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A strong interim profit result from Australia’s biggest resource company, BHP, has lifted the local stock exchange, offsetting some earnings disappointments.
The benchmark S&P/ASX 200 Index rose 9.9 points, or 0.2 per cent, to 5392.8, while the broader All Ordinaries Index added 0.1 per cent to 5402.2, as investors focused on a mixed bag of half-year company earnings reports.
There was no overnight lead from Wall Street, after markets in the United States were closed on Monday for the President’s Day public holiday. In the afternoon session a spike in Japan’s Nikkei following comments from the Bank of Japan was positive for sentiment.
Shares and the dollar were both supported by the release of minutes from the RBA’s February policy meeting, which confirmed the central bank is likely to keep the official cash rate on hold at its record low of 2.5 per cent for many months.
BHP gained 2.3 per cent to $38.89 after beating expectations with a 69.4 per cent rise in interim net profit compared to the first half of last financial year. The company also continued to reduce costs and improve cashflow.
The resources giant did not lift its interim dividend by as much as some in the market had hoped, however, the chief executive Andrew Mackenzie flagged investors can expect higher capital returns at the end of the year.
“It is still early in reporting season, but so far most results from the large caps have been well received with share prices getting a lift,” Invesco Australia portfolio manager Nicole Schuderl said.
“Returning cash to shareholders is likely to remain a major focus as reporting season continues,” Ms Schuderl said. “Reducing costs will also continue as another area of focus, especially for mining and resources companies.”
Turning to today's best and worst, mining services group Monadelphous takes top spot, shooting up 9.7 per cent after announcing interim profit results. Fellow contractor NRW Holdings jumped 4 per cent in a rare good day for the sector.
Pacific Brands and GWA were the two worst performers, with Coca-Cola Amatil and Amcor also feeling investors' wrath after posting earnings figures.
Best and worst performers in the ASX 200.
Coles boss Ian McLeod, who has led the supermarket group for more than five years and helped turn around the once struggling No.2 grocery chain, will step aside from the retailer in July to make way for new boss John Durkan.
Perth-based conglomerate Wesfarmers, which owns Coles, said McLeod, would move to a senior role within the wider Wesfarmers group to be replaced by Durkan, Coles chief operating officer and one of the key British executives brought over to resuscitate the ailing Coles.
Durkan was viewed as one of the prime players in squeezing suppliers and turning Coles into a thriving supermarket chain that has better competed with market heavyweight Woolworths.
Wesfarmers will release its half-year results tomorrow with Coles expected to show continued improvement.
Shares have just managed to slip into the black at close, with the ASX 200 eking out a 10 point gain at the finish to close at 5392.8.
The benchmark index has now posted gains in eight of the past nine sessions.
Metals and mining was the only corner of the market to post any solid gains after BHP posted a bumper result, sparking speculation of more capital returns to shareholders ahead.
The Big Australian finished up 2.3 per cent to $38.89, while Rio gained 1.9 per cent to $70.88 and Fortescue Metals 2.8 per cent to $5.98.
Gold miners fell 2.4 per cent as a group.
The banks were either broadly flat or declining slightly, but Challenger jumped 3.3 per cent on a solid earnings result.
Both consumer sectors, discretionary and staple, fell 0.4 per cent, as did utilities and energy stocks.
The biggest individual drags on the market were Amcor (-4.2 per cent) and Coca-Cola Amatil (-5.3 per cent), both on earnings updates.
The departure of Australia’s last big carmaker is as inevitable as an argument at a barbecue over the merits of a Ford versus a Holden, The Economist writes in a fairly brutal assessment of the sector's terminal decline:
Australia makes the wrong sort of motors. As in most rich countries, drivers increasingly want smaller fuel-efficient vehicles and fashionable SUVs. Of the six models made in the country only two, the Holden Cruze and the Ford Territory, fall into these categories. For cheap mass-market vehicles, on which profit margins are slender, high-volume, low-cost production is vital.
But Australian factories are small: the biggest, Toyota’s, makes just 100,000 cars a year. As a rule, plants making mass-market vehicles need to turn out at least 200,000 a year to have a hope of making them cheaply enough.
Australian plants lack economies of scale but not employees with bulging wage packets. Only German car workers earn more. The lack of scale works its way down to local component-makers. These are also small by global standards, so parts are pricey.
The result, according to both Ford and Holden, is that manufacturing costs are four times those in Asia and even twice European levels. That is a death sentence in a global market with plenty of spare capacity, even before considering the added burden of Australia’s strong currency, buoyed by commodity exports.
Carmaking is a small and unprofitable part of a shrinking manufacturing sector, employing relatively few, in an economy dominated by services and resources. The main damage caused by the carmakers’ departure is to Australians’ self-esteem.
The closure of Victoria's Point Henry aluminium smelter is not our fault, and in important ways it's not US-based Alcoa's fault, either, writes BusinessDay columnist Mal Maiden:
Aluminium is congealed energy. It takes enormous amounts of electricity to drive the electrolytic process that separates aluminium from its oxide, alumina, and there has been a seismic shift in production towards developing countries where energy costs are lower.
Four decades ago, the United States, the USSR and Japan accounted for almost 60 per cent of aluminium production. Today, China accounts for more than half the global total. The big four producers from 40 years ago have a share of just over 10 per cent.
China is in effect subsidising its aluminium production. The industry is a means to an end: smelters and electricity generating capacity have been developed in tandem, locking in cheap power for the smelters, but also extending China's power grid, and opening up new parts of the economy for industrialisation and economic development.
The shift in aluminium production away from the developed world to the developing world and to China and particular kept a lid on aluminium prices as energy costs rose, however. Profits on aluminium smelting have been squeezed, forcing smelter closures around the developed world: Point Henry is only the latest, and it will not be the last.
Here's how regional markets are doing:
- Japan (Nikkei): +2%
- Hong Kong: flat
- Shanghai: -0.5%
- Taiwan: +0.15%
- Korea: -0.3%
- ASX200: flat
- Singapore: flat
- New Zealand: +0.1%
The two standouts are Japan, which is soaring after the Bank of Japan stuck with a plan for unprecedented asset purchases and boosted lending programs, and China, where stocks are under pressure as the central bank drained liquidity from the financial system, after new lending reached a record in January.
‘‘The central bank has realised there’s a need to soak up some liquidity,’’ says Wang Weijun, a strategist at Zheshang Securities in Shanghai. ‘‘The process will pressure stocks.’’
Sydney’s Wet’n’Wild theme park made a profit of almost $6 million in its first few weeks of operation.
More than 160,000 season passes were sold before its opening on December 12, generating $12.5 million in revenue for the park’s operator, Village Roadshow. Attendances have also exceeded the company’s expectations, with more than 400,000 passing through the gates of the western Sydney water park up to the end of January.
Village Roadshow’s half year accounts show the theme park made pre-tax profit of $5.8 million in the six months to December 31. But $5.5 million in pre-opening costs, plus another $3 million in spending on a new marketing campaign for Gold Coast’s theme parks, contributed to a 46 per cent fall in the company’s half year profit.
Village Roadshow made a profit of $18 million in the six months to December 31, down from $33.5 million in the same period a year earlier.
Shares are down 1.5 per cent at $7.24 - and have lost 2.5 per cent since Wet'n'Wild opened mid-December.
Wet 'n' Wild ride for Village Roadshow investors Photo: Ben Rushton
Japanese stocks extended gains as the yen slumped after the Bank of Japan doubled its main growth funding facility while keeping its asset purchase program unchanged.
The BoJ doubled the size of a funding facility aimed at spurring growth to 7 trillion yen), the central bank said today at the conclusion of a two-day meeting. It maintained a plan to increase Japan’s monetary base by 60 trillion yen to 70 trillion yen a year.
By keeping its asset-purchase policies unchanged, the central bank preserves firepower for extra stimulus in coming months, with a sales-tax increase in April forecast to trigger a one-quarter economic contraction.
While strengthening the lending programs adds to the money available for Japanese businesses, companies already have record stockpiles of cash, signaling limits on the likely effect.
‘‘This won’t significantly accelerate lending but it shows the BoJ isn’t backing off from using any stimulus,’’ Shuichi Obata, a Tokyo-based senior economist at Nomura Securities, said ahead of the announcement, anticipating changes to the central bank’s lending facilities.
The Nikkei is up 1.5 per cent, while the yen has slid 0.5 per cent against the greenback.
The two most-accurate gold forecasters are holding to their bearish forecasts for 2014 even after the metal posted its best start to a year since 1983.
‘‘I just see this as a corrective move,’’ says Robin Bhar, the head of metals research at Societe Generale in London and the most-accurate forecaster tracked by Bloomberg in the past two years. ‘‘We would still want to be bearish gold.’’
Bhar who expects a fourth-quarter average of $US1050.
Bullion got a boost this year from reports showing the US wasn’t growing as fast as forecast and as lower prices spurred Asian demand, with coin sales rising from America to Australia. Spot gold is down 0.7 per cent today at $US1322 an ounce, but still up a strong 10 per cent since the beginning of the year.
Gold’s best forecasters say the rebound won’t last because higher prices will stifle purchases and the Federal Reserve will continue slowing stimulus as the economy strengthens.
Even after gold dropped 31 per cent from a record $US1923.70 in September 2011, prices are twice the average of 2006.
‘‘Haven demand plays well when gold is cheap, but it’s no longer cheap,’’ says Justin Smirk, a senior economist in Sydney at Westpac and the second most-accurate forecaster tracked by Bloomberg in the past two years. ‘‘I’m a little surprised by the volatility in the market, but it really doesn’t change my overall view,’’ says Smirk, who expects a slide through the year to a fourth-quarter average of $US1020.
Arthur Sinodinos knows how it works, you can bank on it, Michael Pascoe writes:
"The role he (Arthur Sinodinos) is leaving at the National Australia Bank makes him an invaluable link to the top end of town when business has its doubts over the Coalition's policy integrity," Christian Kerr wrote in The Australian with considerable prescience back in September, 2011.
It now seems that the Assistant Treasurer has also been an invaluable link for the top end of town, as well as to it.
Let's be very clear about this: the most contentious reform of the still-young Future of Financial Advice (FoFA) legislation - bringing commissions back from the dead - is purely the work of the big banks and Senator Sinodinos.
It wasn't part of the deal Senator Mathias Cormann worked out when he had carriage of the issue before the election. And, most tellingly, it's not what the Financial Planning Association of Australia wants.
The FPA introduced a ban on its members accepting commissions back in 2009. The association's focus is on financial planners becoming professionals, rather than product salespeople. It continues to be FPA policy that commissions are out, whatever changes Senator Sinodinos gets through parliament.
It has been the banks - the product manufacturers who, one way or the other, control the lion's share of the financial planning industry - who wanted to get commissions back on the books.
McAleese will axe about 540 jobs including truck drivers and workshop staff from Cootes Transport after deciding to halve the size of the beleaguered fuel-haulage business in the wake of what it described as relentless government scrutiny.
The transport company will also sell about half of the trucks and trailers in Cootes’ fleet after losing contracts with Shell and BP, and withdrawing from supplying 7-Eleven in several states.
McAleese said the jobs would be gradually lost over the next six months as the contracts ended. The company has set aside about $13 million for redundancies at Cootes this financial year.
About 1250 of McAleese’s 2000-strong workforce nationwide are employed at Cootes, which the company bought about two years ago from private equity firm CHAMP. The job losses will primarily include truck drivers but also workshop and clerical staff.
Two people were killed and five injured when a Cootes fuel tanker lost control on a bend in the northern Sydney suburb of Mona Vale and burst into flames on October 1. Since then, NSW and Victorian transport authorities have issued Cootes with hundreds of defect notices.
McAleese shares are at the day's low, down 33.6 per cent at 73 cents, aftger coming out of a trading halt this morning.
A fatal truck crash in Mova Vale last year has cost transport group McAleese at least $19.1 million.
The sharemarket is trading flat, as strong gains in BHP are offset by losses in Amcor and Coca-Colar Amatil after their disappointing results.
Here are the main winners and losers in early afternoon trade:
Rising property valuations have helped the Commonwealth Property Office Fund deliver a 175 per cent lift in net profit to $152.1 million for the half year ended December 2013, the office landlord’s final result before it is taken over by DEXUS Property Group.
CPA also lifted its distribution by 9.4 per cent to 3.5¢ per unit for the six month period.
“Our team has once again delivered a strong result, executing 59,831 sqm of leasing deals to forward solve lease expiry risks, lock in revenues and improve portfolio metrics,” CPA Fund Manager Charles Moore said in a statement.
Suitor DEXUS indicated at its result last week it would finish acquiring all of CPA by March. DEXUS’s acquisition of CPA is complete after Dexus’ cash and scrip offer received over 70 per cent approvals from CPA shareholders this week.
Setting aside the takeover, Mr Moore said the fund would continue to target a distribution of 6.75¢ per unit.
First Asciano, then McAleese. Can't wait for Paul Rowsthorn's next one. Shorrrt! http://t.co/6iYqnYKVZA — Michael West (@MichaelWestBiz) February 18, 2014
The numbers coming out of BHP have two similarities with Rio’s from last week, IG’s Evan Lucas says: lower cost and better-than-expected iron ore revenues. Lucas also notes the following
- The stellar iron ore numbers come on the back of a ramp up in the Jimblebar mine and an average AUD of $0.89 from $1.04 this time last year.
- What is also positively impacting the beat on the consensus numbers is the streamlining of projects, as BHP see a 65% increase in operational income coupled with a 25% reduction in outflow leading to a $7.8 billion increase.
- With capex expected to fall to $18 billion by FY14 end, and $12 billion by the end of FY15, this figure should improve further.
- BHP has also seen its first beat on consensus on the NPAT line since the first half of 2011 as productivity gains have seen $4.9 billion in savings; with major projects now in production phase that is expected to continue into the second half of FY14 enhancing the full-year outlook.
- What was a little disappointing was the petroleum division that saw a fall in earnings over the half, however this was due to increased depreciation and amortisation which is expected to be countered by its US shale projects.
IG has also done the sums on the BHP results and mapped them in its ‘‘equity matrix’’, coming to the result that the stock is a ‘‘long call’’, or worth a buy:
There’s plenty of action in the shares of department store rivals Myer and David Jones at the moment, as hedge funds jostle for position in what could end up being the biggest event-driven trade of the year, writes Matt Smith at Smart Investor.
At this stage, following the news Myer approached David Jones in October last year with a ‘merger of equals’ proposal, it seems hedge funds are betting that Myer could potentially end up sacrificing too much of its stock if it eventually tries to take over its slightly larger market capitalised DJs.
A scrip-for-scrip deal believed to have been floated with DJs shareholders last year could have been built around an offer of 1.4 Myer shares for every David Jones share.
Since then, the share prices of Myer and David Jones have diverged, sending Myer stock down and DJs shares up.
There are a handful of reasons why shares in Australia’s largest respective department stores could be trading in this fashion. The main reason is hedge funds are betting Myer will overpay if it does go ahead with its proposed deal.
Read more at Smart Investor.
As mentioned in a previous post, RCR Tomlinson is one of a trio of mining services companies that have had a pleasant investor reaction to its earnings update.
The company posted a 14.2 per cent increase in interim net profit against last year’s result to $18.3 milllion, which includes the July purchase of Norfolk, an acquisition designed to access the infrastructure sector and diversify the business’s earnings.
Excluding the transaction costs of that purchase, revenue was up 81 per cent to $701.7 million, and profit up 38 per cent to 22 million.
RCR declared a 30 per cent franked dividend of 3 cents per share, against the previous corresponding payment last year of 2.5 cents.
The last of the trio is MacMahon, which announced this morning that it had returned to profitability in what the company referred to as "a creditable result in what continues to be a difficult market".
The company said over the half it completed its transition to a "dedicated full-service mining contractor" with the last of its construction contracts either completed or sold - a segment that had cost it $60.7 million in net losses in the previous year's December half.
Net profit for its continuing operations fell 24 per cent to $17.5 million, from $23.1 million.
"This result includes a provision for doubtful debts against the Tavan Tolgoi project in Mongolia," said he company, which constituted "a conservative approach to the recovery of outstanding debtors".
Without those provisions, the mining segment's profits would be "in line" with the previous corresponding period, the company said.
MacMahon's mining order book was 54 per cent higher to $2.8 million.
Sydney Airport's latest master plan, which calls for combining domestic and international operations at shared terminals, has been approved by the federal government.
Infrastructure and Regional Services Minister Warren Truss had until Wednesday to approve the plan submitted in December unless he wanted to "stop the clock" and ask for more information.
No public announcement has yet been made, but this morning Sydney Airport's website said the Australian government had approved the plan on Monday.
The master plan for the next 20 years is based on no changes to the curfew, aircraft movement cap, noise sharing, access arrangements or flight paths.
But it will allow the airport to combine domestic and international operations to help maximise capacity if it can reach agreement with the airlines. To date, Virgin Australia has opposed the prospect of moving its domestic and international operations to the current international terminal, which is located further away from the CBD.
Ferry and tourism operator SeaLink says its Captain Cook Cruises business on Sydney Harbour and its Kangaroo Island ferry service off South Australia both had a strong January, putting it on course to meet a full-year profit forecast made in its prospectus.
SeaLink, which listed in mid-October after a float with an issue price of $1.10 per share, has delivered strong share price gains with its share price currently trading around the $1.60 mark.
SeaLink chief executive Jeff Ellison said the first few weeks of the company’s second half had started well, with "profit and revenue in January exceeding forecasts’’.
The company, which also runs passenger ferry services in Townsville and Darwin, announced a first-half net profit after tax of $3.4 million, which included a one-off impact of $600,000 in costs for its ASX listing.
On a normalised basis, which strips out one-offs, net profit after tax was $4.1 million for the six months ended December 31, 2013, up 5.3 per cent on the same half a year earlier.
Sales revenue increased by 9.4 per cent to $52.4 million.
Shareholders will be paid a fully-franked interim dividend of 3.66 cents per share on April 15.
Alcoa's closure of its Point Henry smelter near Geelong and two rolling mills in Australia underscore the dire market conditions facing producers amid a flood of new Chinese capacity.
Alcoa said it would shut the 50-year-old smelter after a two-year review found there was no prospect of it becoming financially viable.
The move will eliminate around 190,000 tonnes of annual aluminium-making capacity, equal to about 10 per cent of Australia's total yearly output.
Including the closure of the Point Henry smelter, Alcoa has announced closures or curtailments representing 551,000 tonnes of smelting capacity, exceeding the 460,000 tonnes placed under review in May 2013.
While Alcoa and other established producers shutter old facilities that can no longer compete, China's aluminium industry is growing. China's production is estimated to have increased by around 6 per cent to 21.5 million tonnes last year alone.
Lower energy costs have encouraged higher output at smelters in China's north-west provinces as well as restarts in the heavily industrialised provinces of Guangxi and Sichuan.
These production increases are aimed at offsetting capacity cuts at out-dated and inefficient operations, as the government strives to achieve emissions and sustainable growth targets outlined in its 12th Five-Year Plan.
Meanwhile, Russia's Rusal, the world's biggest aluminium producer, estimates that producers outside of China cut up to 1.2 million tonnes of capacity last year and further reductions of 1 million-1.5 million tonnes are expected in 2014.
Asciano is merging its coal haulage and rail freight businesses and extending a cost cutting program as first half net profits slipped 4 per cent to $189.7 million due to weakness in its rail and container port operations.
The combination of Pacific National Rail, which hauls bulk freight like cars and steel, and Pacific National Coal, which transports coal, comes as earnings before interest taxation (EBIT) in the company’s rail business dropped 20 per cent on weaker volumes.
“In responses to slowing growth in coal haulage, weak top line growth in Pacific National Rail and more active market competition, Asciano must look at more significant evolutionary change around our operational and business processes,” Asciano chief executive John Mullen said.
The integration of Asciano’s two rail businesses would cut costs and create “cultural and strategic benefits,” Mr Mullen added.
Pacific National Rail head Angus McKay, Asciano’s former chief financial officer who had hopes of succeeding Mr Mullen as CEO, will leave the company due to the structural changes.
David Irwin, who has been running Pacific National Coal, will run the combined businesses from Tuesday.
Amid the doom and gloom, three mining services companies have reported earnings results that have bucked the trend for the industry and pleased investors.
Monadelphous Group (up 6.4 per cent) is one (MacMahon and RCR Tomlinson are the others – more to come), after reporting a record half-year profit of $87.1 million, up 10.1 per cent on the previous corresponding period.
That’s not to say business isn’t tough: revenue was down 1 per cent to $1.28 billion, and the company expects about a 10 per cent decline in sales for the 2014 full year.
An interim dividend of 60c was declared, down from 62c this time last year.
“In response to the change in market conditions, the company has achieved annualised cost savings of $34 million to date through a program focused on consolidating and right-sizing the business,” Monadelphous Managing Director Rob Velletri said in a statement, adding that the company continues to win new contracts.
“While mining and minerals markets have softened, bidding activity in the oil and gas market remains high and the company is in a strong position to secure new contracts in both upstream and downstream LNG developments,” he said.
The Australian dollar has edged up by a quarter of a cent after the Reserve Bank continued to flag a "period of stability" in its monetary policy as it said the sustained weakness in the local currency "would be expansionary for economic activity and assist in achieving balanced growth of the economy".
The local currency fell two-tenths of a cent to US90.15¢ just before the release of the February minutes, only to shoot up to US90.72¢ after they were released.
The central bank added that it was not yet clear what led to the spike in the fourth-quarter inflation, and canvassed the different possible causes.
"The Board noted that it was likely the inflation reading contained some noise as well as some signal about inflationary pressures, but also presented something of a puzzle in interpreting the mix of activity and price data," the minutes said.
Say what? Dollar tanks ahead of RBA minutes, then jumps.
Hills Limited chief executive Ted Pretty says the company has up to $300 million in financial firepower for acquisitions in healthcare technology, electronics and communications and he’s six months ahead of schedule in transforming the group away from its old-world manufacturing origins.
Mr Pretty, a former top-ranking Telstra executive, took on the job of chief executive of Hills in September, 2012. The company is best known as the inventor of the iconic Hills hoist clothesline and as the nation’s first provider of television aerials.
Mr Pretty has sold off non-core businesses and closed unprofitable operations, with the latest substantial transaction being the sale of the Orrcon and Fielders steel businesses to BlueScope which settles by the end of this month. This will provide net cash proceeds of around $80 million.
He says his transformation plans for Hills are now about 80 per cent finished.
“On our timetable we’re six months ahead of schedule,’’ he says.
Hills on Tuesday announced a first-half net profit after tax of $14.1 million, a vast improvement from a loss of $73.6 million a year earlier which was marred by heavy writedowns. Revenue from continuing operations was down 8.9 per cent to $226 million.
The company expects full-year net profit to be between $26 million to $28 million, which is slightly ahead of consensus forecasts in the market.
Hills will pay a fully franked interim dividend of 3.4 cents per share on March 31. It didn’t pay an interim dividend last year because of the restructuring charges, and resumed paying dividends with a final dividend in 2012-13.
Mr Pretty says the board intends to have an annual payout ratio of between 50 per cent to 75 per cent of net profit after tax.
A period of steady interest rates is likely as record-low borrowing costs and a weaker currency aid growth, the Reserve Bank says in the minutes of its February board meeting, where it dropped its easing bias:
- There were further signs that the expansionary setting of monetary policy was having the expected effects.
- The board noted that it was likely the inflation reading contained some noise as well as some signal about inflationary pressures, but also presented something of a puzzle in interpreting the mix of activity and price data.
- Members recognised that conditions in the labour market tended to lag economic growth, and that the labour market had remained weak following the period of below-trend growth in activity.
- If the economy evolved broadly as expected, the most prudent course would likely be a period of stability in interest rates.
- While weak conditions in the labour market had weighed on consumption growth, the increase in housing and equity prices over the past year raised the possibility that consumption growth could outpace that of income in the period ahead.
- The bank’s liaison suggested that sales around the Christmas and New Year period were reasonably good.
A common view in finance is that you are either a bull or a bear when in comes to trading assets, but a new study challenges that and argues that stress hormones may be the real driver of markets and prolonged periods of uncertainty.
A report by Queensland University of Technology and Cambridge researchers published in the Proceedings of the National Academy of Sciences finds that risk attitudes are not simply a ‘stable trait’, but rather a trader’s attitude to risk is influenced by their physiological response to market booms and busts.
The study may help to shed light on trading volumes in the Australian sharemarket as well as prolonged uncertainty and hibernation of the bear market during and after the 2007-09 financial crisis.
“These findings suggest that a physiological mechanism – traders’ cortisol fluctuations and their resulting changes in risk-taking – influence market stability,” said Professor Lionel Page, from QUT Business School, one of the lead authors of the study:
- It helps explain why traders are inclined to take greater risks during a rising market and are less willing in a falling one, preferring the safety of low risk, low-return, familiar securities such as government bonds and home markets.
- The study proves that risk preferences are not stable and that physiological factors must be recognised as a source of financial market instability.
The Australian dollar has retraced its losses following a weak January jobs report published last week, and has continued to trade above US90¢ ahead of the release of the Reserve Bank's board meeting minutes this morning.
The local currency was trading at US90.35¢ about 10am, close to its year's high of US90.54¢ in mid-January.
"The currency hasn't really look back since the RBA meeting," said Westpac senior currency strategist Sean Callow.
"A major setback was the unemployment report, but it has fully unwound the sell-off. It's indicative of a market that got too gloomy on the Aussie in January."
The Australian dollar posted its best weekly performance since mid-October in early February when the RBA shifted away from its easing bias and flagged a "period of stability" in its board meeting statement and in its Statement of Monetary Policy.
Mr Callow said while there were fewer traders holding short positions on the Australian dollar, with the number of short contracts down from 65,000 to 47,000, there was still a substantial number.
Some traders were still wary of possible jawboning by the RBA, following the central bank's successful attempts to talk down the currency late last year, he added.
McAleese has warned that it will take a $47 million hit to its full-year earnings from the crackdown on its troubled Cootes trucking division, axe jobs and sell fuel tankers.
Shares in McAleese have slumped 32 per cent to 75 cents after the company emerged from a trading suspension and delivered the profit warning.
More than $230 million has now been wiped from the transport company’s market value since it was floated on the Australian stock exchange in late November at $1.47 a share.
With authorities in NSW and Victoria heavily scrutinising Cootes’ fleet, McAleese also revealed that the head of its bulk and liquid transport division, Chris Keast, has handed in his resignation.
McAleese chairman Mark Rowsthorn, who owns almost a third of the company, will also assume the role of interim executive chairman.
The company said the reshuffle would allow chief executive Paul Garaty to focus on sorting out the problems at Cootes and operational management.
Two sentences in gas carrier Ethane Pipeline Income Fund’s (EPX) half-year results have put the frights through shareholders and wiped more than 20 per cent off the company’s value, reports Street Talk in the AFR.
“The fund’s only customer, Qenos, has advised it has not finalised its ethane supplies for the period beyond December 2014,” EPX told investors on Friday.
“Qenos remain in discussions with its suppliers and has indicated it will advise the fund of the outcome once agreement has been reached.”
EPX’s principal asset is a 1375 kilometre Ethane pipeline which transports ethane from the gas processing plant in South Australia’s Cooper Basin to a petrochemical plant near Botany Bay.
The plant is owned by Qenos, which is an Australian plastics manufacturer owned by China National Chemical Corporation and The Blackstone Group.
EPX shares dropped from $1.45 to around $1.22 in the two trading days after the result, and started the year at $1.76.
The fund’s largest shareholder is much larger pipeline owner, APA Group, which owns 6.1 per cent.
Liver cancer drug developer Sirtex Medical has announced a 43.6 per cent rise in interim net profit to $11.2 million, off the back of sales growth of its radiotherapy treatment that was boosted in part by the depreciating Australian dollar.
Revenue increased 27.2 per cent to $58.6 million for the six months ended December 31. Profit before tax rose 36.3 per cent to $14.6 million.
Revenue growth was driven by volume growth as well as the falling Australian dollar, which depreciated by about 16 per cent compared to the same period last year, the company said.
The company, which has a market value of $809 million, reported dose sales of its radioactive SIR-Spheres was up 11.3 per cent to 3,919 units, compared to 3,522 for the same period last year.
The Americas is Sirtex’s largest market, accounting for 2,648 units, or 66 per cent of all dose sales. “Dose sales growth in the Americas was a direct result of increased investment and effectiveness in sales and marketing,” the company said in a statement.
Before the end of the year Sirtex investors will learn whether its novel cancer therapy will begin to be used more widely to cure liver cancer.
The company did not announce an interim dividend, in line with the previous period. The company distributed a final dividend in the 2013 financial year of 12¢ a share.
Today's rise in BHP's share price is strong, but it's just the extension of quite a remarkable rally that has pushed the stock higher for nine consecutive sessions - it's longest winning streak since the heady days of July 2009.
The share price is currently at a one-year high, but if it breaks through $39.34 it would be trading at its highest since August 2011. Quite a comeback.
Shares are up 2.1 per cent at $38.20, or nearly 10 per cent since February 5.
BHP's shares over the past 12 months
Pathology, radiology and medical centre operator Sonic Healthcare has announced an 18 per cent rise in net profit to $177 million, boosted by cost saving initiatives and the depreciation of the Australian dollar.
The Sydney-based company interim profit result just surpassed analyst expectations of $178 million.
The company declared a partially franked interim dividend of 27¢, which was an 8 per cent rise compared to the 25¢ a share distributed in the previous corresponding half. The dividend will be paid on March 25.
Removing the effect of currency fluctuations, Sonic had a 9.6 per cent rise in net profit to $165 million.
Chief executive Dr Colin Goldschmidt said the result “demonstrates the resilience of our company and the advantage of Sonic’s geographic diversity, given the impacts of testing market conditions in selected countries in which we operate.”
“Fortunately a number of these pressures are abating,” he said.
Sonic announced sales growth of 11.9 per cent to $1.9 billion. EBITDA rose 13.4 per cent to $344 million.
The company said it was on track to achieve its full year guidance of 5 per cent growth in EBITDA, on a constant currency basis, over the 2013 $647 million result. The acquisition of German pathology group Labco would add a further 0.5 per cent to EBITDA growth, the company said.
Investors are faced with an avalanche of earnings results this morning, and so far like what they see, particularly a bumper result from BHP which has helped push the ASX 200 index 0.2 per cent higher - or 13 points - to 5396.1 in early trading.
The Big Australian has charged 1.6 per cent higher to $38.63, with Rio Tinto gaining 0.9 per cent in its slipstream.
Asciano and Challenger, which also reported this morning, are up 3.1 and 3.9 per cent, respectively. Arrium is 3.5 per cent higher on its profit results.
Coca-Cola Amatil has slumped 3.7 per cent after boss Terry Davis, in his last earnings result as CEO, detailed massive writedowns and a plunge in revenue and profits. Investors sold down Amcor by 3.7 per cent lower on its earnings update.
Turning to the sectors, it's a mixed bag. Gold miners continue their run, up 1.9 per cent, and metals and mining more broadly is 1.4 per cent higher.
Utilities, IT, consumer staples and discretionary, and telcos sectors are all down.
In the latest round of the airline slugfest, Virgin has lashed out at Treasurer Joe Hockey for calling it a ''2000-pound gorilla'', saying it's a ''bit rich'' to accuse it of being a bigger market player than Qantas.
Hockey took a veiled swipe at the foreign-backed airline last week when considering a call for government assistance from Qantas and revisiting legislation that shackles it from foreign ownership.
He said the arrival of a ''2000-pound gorilla'' meant the Qantas Sale Act put the smaller ''800-pound gorilla'' at a disadvantage.
Virgin chief executive John Borghetti said it was ''beyond belief'' to claim the airline, which is backed by Singapore, New Zealand and Middle Eastern investors, is deliberately running at a loss in order to increase its market share and send its rival broke.
"Let's look at the facts: Qantas is much bigger than us, has chased the dominant position in every aspect of the domestic market and is hell-bent on adding two aircraft for every one we add,'' he told ABC radio this morning. ''And I think it's a bit rich turning that around.''
That's not us, Virgin says.
Home fixtures and fittings supplier GWA has reported a drop in trading profit of 2.7 per cent to $20.3 million for the December half compared to last year’s interim results, but said that “lead indicators show a strong lift in demand for the second half".
Including one-off items including a $17 million writedown of goodwill on its Gliderol garage door brand and a $1.6 million restructuring spend, net profit was down 89 per cent to $1.7 million.
“These issues have largely been resolved,” said managing director Peter Crowley in the release.
“In light of this and as the recovery in dwelling commencement activity seen in the first half rolls into completions – which is typically where GWA products are sold – we expect a strong second-half performance.”
The company will not pay an interim dividend after paying 6 cents per share at this time last year.
Revenue was down 0.6 per cent to $288.1 million and EBIT was 1.2 per cent lower to $34.1 million.
The company said it expected full-year trading EBIT (before one-off items) to be between $75 million and $78 million.
BHP's first-half result is getting some applause in first reactions.:
‘‘The iron ore profit is fantastic, that’s what everyone is going to talk about,’’ says IG market strategist Evan Lucas. Cost cuts and the dividend are also key themes, he says.
BHP, which posted a 31 per cent jump in first-half profit increased its dividend 3.5 per cent and forecast more cost savings, expects the global economy to strengthen in fiscal 2014, aided by positive sentiment in the US and Japan.
The company joins smaller rival Rio Tinto in reporting a rise in profit after clamping down on spending to focus on its most profitable operations.
BHP's board will consider capital management measures when the company's net debt is cut to around $US25 billion, chief executive Andrew Mackenzie says.
"If we deliver that level of indebtedness towards the end of this financial year, I'll come back to you at the full year with the authority of our board to talk about future capital management that may be possible in that instance," Mackenzie told reporters.
Supply of iron ore, BHP’s most profitable unit, will exceed demand growth after producers including BHP added new supply in Australia and Brazil, the company said. Its iron ore unit earnings gained $US1.7 billion to $US6.5 billion.
‘‘Increasing iron ore supply globally will weigh on the long-run iron ore price,’’ UBS said in a note before the earnings. ‘‘However, BHP is one of the lowest cost producers and in our view will continue to be a very competitive player in the iron ore space.’’
Global packaging group Amcor has reported a 21 per cent jump in first half profit after tax for its continuing operations to $326.6 million as earnings were bolstered by recent acquisitions and strong growth in emerging markets.
The result was Amcor’s first since the $2 billion demerger of its Australasian packaging and distribution business Orora late last year.
“The demerger will enable both companies to be more focused on their respective end markets and better positioned to deliver further improvements in customer value,” Amcor chief executive Ken MacKenzie said.
The flexible packaging business saw constant currency earnings rise 7 per cent while sales margins expanded to 11.7 per cent from 11.1 per cent.
Margins and returns were also higher in the rigid plastics division.
Sales revenue rose 14.5 per cent to $5.2 billion. The company, which is well-liked by investors for its defensive earnings streams and strong cash generation, declared an interim dividend of 19.5¢ per share.
Seven West Media has posted a 5.5 per cent gain in underlying net profit to $150.1 million for the half-year ended December 28, compared with the previous corresponding period.
The commercial free-to-air television, digital, newspaper and magazine business said its revenue declined by 1.1 per cent to $976 million while EBITDA fell by 4.6 per cent to $275 million.
“This is a strong and positive result in what are mixed market conditions,” Seven chief executive Tim Worner said. “We are delivering leadership in broadcast television and our publishing businesses continue to demonstrate market-leading margins and performance.”
Seven declared a fully-franked interim dividend of 6¢.
Billionaire investor George Soros has doubled up on a bet that the US sharemarket is headed for a fall, taking a position now worth $US1.3 billion, reports The Wall Street Journal.
New regulatory filings show that the Soros Funds Management increased a put position on the S&P 500 ETF SPY by 154 per cent in the fourth quarter, compared with the third.
(A put or short position basically gives the owner the right to sell a security at a set price for a limited time, and in making such a bet, an investor generally believes the security is going to decline.)
The value of that holding, the biggest position in the fund, has risen to $1.3 billion from around $470 million. It now makes up a 11.13% chunk of all reported holdings.
The second- and third-biggest positions in the regulatory filing were a fresh put on the Energy Select Sector SPDR fund and a big jump in a holding in Israeli pharmaceutical maker Teva.
It’s been roughly 28 months since a substantial correction for the S&P 500.
It was Soros himself who famously once said: “I rely a great deal on animal instincts.” And as we all know, George’s made some big, crazy, winning bets in the past.
Coca-Cola Amatil has reported its weakest profit results in more than 20 years after a price war in soft drinks squeezed Australian beverage sales and the bottler slashed the value of fruit processor SPC Ardmona by more than $400 million.
Coca-Cola Amatil’s bottom line net profit plunged 82.5 per cent to $79.9 million for the 12 months ending December after the company wrote down the value of SPC Ardmona’s goodwill and brand names by $317 million and took an $87.3 million charge over inventory and property, plant and equipment.
Before one-off costs, underlying net profit fell 9.6 per cent to $502.8 million, well below market consensus forecasts around $515 million.
EBIT before the one-off costs fell 6.9 per cent to $833.3 million, within the bottler’s guidance for EBIT to fall between 5 and 7 per cent.
CCA faced pressure on multiple fronts in 2013, the last year for CCA chief executive Terry Davis, who steps down at the end of this month after more than 12 years at the helm.
CCA plans to spend $78 million restructuring SPC Ardmona – closing down two of its three remaining plants – after receiving $22 million in funding from the Victorian government last week.
CCA has also lost market share in Indonesia, its fastest growing market, where new players have entered the market with lower priced products. Indonesia & PNG profits fell 13.2 per cent.
The iron ore price has extended its recovery to a fourth day, rising 1 per cent to $US124.40 overnight.
"Traders and producers are expecting even better prices in coming weeks as construction activity in China gradually picks up," ANZ says.
Iron ore futures in Dalian also rose, stretching gains to a third straight session after spot ore prices recovered from seven-month lows as more Chinese traders returned to the market after this month's Lunar New Year break.
The most-active rebar for delivery in May at the Shanghai Futures Exchange hit a high of 3459 yuan ($US570) a tonne, its loftiest since January 30, pulling further away from an all-time low of 3380 yuan reached on February 10. It closed up 1.4 per cent at 3,455 yuan, gaining for a third session in a row.
The increase in prices of steel billet in China helped prop up rebar, said Zhou Ting, analyst at Jinrui Futures in Shenzhen.
"It's a sign of sentiment recovering. I think we should see consumption bounce back in the short term as traders and users come back to the market."
Textile, footwear and clothing company Pacific Brands has notched up its first rise in reported sales in five years but dashed investor hopes of any sustained return to better days.
The company unveiled a $252 million write down linked to its struggling workwear division with more restructuring charges to hit in the second half.
Investors will also share the pain with the dividend payout ratio shaved to 55 per cent from 59 per cent last year.
Pacific Brands this morning reported a net loss after tax of $219 million for the first half of fiscal 2014 mainly due to the impact of impairment charges and restructuring costs for its workwear division and its footwear business.
There would be more red ink in the second half, although that was tipped to be less than the quarter of a billion in write downs and abnormal charges booked in the December half.
Sales were up by 2.7 per cent to $656.3 million, the first sales growth since 2009, driven by a strong performance from its Bonds underwear business, up 20.4 per cent, and its bedding label Sheridan which had a 15 per cent lift in sales.
The company, which owns popular consumer brands such as Bonds, Berlei, Jockey, Sheridan, Hush Puppies and King Gee, said the group's operations expected a continuation of challenging and variable market conditions for the rest of 2014.
Australia’s biggest annuities provider, Challenger, has posted a 10 per cent increase in profit to $163.5 million for the six months to December 31, 2013, as annuities sales and funds under management surged.
Challenger posted annuities sales of $1.75 billion, including record retail sales of $1.46 billion. The company sold more lifetime annuities in six months than the entire 2013 year.
The financial services group reported a 27 per cent up-tick in funds under management to $45 billion, making the company the seventh largest fund manager in Australia.
Challenger netted $290 million in annuities sales from institutions, and around $1.46 billion from retail clients. Brian Benari, chief executive of Challenger, upgraded the company’s growth expectations.
Exceptionally strong annuity sales, particularly in the first quarter of the year, have given management the confidence to increase retail net book growth and life cash earnings targets, the group said.
“The signs are there that this bigger book will grow by between 10 per cent and 12 per cent over the full year, rather than by the 8 per cent initially targeted, and should produce cash operating earnings around $5 million higher at between $470 million to $480 million,” said Mr Benari.
In the next blow for Victoria's manufacturing sector, Alcoa is shutting its Point Henry aluminium smelter, costing 950 jobs.
The decision this morning is not expected to affect the company's other operations.
The future of the plant has been under a cloud for months, with US aluminium giant Alcoa reviewing the plant’s operations. The company has previously said it would make a decision on the plant’s future by the end of next month.
Alcoa received a $40 million grant from the former Labor government in 2012, but last month said it was not seeking any further government assistance for the Point Henry plant, sparking speculation that its fate had been sealed.
The announcement is the latest in a series of job losses in the manufacturing sector, following on from decisions by Toyota and Holden to pull out of their manufacturing operations in Australia.
Alcoa has announced it is closing its aluminium smelter in Geeling with the loss of 950 jobs. Photo: Joe Armao
Mark Rowsthorn will assume the role as executive chair of beleaguered transport group McAleese after the company revealed that impact of restructuring its troubled Cootes fuel hauling fleet would hit $33.3 million.
Large parts of the Cootes fleet were taken off the road in New South Wales following a horrific crash involving a Cootes truck in the Sydney suburb of Mona Vale. On Monday, Victorian regulators also announced a crackdown on the Cootes fleet.
McAleese, which will announce its audited first-half results on February 24, now says its EBITDA for the full year will be $107.5 million, markedly lower than the $126.8 million the company forecast in its prospectus.
As well as losing a string of key contracts in the Cootes business, the company has blamed the poor result on poor weather at its Kalgoorlie and Port Headland businesses in January and lower-than-expected earnings from its specialised transport and lifting division.
The company says the total costs related to the Mona Vale accident will be $19.1 million.
iProperty Group, which runs and owns a number of leading real estate websites across Asia, has reported a maiden annual profit of $1.7 million, a result inflated by the $5 million sale of its share in iCar Asia.
Excluding the one-off sale, revenue increased by 23 per cent to $19 million from $15.4 million the year prior.
The company operates real estate portals in Malaysia, Hong Kong, Singapore and Indonesia.
No forward guidance was given.
Sleep disorder device company Fisher & Paykel Healthcare has lifted earnings guidance for the March 31 financial year and said it will expand its manufacturing facility in Tijuana, Mexico.
In a release to the ASX, the company said it now expects earnings for FY14 to be $NZ97 million, after telling the market in November that it expected annual earnings of between $NZ90 million and $NZ95 million.
“Demand during the second half has been very encouraging, particularly for our Simplus, Eson and Pilairo Q masks, which are used for the treatment of [obstructive sleep apnea]”, said CEO Michael Daniell in the statement.
The company will spend $NZ4 million on fitting out the Mexican factory and will expand the manufacturing area by two-thirds to make space for more manufacturing equipment over the next three years.
The company will continue to invest in its site in Auckland, the company said.
Steelmaker to iron ore miner Arrium, the former OneSteel, has returned solidly to the black in the December half, prompting it to triple its interim dividend.
It posted a net profit of $220.4 million, a reversal of the $448 million loss recorded a year earlier, on revenue which rose 7 per cent to $3.64 billion.
Earnings a share rose to 16.2c, a recovery from the loss of 33.2c a share a year earlier.
As a result, it decided to pay a 6c a share interim dividend, up from 2c a share paid out a year earlier.
Underlying EBITDA surged by 97 per cent to a half yearly record of $503 million.
The steel division continued to drag on the overall performance, with a $30 million EBITDA profit, which was unchanged from the second half of the prior financial year.
However, Arrium benefited from a better than threefold lift in iron ore division EBITDA to $423 million for the half.
For the balance of the year, it said it expects ongoing strength in its iron ore and mine consumables units, but with steel ton remain under pressure, albeit with some pick-up in the NSW and WA economies.
Asciano is merging its coal haulage and rail freight businesses and extending a cost cutting program as first half net profits slipped 4 per cent to $189.7 million due to weakness in its rail and container port operations.
The company said underlying revenue (net of coal access charges) increased by 7.2 per cent to $1.9 billion, with net profit after significant items falling 4.6 per cent to $196.6 million.
Chief executive John Mullen said good growth continued in the company’s bulk and automotive port servies dvisions and its Pacific National Coal operations. But he said the “persistent weakness in the domestic economy and the volatility of agriculture based rail volumes hurt the company”.
The company will pay a fully franked dividend of 5.75¢, up 9.5 per cent over the previous corresponding period.
Asciano now expects to deliver low single-digit growth in underlying net profit, versus the guidance given in September for a flat result.
BHP's productivity agenda has strongly grown profits in the first half of the 2014 financial year, with the miner reporting that final profit had almost doubled to $US8.1 billion ($9 billion).
The result was better than most analysts had expected, and has allowed BHP to raise dividends steadily to $US0.59.
The dividend rise is in line with the rises seen in each of the past two half year results, but was slightly lower than the $US0.60 expected by UBS.
The underlying result of $US7.8 billion was a clear improvement on the $US5.68 billion underlying earnings that BHP announced one year ago, and it further builds on expectations that BHP will grow full-year profits in fiscal 2014 for the first time since 2011.
A consensus of analysts had expected underlying earnings to be $US6.95 billion, while UBS had predicted $US6.88 billion.
Stocks to watch this morning:
- Amcor (AMC): 1H earnings; conf. call 11:30am Sydney time
- Ansell (ANN): Cut to underperform from neutral at Credit Suisse; PT$19
- Arrium (ARI): 1H earnings; conf. call 10:30am
- Asciano (AIO): 1H earnings; webcast 9:30am
- Aurizon (AZJ): 1H results credit positive, ratings unaffected: Moody’s
- BHP Billiton (BHP): 1H earnings, conf. call 10am, formed team to examine ending dual listing: AFR
- Boral (BLD): Ex-div
- Cardno (CDD): 1H earnings; webcast 11am Brisbane/12pm Sydney
- CFS Retail (CFX): 1H earnings; conf. call 10am Sydney
- Challenger (CGF): 1H earnings; conf. call 10:30am
- Coca-Cola Amatil (CCL): 2013 earnings; conf. call 10am
- Commonwealth Property Office (CPA): 1H earnings; conf call 11am
- Computershare (CPU): Ex-div
- Dexus (DXS): Wholesale property fund’s $350m offer oversubscribed
- Domino’s Pizza (DMP): Ex-div
- Fischer & Paykel (FPH): lifted earnings guidance
- GWA (GWA): 1H earnings; conf. call 9am
- Macmahon (MAH): 1H earnings; webcast 11am
- Monadelphous (MND): 1H earnings
- Orora (ORA): 1H earnings
- Pacific Brands (PBG): 1H earnings; conf. call 11am
- Perseus Mining (PRU): Shrs halted, co. conducting institutional placement to raise as much as ~$30m; cut to hold from buy at Canaccord Genuity with PT $0.52
- Qantas (QAN): Debt guarantee seen inevitable; sale act may go, AFR says
- Regis Resources (RRL): Shrs suspended; co. finalising announcement on weather event at Duketon gold project
- SAI Global (SAI): 1H earnings; conf. call 10am
- Seven West Media (SWM): 1H earnings; conf. call 10am
- Sirtex Medical (SRX): 1H earnings; webcast 11am
- Sonic Health (SHL): 1H earnings; conf. call 10am
Local stocks are poised to extend their strong rally and hit a fresh high for the year, as earnings from major companies including BHP Billiton, Coca-Cola Amatil and Asciano stream in.
Wall Street was closed overnight for the Presidents' Day holiday, while European markets ended mixed. Here's an overview:
• SPI futures are up 28 points to 5373 at the close of European trading
• AUD has slipped to 90.30 US cents. Also fetching 92.1 yen, 65.9 euro cents
• Wall St was closed for the Presidents’ Day holiday
• In Europe, Euro Stoxx 50 unchanged, FTSE100 +1.09%, CAC -0.11%, DAX -0.06%
• Spot gold up $US9.81 to $US1328.60 an ounce
• Brent oil rises 10 US cents to $US109.18 per barrel
• Iron ore up $1.20, or 0.97%, to $US124.40
For more on how markets performed overnight, here's this morning's need2know