The ASX 200 is up 8 points in mid-morning trade after a bit of a relief rally o/n. It recovers, Materials & Energy strong, defensives ↓. DLX result and special div, iron ore upgrade from CS, wages and Chinese data ahead. #ausbiz
TODAY
- Economic data – Westpac Consumer Confidence Index, Wage Price Index
- AFM – Coca-Cola (CCL), Sigma Healthcare (SIG), GPT Group (GPT)
- Earnings – CYBG (CYB), Goodman Group (GMG), Dulux Group (DLX)
- Chinese data – Fixed Asset Investment, Industrial Production, Retail Sales
TONIGHT
- European data – Employment Change, GDP Growth Rate 2nd Est
- US economic data – Retail Sales, Empire State Manufacturing, Industrial Production, Capacity Utilization, Business Inventories, Net Long-Term TIC Flows
- Fed Speak – Kansas City Fed President (FOMC voter) Esther George
COMPANY NEWS
- St Barbara (SBM) – Trading halt. Capital raising and acquisition.
- Dulux Group (DLX) – 1h result consistent with guidance. Revenue and profit growth biased to 2Hhalf of FY19. A challenging 1Q offset by a stronger 2Q. Full year guidance maintained. NPAT -4% to $68.2m Sales revenue +0.2% on lfl basis. EBIT +0.5% to $109.1. Revenue growth in 2Q was more normal at 4%. “Our stronger second quarter trading, which has continued into April, gives us confidence about our second half and full year.”15c dividend plus a special dividend of 28cps. Outlook – “We expect that 2019 net profit after tax will be higher than the 2018 equivalent of $150.7m.”
- Goodman Group (GMG) – Operational update. For the nine months to 31 March 2019, $44.1bn FUM; 3.3% lfl NPI growth in our managed Partnerships; 98% occupancy across the Group and Partnerships; $3.7bn of development work in progress; $2.4 billion of development commencements with 83% undertaken in Partnerships; Reaffirm forecast FY19 operating earnings per security of 51.1 cents, up 9.5% on FY18. Expects WIP to approach $5bn in FY20 and anticipate strong Partnership returns and growth in AUM beyond $45 billion by June 2019. “The Group expects that the portfolio will continue to perform strongly and it reaffirms forecast FY19 operating earnings per security of 51.1 cents, up 9.5% on FY18, and distribution per security of 30 cents, up 7% on FY18.”
- NWH Holdings (NWH) – Announcement to the ASX regarding a contract award.
- BAML Global Metal, Mining and Steel conference. Iluka (ILU) and Fortescue Metals Group (FMG) both presenting.
ANALYST CHANGES
- Credit Suisse has lifted iron ore price forecasts by 21% for 2019 and 33% for 2020. They expect a peak of US$110/t in the September quarter when China’s port inventory is expected to be at its tightest. Metallurgical coal price forecasts are also lifted, with greater confidence in the sustainability of the Chinese coking coal price because of quality shortages. This has resulted in some target price updates
- BHP Billiton (BHP) – Neutral recommendation with a target price of $40.00 (from $36.00).
- Rio Tinto (RIO) – Neutral recommendation with a target price of $95.00 (from $84.00). Even with revised iron ore prices, CS cannot get its valuation to stack up for Rio Tinto. Limited options for capital deployment outside special dividends limit the catalysts.
- Bluescope Steel (BSL) – Outperform recommendation with a target price of $16.50 (from $17.50). Has softened the outlook for FY20 because of an expected 10% decline in Australian residential construction, diverting around 75,000t from domestic to lower-margin exports for BlueScope. FY19 forecasts are in line with guidance, despite compression in US steel spread
- Coronado Global Resources (CRN) – Outperform recommendation with a target price of $4.80 (from $3.80). Headwinds capping the share price for Coronado Global are unchanged, including lack of liquidity and the reluctance by some investors to be exposed to pure-play coal companies.
- Wesfarmers (WES) – Macquarie has downgraded to a Neutral (from Outperform) recommendation with a target price of $37.13. The analyst believes a further move into EVs, were Wesfarmers to take over Kidman Resources (KDR), makes sense. While oversupply will likely lead to lower lithium prices over the next 12 months, over five years lithium, cobalt and nickel should all be winners on battery demand. Kidman’s 50% owned Mt Holland project is substantial, but not without risk. They also think the market is being too cautious over Bunnings, yet total shareholder return upside is becoming limited and risks are moving to the downside.
- Woolworths (WOW) – UBS has downgraded to a Neutral (from Buy) recommendation with a target price of $32.90 (from $30.80). The analyst notes the Australian grocery market has become more rational while inflation has returned. While an improved inflation outlook provides near-medium term upside risk to forecasts, this appears to the broker to be priced in. They now prefers Metcash (MTS) in the grocery sector.
- Fortescue Metals Group (FMG) –
- Credit Suisse has upgraded to an Outperform (from Neutral) recommendation with a target price of $8.20 (from $6.40). In addition to iron ore forecast changes (see above), the analyst considers the dividend is pulling forward the August dividend ahead of a likely change in government.
- Macquarie has an Outperform recommendation with a target price of $8.70. The 60c special div was a surprise given typically such announcements are reserved for the result release. They think it’s 80% of 2H earnings using its own (lower) iron ore price forecasts (flagged a payout ratio of 50-80%). Butat current prices, they see another special of 20c with the result on an 80% payout. With a yield of 11%, they note that were iron ore spot prices input into its valuation model, forecasts earnings would rise by 22% and 100% in FY19-20.
- UBS has a Sell recommendation with a target price of $6.30 (from $6.15). Iron ore prices remain favourable but UBS believes the current price is unsustainable.
OVERNIGHT
SPI FUTURES +25
US EQUITIES – S&P 500 +23 (+0.80%), Dow +207 (0.82%), NASDAQ +87 (+1.14%).
Main themes –
- Market takes a breather. Trump refers to tariff drama as “a little squabble”.
- Oil rose on reports of a drone attack at oil pumping stations in Saudi Arabia
EUROPEAN MARKETS – All higher. STOXX600 +1.01%, UK FTSE +1.09%, German DAX +0.97%, French CAC +1.50%
CURRENCIES
- The USD is little changed at 97.52.
- The Aussie dollar also unchanged at 69.44c.
BONDS – 2-yr: +1 bp to 2.19%, 3-yr: +1 bp to 2.16%, 5-yr: +2 bps to 2.20%, 10-yr: +2 bps to 2.42%, 30-yr: +2 bps to 2.86%
COMMODITIES
- Oil – WTI futures were up 1.4% to US$61.95 a barrel on reports of a drone attack at oil pumping stations in Saudi Arabia. Saudi Energy Minister Khalid al-Falih called the incident an “act of terrorism.” Saudi oil production was not interrupted.
- Iron Ore – IRESS reports iron ore unchanged at US$98.50 a tonne. CommSec has iron ore down US95c or 1.0% to US$93.45 a tonne.
- LME metals – Slight recovery. Cu +0.50%, Ni +1.32%, Al +1.85%
ECONOMIC DATA, NEWS & POLITICS
- US economic data – April Import Prices 0.2% (prior 0.6%), Import Prices ex-oil -0.1% (prior -0.2%), Export Prices 0.2% (prior 0.7%) and Export Prices ex-agriculture 0.4% (prior 0.7%)
- Trade – US timetable (released by US Trade Representative Robert Lighthizer) suggests that tariffs on the remaining imports from China could be imposed in late June.
- Italian economy – Deputy Prime Minister Matteo Salvini said the Italian government is ready to breach EU’s 3.0% budget deficit limit in order to spur job creation.
- European economic data – Industrial Production -0.3% (as expected, last -0.2%) to be -0.6%yoy (expected -0.8%; last -0.3%). May ZEW Economic Sentiment -1.6 (expected 5.0, previous 4.5). German ZEW Economic Sentiment -2.1 (expected 5.1, previous 3.1), Current Conditions 8.2 (expected 6.0, previous 5.5). April CPI +1.0% (as expected) to be 2.0%yoy (as expected). April WPI +0.6% (expected 0.4%; last 0.3%) to be 2.1% yoy (expected 1.5%; last 1.8%)
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