END OF DAY SUMMARY JUNE 19 2017
Welcome to the Marcus Today End of Day Report.
On the Tapes:
- ASX 200 closes +31.
- Big 4 Banks combine to contribute 14.8 points.
- Dow Futures +45 points as we write.
- Retail comes under selling pressure amid Amazon fears. WOW hardest hit.
- Downer EDI (DOW) makes final unconditional offer for Spotless (SPO).
- McMillian Shakespeare's (MMS) subsidiary slapped with a lawsuit.
- Gerry Harvey says Amazon fears are overdone.
- Credit Suisse bearish on Iron Ore. Market needs to drop below $45 for fundamental readjustment.
- Infant Baby formula back in fashion as Goldman upgrades. A2M and BAL big winners.
- Chinese house prices cool but not as quickly as Central Bank hoped.
- RBA Governor Lowe states AUS Economy will grow at its fastest rate in recent times as global economy strengthens.
- FOMC Member Dudley to speak tonight.
FUTURES AND HIGHS AND LOWS
BEST AND WORST
- The Banks up again combining to add 14.8 points to the index. CBA +1.14%, NAB 1.48%, WBC +1.15%, ANZ +0.92%.
- Downer EDI (DOW) & Spotless (SPO) – Downer have declared their bid final and unconditional at 115c per SPO share. DOW finished the day +0.99% and SPO closed right at the offer price of 115c (+0.88%).
- Mount Gibson Iron (MGX) (unchanged) – Management elected to terminate their offtake agreement with Xinyu Iron and Steel Group following Xinyu’s failure to comply with a fundamental term of their agreement. Xinyu currently makes up 25% of the orders from Mount Gibson’s Iron Hill mine. Management expect these orders to be fully replaced by other customers.
- McMillian Shakespeare (MMS) – The Company did not comment on allegations published in the AFR that a lawsuit was filed against the company for the unconscionable conduct of their subsidiary Presidian Holdings. The stock traded 6.16% lower.
- Fairfax (FXJ) (+0.82%) – The company has announced they received an offer for their 54.5% stake in Macquarie Media (MRN) from Singleton Consortium. Management were quick to point out the offer was unsolicited but will be considered by MRN shareholders.
- Newcrest Mining (NCM) (+1.36%) – The company has invested a further US$40m into London listed SolGold following a capital raising round. NCM now owns a 14.54% stake. Newcrest’s MD & CEO, Sandeep Biswas said, “The Cascabel project, and surrounding region generally, appear to be prospective and we are pleased to have increased our interest in the region as SolGold continue to increase their drilling activity.”
- Australian Finance Group (AFG) (+2.50%) – Management has upgraded guidance FY 17 NPAT lifted to $37.0m-$37.8m.
- Gerry Harvey in a sobering interview with Fairfax has talked down the hype of Amazon’s Australian arrival. He noted that Amazon do not yet own a property on the ground in Australia and suggests that for his own business Harvey Norman (HVN) a 3-year turn around to get a property fully functioning is quick. Harvey believes this start up date will be missed, adding, for their business model to work they will need 50 warehouses Australia wide. Retailers Wesfarmers (WES) (-0.22%), Woolworths (WOW) and Metcash (MTS) (-2.33%) all were lower on Amazon fears. WOW the hardest hit dropping 3.50%.
- The Big Banks (ANZ, CBA, NAB, WBC) – Research from Deutsche Bank notes, despite a strong week last week, Australia’s big four lags behind their global peers as the sector underperformed the ASX 200 sliding 3.4% for the month. Comparatively US Banks improved 1.7%, Hong Kong 1.8% and UK Banks slid 2.6%.
- Iron Ore – Citi has cut their forecasts for the average iron ore price in 2017 by 12.9% to US$61 per tonne and by 5.6% to US$50 per tonne in 2018. In research titled ‘The bear is coming’ Citi notes there needs to be a fundamental re-balancing of the market which requires Iron ore to fall below $45. Key oversupply risks continue to persist which could hurt comparatively more expensive Aussie Iron Ore producers. BHP and RIO ended the day flat as Fortescue (FMG) added 1.28%.
- Lithium – Research from Canaccord Genuity suggests concerns surrounding oversupply in the lithium space are largely overdone. Canaccord has Buy recommendations on Galaxy (GXY) (+1.52%) and Orocobre (ORE) (+3.71%).
- Infant Baby Powder
- Bellamy’s (BAL) (12.95%) – Goldman Sachs has upgraded their target price by 68% lifting their rating from sell to Neutral. The company has made a number of changes to management, acquired another Chinese accredited canning facility and renegotiated their contract with Fonterra these moves represent a material turnaround for the stock.
- A2 Milk (A2M) (+6.50%) – After recent earnings guidance:
- Goldman lifts their target price by 24% to 410c. The upgrade is underpinned by the stocks leverage to growth in Chinese online channels and the company’s ability to increase market share against Chinese domestic brands.
- Citi was surprised by A2M’s earnings guidance upgrade noting it is the second time in four months management has had to revaluate their forecasts. The upgrade indicates management are taking a conservative approach to forecasts or the business is outperforming even their expectations. Credit Suisse remains impressed by management’s ability to produce consistent results in a dynamic market.
- Bubs Australia (BUB) (+20.69%) – Announced they will be expanded their infant formula operations to China via a partnership with Kaola.com.
- Amcor (AMC) (+1.35%) – Morgan Stanley has produced a belated upgrade to equal-weight with a target price of 1653c. MS cites an improved outlook for the company’s rigid plastic packaging business. The stock has already rallied 18% for the year with the revised price target suggesting the stock is trading at fair value.
- Janus Henderson Group (JHG) (-2.31%) – Shares have risen 25% since February in the newly merged company (used to be HGG). Research from Morgans cites key resistance at 4540c saying the stock currently sits at 4410c and momentum is slowing as selling pressure intensifies. Morgans sees a short term pull back and has set their target price at 4200c accordingly.
- Flexirent (FXL) (-6.18%) – Has dropped over 6% on a downgrade from Credit Suisse - they have downgraded from OUTPERFORM to NEUTRAL saying "While FXL looks over-sold on a short-term view and valuation may offer support, we have low conviction on earnings and still see a downside risk". You wonder why we would take any notice of Credit Suisse on FXL...their OUTPERFORM recommendation was hardly good advice.
- Adairs (ADH) (-2.98%) – UBS has upgraded the stock to a Buy as they update their valuation models. UBS believes if the company can expand into higher margin fashion and stabilise like-for-like sales growth there will be material upside despite near term headwinds.
- Chinese Home Prices – New Home prices jumped 10.4% year on year, a slight cooling from 10.7% in April. The market for new homes remains strong despite state run measures to cool off the property market. Home prices in Beijing rose 13.5% yoy in May down from 16% yoy in April.
- RBA Governor Lowe – Addressing a conference in Canberra Governor Lowe has stated the economy will grow at a faster rate than it has recently bouyed by broad strengthening in the global economy. He cautioned that higher debt levels in most households and unusually low wage growth are issues that will require ongoing monitoring.
- Japan Trade Deficit – An unexpected trade deficit was reported as increased energy costs offset growth in exports. Deficit of 203b Yen.
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