MID MORNING MARKETS 16-08-19

The ASX 200 is down 102 points in mid morning trade. Could be worse! Gold shines, Oil slides, all else lower. Results disappoint BLD, GEM, IFL, FMG & VVR. #ausbiz

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TODAY

  • Earnings – Fortescue Metals Group (FMG). IOOF (IFL). Rdiely Corp (RIC), Amaysim (AYS), G8 Education (GEM), Monash IVF (MVF), Boral (BLD), Adairs (ADH)
  • Japanese data – Leading Economic Index Final, Coincident Index Final

TONIGHT

  • US economic data – Durable Goods Orders

COMPANY NEWS

  • Fortescue Metals Group (FMG) – Record Underlying NPAT +195% to US$3.2bn; Record Underlying EBITDA +90% to US$6.0bn; Ore shipped of 167.7 million tonnes (mt), one per cent lower than FY18; Average revenue +48% to US$65dmt, resulting in revenue increasing to US$10.0bn; C1 costs of US$13.11wmt, maintaining Fortescue’s industry leading cost position; Earnings per share of US$1.03 or A$1.47 per share; 24c dividend, giving FY $1.14. FY20 Guidance – 170-175mt in shipments, inclusive of 17-20mt of West Pilbara Fines product, C1 costs expected to be in the range of US$13.25-13.75/wmt, Average strip ratio 1.5, Total capital expenditure of US$2.4bn, total dividend pay-out ratio between 50 and 80 per cent of full year NPAT
  • Viva Energy (VVR) – Renegotiation of the Alliance partnership with Coles Express and the acquisition of the Liberty Wholesale business (which remains subject to regulatory approvals). Total sales volume of 7,126 million litres, up approximately 2.5% on the half year ended 30 June 2018 (1H2018). Refining operational availability of 94% and refining intake of 21.4 mbbls2, up 12% on 1H2018. Record diesel production at 40% of total production, up from 36% in financial year ended 31 December 2018 (FY2018). Group Underlying EBITDA (RC)3 of $171.6 million, at the upper end of June 2019 guidance range of $150 – 180 million. Underlying Net Profit After Tax (NPAT)(RC) of $78.0 million, at the upper end of June 2019 guidance range of $60 – 80 million. Net debt of $168.7 million, increased from net cash of $0.2 million at 31 December 2018. This includes the one-off payment of $137.0 million made to Coles Express for the Alliance transaction announced in February 2019. Interim 2019 dividend of 2.1 cents (fully franked) determined, representing a payout ratio of 60% of Distributable NPAT (RC).
  • Boral (BLD) – NPAT -7% to $440m; Statutory NPAT -38% to $272m, reflecting significant items of ($168 million) including a net impairment of $174 million for the Meridian Brick joint venture; Sales steady at $5,863m and sales revenue for continuing operations +4% to $5,801m, despite a 15% decline in Australian housing starts and a 2% decline in the US housing market; Full year Headwaters synergies of US$32 million slightly ahead of plan; with total synergies of US$71 million now delivered at end of year two; Final div of 13.5c. Also new JV with Gebr Knauf KG to form an expanded 50:50 plasterboard JV in Asia and for Boral to return to 100% ownership of USG Boral Australia & New Zealand. Outlook – “The outlook for Boral’s markets in FY2020, and the trading conditions we have seen in July and August, we expect Boral’s NPAT (before significant items) to be around 5-15% lower in FY2020 relative to FY2019.”
  • IOOF (IFL) Underlying NPAT (UNPAT) $198.0m, up 3.4%; Statutory net profit after tax (NPAT) $28.6m, down 67.7%, inclusive of provision for financial advice remediation; UNPAT from continuing operations up 5.2% to $184.9; Total FUMS +18.7% to $149.5bn, Adviser net promotor score of +17%, compared to industry average of -30%; Advice review undertaken – provision of $182.7m for remediation and program costs of $40.4m; 19c div. “Industry is in a state of flux”. “The exit of banks from wealth management and the demand for simpler products and platforms that are more affordable and responsive to customer needs, plays to our strengths.”
  • G8 Education (GEM) – Revenue +9% to $430.6m, driven by occupancy, fee growth and acquired centres; NPAT -20% to $19m, impacted by the implementation of the new Accounting Standard AASB 16 Leases Standard; Underlying EBIT +7% to $51.6m and in lline with consensus forecasts; Average like‐for‐like occupancy +1.5% points over the pcp, driven by the implementation of the  customer engagement centre, group‐specific initiatives and the Child Care Subsidy (‘CCS’) which has improved affordability for families; Improved wage performance on prior year as efficiencies were realised; Net supply growth  for  the half is lower than the pcp, reflecting signs of moderating supply growth although prevailing conditions are likely to remain challenging; Solid progress on delivery of the Group’s strategic program in line with  xpectations, including successful  rollout of Customer Engagement Centre to all 500 centres and development of national curriculum and education program; Successful balance sheet refinancing and EBITDA to cashflow conversion over 100%; CY19 H1 fully franked dividend declared of 4.75c, 0.25 cents per share increase on the prior year H1 dividend. Outlook – 2H won’t benefit from CCS stimulus that commenced on 1 July 2018; and while occupancy‐building ok, they are cautious about the impact of near‐term supply.  CY19 like‐for‐like occupancy growth is expected to be in the mid 1%pts.
  • Regis Resources (RRL) – Acquisition of a large strategic tenement holding from Duketon Mining Ltd (DKM) for $20m cash and up to $5m in contingent payments. Regis now controls 90% of the gold rights in the Duketon Greenstone Belt (DGB), tripling its landholding to ~3,000km2, along strike and adjacent to its existing resources and processing plants at Moolart Well, Garden Well and Rosemont. Immediate work will be initiated to expand advanced exploration prospects.
  • James Hardie (JHX) – CFO Matthew March has resigned. Ms Anne Lloyd as the company’s Interim CFO

THIS WEEK

  • Domestic – Private Capital expenditure, building permits
  • Chinese industrial profits
  • Japanese industrial production, retail sales, unemployment
  • European inflation and unemployment
  • US – Durable goods orders, consumer confidence, 2nd estimate of GDP, monthly PCE price index.

Earnings

  • Monday – Fortescue Metals Group (FMG). IOOF (IFL). Rdiely Corp (RIC), Amaysim (AYS), G8 Education (GEM), Monash IVF (MVF), Boral (BLD), Adairs (ADH)
  • Tuesday – Wesfarmers (WES), Inghams (ING), Caltex (CTX)
  • Wednesday – Bellamy’s (BAL), Afterpay Touch (APT), OZ Minerals (OZL), Cash Converters (CCV), Virgin Australia (VAH),
  • Thursday – Woolworths (WOW), Link Administration (LNK), Adelaide Brighton (ABC), Cromwell Property Group (CMW), Village Roadshow (VRL), Appen Ltd (APX)
  • Friday – Ramsay Health (RHC), Collection House (CLH), Reece (REH), Norther Star (NST),

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LAST WEEK

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OVERNIGHT

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SPI FUTURES -86

US EQUITIES – S&P500 -76 (-2.59%), Dow Jones -623 (-2.37%), NASDAQ -240 (-3.00%)

Main themes

Trade war

  • China will impose retaliatory tariffs on $75 billion of goods imported from the US on Sept 1 and Dec 15 (the same dates the US has planned for its tariffs on China). The tariff rate will range from 5-10%, including a separate 5-25% on autos and auto parts starting Dec 15.
  • After market, Trump announced the increase on duties on $250bn in Chinese goods to 30% from 25% (October 1) and increase tariffs on another $300bn (due to start Sept 1) in products to 15% from 10%.

Jackson Hole

  • Fed Chair Jay Powell’s opening remarks didn’t generate much excitement, reiterated statements that have been made in the past.
  • Trump response tweet “who is our bigger enemy, Jay Powell or Chairman Xi?” followed by “Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA.”

EUROPEAN MARKETS – Mostly lower. STOXX600 -0.78%, UK FTSE -0.47%, German DAX -1.15%, French CAC -1.14%.

CURRENCIES

  • The USD is weaker at 97.26.
  • The Aussie dollar is little changed at US67.59.

BONDS – 2-yr: -7 bps to 1.53%, 3-yr: -8 bps to 1.45%, 5-yr: -8 bps to 1.41%, 10-yr: -8 bps to 1.53%, 30-yr: -8 bps to 2.03%

COMMODITIES

  • Oil – WTI futures were down US$1.18 or 2.1% to US$54.17.
  • Gold futures rose 2% to US$1,538.60
  • Iron Ore – CommSec has iron ore up US$2 or 2.4% to US$85.00 a tonne.
  • LME metals – Mostly weaker. Cu -0.66%, Ni -1.11%, Al -0.62%.

ECONOMIC DATA, NEWS & POLITICS

  • New home sales -12.8% to 635,000 (consensus 645,000, prior 728,000 revised from 646,000), up 4.3%yoy. Big upward revision for June, but no follow-through.
  • Jackson Hole – Bank of England Governor, Mark Carney, called for a reserve digital currency during his speech at the Jackson Hole Symposium. Fed Chair Jay Powell “The US economy is in a “favorable place” and the Federal Reserve will “act as appropriate” to keep the current economic expansion on track.
  • Chinese Yuan – The PBoC fixed the yuan at 7.0572 per dollar (the weakest fix since March 2008).
  • Italian politics – President Sergio Matterella will confer with party leaders early next week to see if a new coalition government can be formed. An earlier report indicated that M5S remains hopeful that it can form a coalition with PD.

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