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Markets Live: Earnings season sputters


Patrick Commins, Jens Meyer

Shares inch higher as mining and energy stocks drag and banks gain, with a mixed batch of earnings results adding to investor ambivalence.

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That’s it for Markets Live today.

You can read a wrap-up of the action on the markets here.

And if you thought you had a bad day, spare a thought for Fortescue's Twiggy Forrest who has lost a cool $560m since the start of this month.

Thanks for reading and your comments.

See you all again tomorrow morning from 9.


Australian shares edged slightly higher on Tuesday, as overnight momentum from US and European rallies offset mixed domestic corporate results, profit-taking and concerns about soft commodity prices.

At the close, the benchmark S&P/ASX 200 Index was up 2.7 points, or 0.05 per cent, at 5637. The broader All Ordinaries Index, meanwhile, closed down six points, or 0.15 per cent, at 5637.8.

After a strong start on the back of upbeat sentiment in the US and hopes of further monetary easing in Europe, the local market eased for lack of any domestic data releases.

Read more.

The highs and lows of reporting season are on display in today's best and worst performing list.

Cover-More surged 7.1 per cent on its earnings result, while McMillan Shakespeare jumped 5 per cent.

Disappointing the market - and copping their medicine - are Ainsworth Game Technology and Senex Energy.

Best and worst performing stocks in the ASX 200 today.

Best and worst performing stocks in the ASX 200 today.

Shares have finished broadly flat, staggering to the most marginal of gains, dragged lower by miners and energy stocks and amid a mixed day for earnings.

The ASX 200 inched 3 points higher to 5637.6, while the All Ords added two points to close at 5634.5.

The banks provided the biggest support, all gaining by between 0.2 and 0.5 per cent, while CSL was the biggest single contributor after rising 1.1 per cent.

Telstra also outperformed, up 0.5 per cent.

Energy and utilities were the worst performing sectors, both around 0.5 per cent lower.

While Woodside gained 0.6 per cent, Origin Energy fell 2.2 per cent, Santos 0.7 per cent, and Beach Petroleum 3.9 per cent.

Miners also dragged, pulled down by a further fall in the iron ore price overnight. BHP finished 0.1 per cent down, Rio fell 0.7 per cent and Fortescue dropped 1.4 per cent.

Source: The Economist

Source: The Economist

An overhaul of European national accounts in September will not rewrite the narrative of a feeble and faltering recovery but it will reveal that Europe’s economies are bigger than previously reckoned, the Economist notes:

The revisions will not be on the epic scale of the one in Nigeria earlier this year, which almost doubled its estimated output. But they will raise GDP in Europe’s biggest economy, Germany, by 3.3 per cent, in line with the boost to American GDP from a similar exercise a year ago (see chart).

European countries are adopting new global standards for what counts as output. These replace rules dating back to 1995, when the internet age had barely begun.

By far the biggest change in how output is measured will come from reclassifying research and development (R&D). By treating it as an investment, rather than as if it is being consumed in the course of production, it will add to GDP.

Read more

Investors betting against Australian bonds are taking heart as the market listens as much to the US Federal Reserve’s Janet Yellen as it does to local central bank chief Glenn Stevens.

Government debt due in 10 years and longer is moving in tandem with US securities by the most since April. The correlation reached 0.926 at the end of last week, with a figure of 1 meaning they move in lockstep, according to an index compiled by Bloomberg and the European Federation of Financial Analysts Societies. The average is 0.797 over the past decade.

Stevens said last week the economy needs confidence rather than lower interest rates to stimulate growth, signalling Reserve Bank of Australia policy will probably remain unchanged. That leaves investors in the Australian market looking for guidance from the US, where Yellen said in Jackson Hole, Wyoming, on Aug. 22 that, with labour markets healing, Fed officials are shifting to debating when to reduce monetary stimulus.

“There’s more potential in the short term for there to be a market-moving event from the Fed than there is from the RBA,” said Bill Bovingdon, the chief investment officer at Altius Asset Management. “There’s more activity there. There’s more action,” he said.

Australian benchmark 10-year notes yield 3.35 per cent. A Bloomberg survey of economists’ predictions indicates the rate will rise 56 basis points to 3.91 per cent by Dec. 31. Equivalent US yields will advance 55 to 2.94 per cent, a separate survey shows.

Bovingdon predicts yields will approach 4 per cent in Australia and 3 per cent in the US by the end of the year.


Australia’s four leading bank economists say there is no housing bubble around the nation but warn Canberra that failing to reach a compromise over the budget is the biggest risk to fragile consumer confidence.

In an exclusive interview with the AFR, Bill Evans from Westpac, Alan Oster from National Australia Bank, Michael Blythe from Commonwealth Bank of Australia and Warren Hogan from ANZ disagreed on a number of issues - but not on the housing market.

On Monday, Jeremy Lawson, one of Australia’s top economic experts, said the housing market is 20 per cent to 30 per cent overvalued and has left households vulnerable to a big international economic shock.

“Certainly no bubble’ said Hogan. “The perceived expensiveness of our property market is as much as anything a social issue, affordability issues. We simply don’t have the speculative credit element there to describe it as a bubble. Low income earners getting heavily leveraged was the problem in the United States we don’t have that issue here."

Blythe said that for it to be a real bubble you’d need to see that increase in prices being driven by housing debt but that’s not happening.

“No bubble. Housing credit’s running at the bottom end of the range the last 30 years. You need to see banks easing their lending standards as they chase more dubious borrowers that’s certainly not happening and you need a general expectation that house prices are going to keep rising forever. Now there is an element of that I think.” he said.

NAB’s Oster also said “no bubble’’. He thinks the problem for housing could be unemployment. ‘’If unemployment in our models gets to around 8 or 9 per cent then you get the same problem as you’ve got everywhere else but we’re undersupplied, interest rates are low, we think unemployment’s gone up but nowhere near 9 per cent so no bubble.”

Simmering geopolitical issues aside it is the budget and it’s failure to be passed that worries all four the most.

“I think we need to recognise the fact that the issues around the budget have had an impact upon confidence and in my opinion they slowed down a promising lift in consumer activity. So I think the politicians need to understand that an adequate resolution to these issues is quite important for re-establishing momentum in the economy’’ said Westpac’s chief economist Bill Evans.

“ And so what we need is a compromise. We need to smoothly get this budget away so people can move on with a degree of confidence and certainty” he added.

NAB’s Oster warned that “if the consumer gets higher degrees of anxiety and then stops spending, it’s a slow burn and that will bring everything down. I just want them to get it fixed as in get it away”.

Read more ($)

Runaway credit growth is missing for the boom to turn into a bubble, the chief economists of the big four banks say.

Runaway credit growth is missing for the boom to turn into a bubble, the chief economists of the big four banks say. Photo: Rob Homer

After its stellar numbers Monday, Caltex continues to rally today, and is holding up 1.8 per cent at $27.95.

Credit Suisse was so smitten with the results it has hiked its 12-month target to $31 from $23.90 previously.

"After the run it's had, the easy thing might be to bank the profit. Yet, having upgraded NPAT by 7%, 5% and 13% in FY14, FY15 and FY16, the stock still looks relatively cheap in an expensive market," it told clients earlier today.

"With FY16 the new 'nomalised' year, post full cost savings, it is trading on just circa 7.5% FY16 EV/EBITDA. Chuck in the potential for further upgrades from product sourcing upside, capital management that could free up the more than $4/share of franking credits and debt cost reduction and there is every reason to still own this stock."

South Australia has a blunt message for NSW: sort out your own energy problems, rather than relying on having billions spent linking northern Australia to the south, to help supply gas.

"The fastest, most sensible way to address the east coast gas crisis is to develop the vast gas resources on the east coast," Tom Koutsantonis, who is the SA Treasurer and also the Resources and Energy Minister, told the Sydney Morning Herald.

"NSW should be encouraging investment and exploration of its own gas reserves, not stifling it through policies based on emotion rather than science," he said. "South Australian oil and gas companies have invested hundreds of millions of dollars in NSW exploring for gas only to find an unwelcome regulatory framework.

"It seems NSW wants the rest of the country to provide for its energy future rather than getting involved and being part of Australia’s energy revolution. Every state has a responsibility to develop its resources and provide for its citizens."

Read more

The biggest movements in consensus analyst recommendations over the past month.

The biggest movements in consensus analyst recommendations over the past month.

With only a few days left this earnings season, a stocktake of analyst recommendation changes shows junior telco M2 Group has garnered the biggest jump in popularity among the broker community, know collectively as “the Street”, while Tatts Group has fallen the most out of favour over the past four weeks.

Bloomberg distills analysts recommendations into a single consensus opinion, measured on a scale of one to five. A score of one is a consensus “sell”, a score of two is a “weak sell”, three is a “hold”, four is a “weak buy”, and five a “buy”.

On that scale M2 Group has jumped from a hold to a weak buy – a score of 4.1, as the table shows. The next most upgraded stock is Ozforex Group, up 0.5 to 4.2, while The Reject Shop has garnered a similar boost in support from analysts, but still falls short of a hold rating.

Plummeting in the collective analysts’ esteem is Tatts Group, dropping from what would have been bordering on a buy to more like a sell following the release of what was seen as a disappointing profit result.

Troubled rare earths miner Lynas is the next most downgraded stock over the past four weeks, looking more like a sell than a hold now after it emerged in the latest production update that the company was facing a potential cash crunch this quarter.

Also among the companies facing a greater level of analyst disdain is The former market darling must be feeling jilted, but the market overall remains positive – why else would it be trading at 24 times estimated earnings for this financial year?

For the record, the five most popular stocks among analysts are: Nine Entertainment (a score of 4.8), Slater & Gordon (4.7), and Seven West Media, Crown Resorts and Rio Tinto, all rating of 4.6 on the Bloomberg scale.

The five least popular are: Ten Network (1.6), Cochlear (1.7), ALS Ltd (1.8), Leighton Holdings (2) and Coca-Cola Amatil (2.1).

Only a fraction of Australia’s half-a-million self-managed superannuation funds pay any income tax, experts say, because of generous super concessions and franking credits that are undermining the federal budget.

Tax Office statistics show almost 300,000 self-managed superannuation funds eliminated or reduced their tax bills through exemptions on super and $2.5 billion in franking credits in 2011-12. These are the most recent records available, although experts say the surge in dividend payments since then has further reduced the small amounts of tax paid by these funds, which are often the primary income of wealthy retirees.

At the time, 424,360 funds generated gross taxable income of $32.9 billion. About $15 billion of that was entirely exempt from income tax because the funds were in the pension phase, which doesn’t incur income tax.

Self-managed funds contribute little to the tax system – because about half of the funds’ assets are already in the pension phase, Tria Investment Partners principal Andrew Baker said. Also, most self-managed funds receive franked dividends, which cuts the tax bill of many other funds to zero.

“It’s a problem isn’t it?” Baker said. “It’s unlikely SMSFs are ever going to pay a substantial amount of tax as a segment.”

The loss of revenue will rise because of an ageing population shifting assets into pension phase and the greater payment of dividends, he said.

Read more


AWE has released what is being seen as a "soft" production forecast for the financial 2015 year, and pushed out its growth target by a year after a delay in a key oil project in Indonesia.

Output in 2014-15 should be between 4.6 million and 5.1 million barrels of oil equivalent, down from 5.6 million boe in 2013-14, AWE said after reporting a full-year profit before one-time gains roughly in line with forecasts.

Meanwhile, Santos' takeover as operator of the Ande Ande Lumut oil venture in Indonesia has seen the start-up timing for that field slip into late 2017, stretching out AWE's growth target by a year.

JPMorgan said it expected the 2014-15 production forecast to be "poorly received", noting consensus forecasts had been for output of 5.5 million boe.

Citigroup analyst Dale Koenders was assuming production in fiscal 2015 of 5 million boe, and said the full-year profit in 2013-14 was "slightly below" its estimate. Koenders still retained his ‘buy’ recommendation on AWE shares, with a target price of $2.34.

However AWE shares have slid, losing 3.1 per cent to $1.705.

Its peer Senex Energy has also seen its shares come under pressure, plunging 6.7 per cent as it also released a production outlook that was lower than analysts had expected.

Senex approached AWE with a merger proposal late last year, but was rejected.

The local market seems to be taking its cues from regional markets, which are trading flat to lower:

  • Japan (Nikkei): -0.4%
  • Hong Kong: -0.15%
  • Shanghai: -0.2%
  • Taiwan: +0.1%
  • Korea: +0.5%
  • ASX200: -0.1%
  • Singapore: flat
  • New Zealand: +0.3%

‘‘Gravity tends to pull on the markets after they’ve had a strong directional move,’’ says CMC Markets chief market analyst Ric Spooner. ‘‘The market needs good news to sustain it and in the absence of this, tends to drift down. Valuations are fairly full.’’

Leaping tall price records in a single bound.. a mint copy of Superman's debut in Action Comics number one.

Leaping tall price records in a single bound.. a mint copy of Superman's debut in Action Comics number one.

A near-flawless edition of the first comic featuring Superman from June 1938 has fetched $US3.2 million ($3.5m) at auction on eBay, surging past the previous record for a single comic book.

After the 10-day online auction concluded on Sunday, the hammer came down for Action Comics No.1 with a price of $US3,207,852 ($3,456,662), according to the online commerce site.

The vintage work's seller Darren Adams, a collector in Washington state, described it as possibly the "best copy in existence," the "holy grail" of comic books that deserves its status as the most valuable in the world.

The cover features the red-caped man of steel hoisting an automobile over his head.

The character is widely credited with starting the multi-billion-dollar worldwide comic book superhero phenomenon.

Only 50 to 100 copies of the comic book are believed to still exist, most of them in considerably poorer condition than that owned by Mr Adams.

The Action Comics debut was purchased by marketplace firm ComicConnect, whose director Stephen Fishler has not ruled out putting it back up for sale.

Read more.

Iron ore futures have rebounded after a six-day slide but abundant supply of the bulk commodity is likely to keep a lid on price gains.

The rise in futures may help ease some pressure on spot iron ore prices, which touched fresh two-month lows overnight and were within striking distance of this year's trough at $US89 a tonne.

Iron ore for delivery in January on the Dalian Commodity Exchange is up 0.5 per cent at 647 yuan ($US105.15) a tonne. Benchmark 62-per cent grade iron ore for immediate delivery to China fell 1 per cent to $US89.20 a tonne on Monday.

While demand from China, which buys around two-thirds of the world's iron ore, remains firm as shown by its strong imports, the market remained flushed with supply of the raw material to make steel.

Top miners such as Vale, Rio Tinto and BHP Billiton  remain bent on boosting supply, convinced that their low-cost business model will prevail over higher cost producers including those in China.

But China's overall raw iron ore output has continued to increase, with production in January-July up 9 per cent to 849.4 million tonnes, according to government data released this month.

While many midsize and small Chinese mines have shut down, their total output "accounts for only a small part of the aggregate production," said Cao Bo, analyst at Jinrui Futures in Shenzhen.

"Besides, a lot of new mines came to operation in the past half year. The newly released capacity replaced those that were shut down," he said.

Like Lewis Carroll's Cheshire cat, Pacific Brands is disappearing, Malcolm Maiden comments:

A review in league with Macquarie advisers is continuing, but it is beginning to look like the company might downsize itself until it simply isn't there at all.

The latest piece of the PacBrands cat to disappear is the workwear division. A cashed-up Wesfarmers knocked on the door with an offer, PacBrands listened, and the business and its two iconic brands, King Gee and Hard Yakka, are transferring to Wesfarmers' Industrial and Safety division for $180 million.

PacBrands has appointed its chief financial officer, David Bortolussi to replace John Pollaers, who departed in July after disagreeing with his board about the group's strategic direction.
Bortolussi gave his first presentation on Tuesday morning, and the numbers show that there certainly is room for disagreement about where the company is headed.

The workwear business was selling into sectors of the economy that are in retreat, including manufacturing, but it is hard to see any part of PacBrands' portfolio that is a definite keeper.

Read more

Its share price was crunched on the back of a profit warning from Flight Centre along with concerns that the downturn in consumer confidence would see less offshore travel.

But that hasn’t stopped travel insurer Cover-More from comfortably beating prospectus with a year to June net profit of $25 million, well ahead of the $22 million forecast.

That has helped push its shares ahead 4.55 per cent to $2.07, adding to the 3 per cent rise since the middle of last week.

It did point to domestic softness following the federal budget, but with operations in both China and India, this helped give it some diversification to keep its bottom line growth intact.

Poker machine maker Ainsworth Game Technology's full-year net profit after tax rose 18 per cent to $61.6 million, boosted by the fifth consecutive year of double-digit revenue growth.

But the result missed the consensus among analysts, who had expected net profit of $69.4 million, according to data compiled by Bloomberg.

The Sydney-based manufacturer said revenue rose 23 per cent to $244 million, which missed consensus of $251.6 million.

Revenue from international sales rose 37 per cent to $100.8 million, outpacing the domestic business which reported a 15 per cent rise in revenue to $143.3 million.

The board declared a dividend of 5¢ payable on September 26. Billionaire executive chairman Len Ainsworth, who owns 53.4 per cent of the company, will receive $8.6 million in dividend distributions.

Shares are down 1.9 per cent at $3.62.

Jackpot: Ainsworth Game Technology has reported its fifth consecutive year of double digit revenue growth.

Jackpot: Ainsworth Game Technology has reported its fifth consecutive year of double digit revenue growth. Photo: John Woudstra

The most closely watched indicator in the US economy is the unemployment rate, but is it just a red herring?

Heidi Shierholz, who studies labour issues at the left-leaning Economic Policy Institute, was appointed today as the chief economist at the US Department of Labor, which oversees the research behind the indicator. She says the improving unemployment rate understates the joblessness problem because it doesn’t account for some 6 million workers who went missing after the 2008 recession. The mystery at hand is what happened to them.

Read more at Quartz.

US unemployment may be worse than it looks. Source: Quartz

US unemployment may be worse than it looks. Source: Quartz

Banks will ramp up their resistance to tougher rules designed to make them more resilient to shocks, as the financial system inquiry enters its final stages.

Facing the prospect of being forced to hold billions more in capital, banks today are due to lodge their second-round submissions with the inquiry, led by former Commonwealth Bank boss David Murray.

As financial institutions put the final touches on submissions on Monday, it was clear financial stability would be a critical issue for the country's big lenders.

Mr Murray has signalled the inquiry is considering moves to make the system more resilient to future global shocks, floating the prospect of higher capital charges, "bail-in" bonds and the "ring fencing" of big banks' deposit-taking businesses

In response, banks are set to argue that the inquiry has misread their true capital levels, via commissioned modelling on the capital position of each bank.

In a sign of the high stakes of the inquiry, UBS analyst Jonathan Mott has separately estimated that higher capital charges "appear inevitable" and this could force the big four banks to set aside an extra $23 billion.

Read more.

Financial system inquiry chair David Murray's interim report put the big four on notice that they may be forced to hold billions more in capital

Financial system inquiry chair David Murray's interim report put the big four on notice that they may be forced to hold billions more in capital Photo: Supplied

The video in video games is suddenly a billion-dollar business.

Video games have long been something people played. But in the last few years, thanks in part to fast Internet access and multiplayer games, the games have become something that people sit back and watch, too.

On Monday, that new habit enticed the web giant Amazon to reach a $US1.1 billion deal to buy Twitch, the most popular website for watching people play games.

The deal for Twitch is the latest sign of the way forms of behaviour once seemingly on the fringe can, in the hands of tech entrepreneurs, turn into huge online communities in no time. Twitch did not exist a little over three years ago, and it now has 55 million unique viewers a month globally, helping turn games into a spectator event as much as a participatory activity.

Those millions of eyeballs are valuable to web companies, and Amazon, although usually known for its retailing, is no exception. To win in its bid for Twitch, Amazon had to outmanoeuvre a who’s who of the tech world, including Google — strongly suggesting that these companies think the era of video-game viewing is just starting.

It also underscored Amazon’s growing appetite for controlling and delivering content to digital devices, especially the tablets and smartphones made by Amazon.

Read more at the NY Times.

The acquisition of Twitch will be Amazon's biggest ever.

The acquisition of Twitch will be Amazon's biggest ever. Photo: Bloomberg

UGL’s outgoing chief executive, Richard Leupen, has forecast “significant” consolidation in the engineering sector as the contractor nears completion of the $1.2 billion sale of its DTZ property arm.

“If you’re a $300 million listed engineering company then you shouldn’t be there, you should be merged with someone else,” Mr Leupen told The Australian Financial Review after UGL delivered a 22 per cent rise in underlying net profits to $111.7 million.

“So many people entered the industry at the top of the cycle and there’s not enough work for them all. The market opportunity is less than it was two or three years ago.”

UGL’s engineering business will have revenues of about $2.4 billion when the sale of its property business is completed between October and December, and will carry very little debt.

The company plans to use proceeds from the DTZ sale to pay off most of its $567 million in net debt and return between $400 million and $500 million to shareholders.

Mr Leupen, who will leave UGL on November 21 after almost 14 years as CEO, said the company was “well placed” to participate in consolidation.

But UGL incoming CEO Ross Taylor, who will start on November 24, has already signalled he plans to take a cautious approach to acquisitions and focus on organic growth.

Outgoing UGL managing director Richard Leupen.

Outgoing UGL managing director Richard Leupen. Photo: Tamara Voninski

Clive Palmer has apologised to "Chinese people everywhere" for his attack on "Chinese mongrels" who "shoot their own people" and "haven't got a justice system" - eight days after first making the comments.

The outspoken MP and leader of the Palmer United Party has written to the Chinese Ambassador in Australia, saying he "most sincerely" apologises for "any insult to the Chinese people" as a result of his comments made on live television last week.

"I now come to the realisation that what I said on Q&A was an insult to Chinese people everywhere and I wish to assure them they have my most genuine and sincere apology,"  Palmer wrote.

"I am sorry that I said the things I said on the program [and] I regret any hurt or anguish such comments may have caused any party.".

Palmer also wrote that he regretted any "hurt or anguish" his comments on Q&A might have caused "any party" and he looked forward to "greater understanding for peace and co-operation in the future".

Palmer said last week he did not mind "standing up against the Chinese bastards" whom he accused of trying to take over Australia's ports to steal the nation's resources.

The billionaire businessman is embroiled in a legal battle with Chinese state-owned company CITIC Pacific, which has accused Palmer of siphoning off $12 million in funds.

Here's Clive Palmer's letter to the Chinese ambassador

Clive Palmer has sent a letter to the Chinese Ambassador saying he is sorry for his comments last week.

Clive Palmer has sent a letter to the Chinese Ambassador saying he is sorry for his comments last week. Photo: Alex Ellinghausen

Consumer confidence has edged back above its long-run average, rising 0.9 per cent to 113.5 in the week ending August 24, according to the ANZ-Roy Morgan weekly survey.

‘‘Confidence continues to recover from its recent setback (which likely reflected ‘sticker shock’ from the unexpected rise in the unemployment rate), supported by solid fundamentals such as low interest rates and rising house prices,’’ ANZ says.

The rise in the index was driven almost entirely by an 11.1 per cent rise in household perceptions about their '‘financial situation compared to a year ago'’, the subindex most closely correlated with consumer demand.

This is an encouraging sign for consumer spending in coming months, ANZ notes.

“Signs that consumer confidence is bouncing back, combined with strengthening business surveys, gives us more confidence that the non-mining recovery remains on track,’’ says ANZ chief economist Warren Hogan. ‘‘We expect consumer spending to remain moderate in 2014 before improving in 2015.”


The market has come off its early gains, with property stocks weighing on the benchmark index:

  • Scentre: -1.8%
  • Dexus: -2.85%
  • Mirvac: -1.6%
  • Stockland: -0.8%
  • Westfield: -0.5%


The big miners are facing more selling pressure after the next dip in the price of iron ore, while the four banks are posting small gains.

These are the main winners and losers in the ASX200:


Bank customers are happy, now that they're appy, writes BusinessDay columnist Elizabeth Knight:

Over the past five years billions of dollars have been spent by Australia's big four banks on IT - ostensibly as a way of improving customer satisfaction, ultimately leading to improving market share.

But the latest customer satisfaction survey from Roy Morgan Research for July demonstrates pretty clearly that rather than getting an edge on the competition - there has been a general convergence in customer satisfaction numbers between the big four - Commonwealth Bank, Westpac, the National Australia Bank and ANZ.

Indeed the tide of overall satisfaction has risen and taken all four with it. Where 10 years ago there was a yawning gap between rankings - with customers rating ANZ satisfaction at 73.1 per cent and CBA at 63 per cent, today there is only a couple of percentage points between all of them and the overall level of satisfaction is over 82 per cent - which is close to a record high.

The old adage that "banks are bastards" has faded as the big institutions have attempted to re-invent themselves as better corporate citizens with user friendly products.

(Business banking customers are generally not as happy with the big four - but for different reasons.) 

Given that most of us no longer use the physical branch network, it is understandable that IT has become the battle ground as most of our contact with banks will be via a device - either a computer or a smart phone. But one could argue that the current wave of IT spending has more to do with stay in business capital expenditure rather than a technology revolution.

Read more.


Communications company Salmat has suffered a 98 per cent decline in net profit after tax at $800,000 for the year ended June 30.

Driving the decline this year was the loss in profit from discontinued operations, $5.9 million in restructuring and separation costs associated with the sale of the BPO division and acquisition costs relating to the Netstarter and Microsourcing deals.

Salmat total revenue fared better at $452.8 million, 3.2 per cent down on last year.

Delayed contact centre revenue and non-renewals in direct sales and catalogue contracts caused the slide in revenue which were made up by new sales of $30 million.

The company announced a final fully-franked dividend of 7.5¢ per share taking the full-year dividend for the year to 15¢ per share.

Chief executive Craig Dower said heavy costs were in line with Salmat’s three-year investment and growth strategy.

“The size of our transformation effort was larger than anticipated, however, we have made solid progress and are confident that this current major phase will be completed by early 2015,” he said.

“We are confident solid top line growth in 2015 with benefits flowing to the bottom line from the second half onwards.”

Salmat shares are 3.5 per cent lower at $1.78.

The S&P/ASX will announce the results of its quarterly index review on Friday, September 5, with the last trading opportunity on September 19.

JPMorgan has taken a look at likely candidates to be added or removed from the indices, which could affect their share prices. The analysts take into account pending M&A activity.

  • S&P/ASX 20: Adds: None, currently 21 members. TCL (L) highest. Drops: WFD (H) or IAG (L)
  • S&P/ASX 50: No changes expected. Adds: SEK (L) following any M&A in this index.
  • S&P/ASX 100: Adds: FBU (L), HSO (L until 22/Sep). Drops: MYR (L). M&A: TWE
  • S&P/ASX 200: Adds: TNE (H), APN (H), NHF (M), AMM (M), HSO (L until 22/Sep). Drops: BRU (H), TRS (H), NWH (H). M&A: WTF, SAI, PNA, GFF, TWE


* 'H' is high likelihood of this change being made, 'M' medium and 'L' low.


Asset sales helped oil and gas player AWE more than treble full-year net profit, with the bottom line number surging to $62.5 million.

Revenues for the year to June climbed 9 per cent to $328.2 million, on production that rose 13 per cent to 5.6 million barrels of oil equivalent.

Net income was boosted by the $US188 million sale of the Ande Ande Lumut oil project in Indonesia to Santos. It also agreed to sell part of its interest in the BassGas project to Prize Petroleum.

AWE gave underlying net profit for the 2014 fiscal year as $7 million, less than Citigroup's estimate of $11 million for "core" net profit.

The company estimated fiscal 2015 production of 4.6 million-5.1 million barrels of oil equivalent, and sales revenues of $290 million-$320 million.

That compares with Citigroup's assumptions of 5 million boe for production and $341 million for revenues.

AWE shares are 1.5 per cent lower at $1.75.

Shares have inched higher, supported by a more positive global mood, which has buoyed the banks, while miners have eased after the iron ore price dropped below $US90/tonne.

The big four lenders are all up by between 0.3 and 0.6 per cent, as the ASX 200 and All Ords trade 7 points, or 0.1 per cent, higher in early trade at 5641.9 and 5640.2.

BHP is 0.4 per cent lower, while Rio is down 0.5 per cent and Fortescue has dropped 0.9 per cent.

Best performing stocks early are Cover-More Group, up 7.1 per cent, and McMillan Shakespeare, up 5.6 per cent, both on profit results. Worst performer early is Senex Energy on its earnings update.

Almost $3 billion in shares could hit the market over the next week as the first selling window opens up for the class of 2013-14 initial public offerings, including $1.1 billion in equity from credit score company Veda Group alone.

Big investors usually have to wait a specific, but variable, period of time before they can trade their stake ­following a float. The rush of IPOs in late 2013 and early 2014 coincides with the significant number of shares that could be released in the week ahead.

Packaging company Pact Group, of which around $465 million of shares are set to come out of escrow on Wednesday, has already gone on the front foot and released a statement asserting Geminder Holdings, its ­biggest investor, will not be selling. ­Geminder is the investment vehicle of Raphael Geminder, Pact's chairman. Pact raised $1.7 billion in a float in December.

"The interesting thing about this reporting season is that it triggers the escrow to be removed from a lot of the recent IPOs and hence we expect to see a raft of sell-downs post this reporting season," said Perpetual's deputy head of equities, Paul Skamvougeras.

Not all organisations have been forthcoming around how much skin in the game their investors plan to retain.

The biggest potential source of equity out of escrow will be that of Veda Group which emerged as one of the strongest IPOs from last year. Private equity firm Pacific Equity Partners held 63.5 per cent of the company following the successful float which resulted in a 40 per cent price surge on debut.

Veda has disclosed that more than 500 million shares, valued at $1.1 billion, will be released from voluntary escrow on Wednesday.

A spokesperson for the company declined to comment on PEP's ­intentions in light of the imminent release of its annual results and a ­self-imposed "blackout" period.

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There were 58 floats with a total value of nearly $14 billion in the 2014 financial year, making it the ­busiest year for floats since the global financial crisis.

There were 58 floats with a total value of nearly $14 billion in the 2014 financial year, making it the ­busiest year for floats since the global financial crisis. Photo: Peter Braig

Troubled drill contractor Boart Longyear has warned of "material uncertainty" to its financial survival, without finalising a planned recapitalisation.

The group was commenting with the release of June half earnings which disclosed a loss of $US142.8 million ($153.6 million) down from $US329.4 million a year earlier.

For the full year, it said it agreed with analyst estimates of full year revenue of around $US842 million, an EBITDA profit of $US47 million and net debt of $US531 million.

In the June half, the normalised EBITDA profit totalled $US18.7 million.

But without a restructuring, it is unlikely to comply with debt covenants by mid-2015, notwithstanding a recent easing of some of the conditions surrounding its funding.

"There is material uncertainty that may cast significant doubt on the ability of the company to continue as a going concern," it warned.

Its survival prospects depend on it successfully concluding its recapitalisation options and concluding any recapitalisation by mid-2015, it said.

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"There is material uncertainty that may cast significant doubt on the ability of the company to continue as a going concern.": Boart has warned its future is in doubt.

"There is material uncertainty that may cast significant doubt on the ability of the company to continue as a going concern.": Boart has warned its future is in doubt. Photo: Supplied

Senex Energy has posted a 38 per cent decline in full-year profit, due to a tax expense and the absence of the one-off gains that boosted the previous year’s result.

The net profit of $37.9 million was on sales that rose 24 per cent to $170.9 million.

Underlying profit rose by $1.5 million to $44.7 million, which fell short of the consensus estimate of $57 million.

Senex forecast full-year production in 2015 of 1.4 million barrels of oil equivalent, which is short of Citigroup’s assumption of 2 million boe.

Stem cell therapy developer Mesoblast has increased its full-year net loss by 31 per cent to $81 million after a period of ramping up spending on clinical trials and investing in manufacturing capacity in anticipation of product approvals and launches.

The Melbourne-based company said its revenue rose 6.9 per cent to $37.1 million in the year ended June 30.

Although the $1.4 billion company does not yet have any products in the market, it earns revenue from interest, research and development tax credits and some provision of services.

At the end of the 2014 financial year Mesoblast had $196.4 million in cash reserves and said its normalised cash burn for the year was $78.2 million. This was up from $61.9 million in the prior year.

Mesoblast has stem cell therapies in the final stage of clinical trials for a number of conditions. Its MSC-100-IV product for the treatment of graft versus host disease, a complication often faced by patients receiving organ transplants, is the closest to market. The company’s partner in JCR Pharmaceuticals plans to file the therapy for registration in Japan before the end of the calendar year.

Mesoblast shares have lost 24 per cent in the past year, compared to an 11 per cent rise in the S&P/ASX200 index.

Specialty Fashion’s $4 million acquisition of discount retailer Rivers last year has led to a blow out in costs, contributing to a 3.8 per cent decline in net profit to $12.47 million in 2014.

While Specialty Fashion’s sales soared 20.3 per cent to $685.04 million, buoyed by the Rivers acquisition, EBITDA fell 4.8 per cent to $39.15 million.

Cost of doing business jumped $85.8 million due to the Rivers acquisition as well as higher rental and wages costs and a $15.4 million investment in omni-channel retailing.

The net profit result fell short of consensus forecasts around $14 million and compared with a $13 million profit in 2013.

Specialty Fashion snapped up the 28-year-old ­Rivers Australia clothing and footwear company from founder Philip Goodman for the bargain basement price of $4 million cash, a discount to asset value, last November. However, Rivers added $53 million to Specialty Fashion’s cost of doing business.

The acquisition, which expanded SFH’s footprint into menswear, childrenswear and footwear for the first time, is expected to boost annualised sales by at least $180 million to around $750 million.

The deal also added another 180 stores to SFH’s 1000-store network.

Specialty Fashion, which owns Millers, Katies, Crossroads, City Chic and Autograph, plans to use its database of 7 million customers and 3.4 million email addresses to cross-sell or promote Rivers’s products.

The company declared an unchanged final dividend of 2¢ a share, payable September 26, taking the full year pay out to 4¢ a share.

Fertility medicine network Virtus Health said it overestimated the number of in-vitro fertilisation cycles it would perform in its first year as a listed company, leading it to miss one of its prospectus targets.

The company said its statutory full-year net profit after tax tripled to $30.9 million.

On a pro-forma basis, which removes one-off costs associated with the June 2013 initial public offering, net profit for the year ended June 30 rose 17.2 per cent to $32.0 million.

The result just missed expectations among analysts of net profit of $32.3 million, but was up from $27.3 million in the same period last year.

But a decrease in activity across the IVF market in the second half of the 2014 financial year caused Virtus to miss its pro-forma EBITDA target by $2.6 million. Pro-forma EBITDA rose 7.7 per cent to $60.4 million.

However, net profit after tax exceeded the prospectus forecast by $0.6 million.

Revenue rose 7.9 per cent to $201.2 million, which was under the $205.1 million that analysts had expected, according to data compiled by Bloomberg.

Virtus shares have gained 13 per cent in the past year, compared to an 11 per cent rise in the S&P/ASX200 index. Monday's closing price of $8.01 is down from a 12-month high of $9.03 reached in November.

The board declared a dividend of 14 cents a share, payable on October 16.

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European shares rallied overnight, as the lure of new stimulus measures from the European Central Bank enabled the region's stock markets to shrug off weak German data and the resignation of the French government.

ECB chief Mario Draghi, speaking at a global central banking conference in Jackson Hole, Wyoming, said late on Friday that the ECB was prepared to respond with all its "available" tools should inflation drop further.

Draghi's comments helped offset negative pressures from a weak German Ifo survey, which showed that German business sentiment dropped for a fourth straight month in August, and from the French government's resignation.

"The stock markets are evaluating the prospect of possible monetary easing from the ECB as more important than the disappointing Ifo figures and French political troubles," said Carlo Alberto de Casa, senior market analyst at ActivTrades.

The euro zone's blue-chip Euro STOXX 50 index closed up by 2.2 per cent at 3165.47 points. Germany's DAX - which remains down by around 5.4 per cent from an all-time high of 10,050.98 points set in late June - soared 1.8 per cent to 9510.14 points.

The London stock market was closed for a public holiday.

France's CAC finished 2.1 per cent higher, with some investors saying that a stronger and more unified French government might emerge that was more committed to President Hollande's deficit-cutting measures.

AXA Investment Managers' chief strategist Franz Wenzel said Draghi's position remained supportive for the region's stock markets.

"The key message is that Draghi stands ready for more action if needed. Whether they're going to do quantitative easing remains to be seen, but we're fairly confident that the financial engineers at the ECB will find other tools," said Wenzel.

Pacific Brands results are out, and iconic brands King Gee, Hard Yakka and Stubbies are headed to Wesfarmers for $180 million.

The clothing and textiles distributor has withheld its final dividend after rising costs and weak wholesale sales continued to squeeze margins, leading to a 28.2 per cent fall in underlying net profit to $53.0 million in 2014.

The company also announced plans to sell its struggling workwear business to Wesfarmers’ Industrial and Safety division for $180 million as part of a strategic review and appointed chief financial officer David Bortolussi as chief executive to replace John Pollaers.

Mr Pollaers stepped down in July after a falling out with the board over the company’s future direction. It is understood he was opposed to the sale of the workwear business, which owns brands such as King Gee and Hard Yakka.

While sales rose 3.8 per cent to $1.322 billion, earnings before interest tax and significant items fell 25.3 per cent to $91.2 million as costs rose more than $27 million, in line with Pacific Brands’ $90 million to $93 million guidance, which was cut by more than $10 million in June.

The underlying net profit result was slightly ahead of consensus forecasts around $52 million.

After one-off costs of $312 million, PacBrands reported a bottom line loss of $224.5 million.

Auckland International Airport (AIA) reported a 10.5 per cent increase in full-year underlying profit to $NZ169.9 million ($152.5 million), in line with its guidance and analyst expectations.

The airport operator had forecast a figure of $NZ166 million to $NZ172 million, and analysts had forecast $NZ170 million. AIA had experienced international passenger growth of 5.1 per cent over the financial year ended June 30, and domestic growth of 2.2 per cent during the period.

However, per passenger spending on retail declined by 2.4 per cent, in part because the strong New Zealand dollar meant it was more attractive for some trans-Tasman travellers to make their purchases in Australia.

AIA increased its final dividend per share by 12 per cent to 7 cents a share, imputed at the New Zealand company tax rate of 28 per cent. Overall, the airline returned $NZ454 million of capital to shareholders during the financial year.

Chairman Sir Henry van der Heyden said he was confident in the airport's ability to unlock further opportunities in the 2015 financial year.

AIA has forecast it will report underlying profit after tax of $NZ160 million to $NZ170 million, due to increased interest costs associated with the capital return. Due to the 10 per cent reduction in the number of shares on issue after the capital return, that would represent a lift in earnings per share of 2 per cent to 9 per cent.

AIA shares closed 2 cents lower at $3.36 on Monday, ahead of the results release.

Read more.

Per passenger spending on retail declined by 2.4 per cent, in part because the strong New Zealand dollar meant it was more attractive for some trans-Tasman travellers to make their purchases in Australia.

Per passenger spending on retail declined by 2.4 per cent, in part because the strong New Zealand dollar meant it was more attractive for some trans-Tasman travellers to make their purchases in Australia. Photo: Bloomberg

Pacific Brands' largest shareholder has urged the board to seek investor approval if it plans to sell off major assets as part of a strategic review.

The Pacific Brands board met on Monday to consider a series of recommendations by Macquarie Capital, which was appointed in April to advise on options including asset sales and further restructuring.

Allan Gray portfolio manager Simon Mawhinney said he was not against further asset sales to reduce uncomfortably high debt levels, but shareholders should be given the opportunity to approve or veto any major divestments.

"They should do whatever creates long term value for shareholders," said Mr Mawhinney, whose fund owns 18 per cent of Pacific Brands.

"If they get an offer they can't refuse for one side of the business there should be no sacred cows," Mr Mawhinney told The Australian Financial Review.

"I just hope whatever it is they seek shareholder approval," he said, pointing to stock exchange listing rules that require companies to seek shareholder approval for significant transactions or aggregate transactions.

The board is expected to provide an update on the strategic review along with Pacific Brands' full year results today.

Read more.

There is speculation that Bonds could be sold by Pacific Brands.

There is speculation that Bonds could be sold by Pacific Brands. Photo: Supplied

The vice grip of oversupply and high cash costs will be pressuring Australia's iron ore miners, as the metal's price drifts lower and margins evaporate.

Iron ore has fallen below $US90 a tonne, dropping a further 1 per cent to $US89.20 overnight on Monday amid ongoing concerns over China's growth. In June, the metal hit $US89 per tonne.

Oversupply continues to weigh on the price of iron ore as global diversified miners, like BHP Billiton and Rio Tinto, ramp up production and flood the market with supply.

However, with low cash costs and high quality iron ore, the large miners will not be fazed by the lower price. BHP and Rio have break-even prices of just over $US40 per tonne.

Mid-cap miners with heavy exposure to iron ore face a much more difficult task than the big miners. Little diversification means smaller iron ore miners with higher break-even prices and lower quality iron ore will be feeling the pinch of a lower price.

Gindalbie stands out as one of the more vulnerable miners, not only because it has a break-even price of around $US90 per tonne, but it also holds a significant amount of debt.

Atlas Iron still maintains a small profit per tonne at Tuesday's price, with costs of $US82 per tonne, Mount Gibson has a break-even of $US75 per tonne, while BC Iron sits at $US70 per tonne.

Should the price of iron price test their break-even levels, these smaller miners carry little debt, but sustained lower levels could take their toll.

Read more.

Iron ore measured out of the Tianjin port in China is now trading down more than 32 per cent for the year.

Iron ore measured out of the Tianjin port in China is now trading down more than 32 per cent for the year. Photo: Bloomberg

US stocks rose, briefly sending the Standard & Poor’s 500 Index above 2000 for the first time ever, as corporate dealmaking and prospects for economic stimulus in Europe bolstered confidence in the bull market.

The S&P 500 rallied 0.5 per cent to 1,997.9, paring gains in the afternoon after holding above 2000 for less than two hours and reaching a record 2,001.95. The Dow Jones increased 75.7 points, or 0.4 per cent, to 17,076.9.

On a total-return basis the S&P 500 has more than tripled from its 2009 low hit during the financial crisis.

“This number, 2000, is a pretty significant number from psychological and financial points,” Joe Bell, senior equity analyst at Cincinnati-based Schaeffer’s Investment Research, said. “Perhaps we might reach a little bit overbought status, and it looks like the index is going to take a breather there.”

Merger and acquisition activity led to some of the biggest moves in the market today. Burger King Worldwide added 20 per cent after saying it’s in talks to buy Tim Hortons. Morgan Stanley climbed to the highest since 2009 and JPMorgan Chase and Goldman Sachs Group climbed more than 1.3 per cent.

Across the pond, the Stoxx Europe 600 Index jumped 1.1 per cent today as comments by Mario Draghi fanned speculation the European Central Bank is closer to quantitative easing. ECB policy makers “stand ready to adjust our policy stance further” and will use all available instruments to “ensure price stability over the medium term,” Draghi said over the weekend.

 On a total-return basis the S&P 500 has more than tripled from its 2009 low hit during the financial crisis.

On a total-return basis the S&P 500 has more than tripled from its 2009 low hit during the financial crisis. Photo: Reuters

Local shares poised to open flat today despite the S&P 500 breaking through the 2000 barrier for the first time, while iron ore slipped below the $US90 a tonne mark.

What you need2know:

SPI futures up 3 points to 5603

AUD at 92.96 US cents, 96.70 Japanese yen, 70.45 Euro cents and 56.06 British pence.

• On Wall St, S&P 500 +0.5%, Dow +0.5%, Nasdaq +0.4%

• In Europe, Euro Stoxx 50 +2.2%, FTSE closed, CAC +2.1%, DAX +1%

Iron ore slips 1% to $US89.20 per metric tonne

• Spot gold down 0.2% to $US1275.76 an ounce

• Brent oil falls 0.4% to $US102.71 per barrel

What's on today:

• Australia: ANZ Roy Morgan weekly consumer confidence.

US: Durable goods orders; S&P/Case-Shiller home prices; Consumer confidence

• Our region: Japan Cabinet Office monthly economic report for August; China leading economic index.

Stocks to watch:

• Earnings from AWE, Boart Longyear (interim), Beach Energy, Medusa Mining, Pacific Brands, Resolute Mining, Specialty Fashion, Western Areas, Auckland Airport, Scentre (interim), Senex Energy, Blackmores, Cover-More, Virtus Health, 3P Learning, McMillan Shakespeare, Virtus Health, Mesoblast

Coca-Cola Amatil and Origin Energy trade ex-dividend.

BlueScope Steel raised to outperform vs neutral at Credit Suisse with a price target of $6.40.

• RBC Capital Markets has a "sector perform" recommendation on Duet Group and a 12-month price target of $2.50 a share after the 2014 financial year result fell in line with expectations.

• RBC Capital Markets has a "sector perform" recommendation on Santos after "a good profit", highlighted by an unexpected increase in dividend to 20¢ a share. It has a price target on the stock of $16 a share.

• Hartleys Research upgraded Macmahon Holdings to a "buy" with a 12-month price target of 25¢ a share as the industry continues to face difficult operating conditions.

• Bank of America Merrill Lynch has posted a "buy" recommendation on Mortgage Choice, with a price target of $3.40 a share. The bank says Mortgage Choice has delivered a solid result with a double digit earnings per share growth continuing.

Read more.

Good morning and welcome to the Markets Live blog for Tuesday.

Your editors today are Jens Meyer and Patrick Commins.

This blog is not intended as investment advice.

BusinessDay with wires.


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