany to 0.6% from 1.1%, but expects a rebound to 1.8% in 2020.
  • Japanese growth – Nikkei reported that the Japanese government might slightly downgrade its economic assessment in the March report.
  • US-China trade – Bloomberg reported that a meeting between China’s President Xi and President Trump will happen in late April, if it happens at all.
  • Chinese data yesterday – Retail sales exceeded expectations while IP missed.

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