That's all from us for today. Thanks for reading the blog and posting your comments.
Here's the evening wrap of today's session.
While equities flew in Japan, the ASX200 only managed to put on around half a per cent, with the banks mainly responsible for the gains, IG's Stan Shamu notes:
- Despite the gains, I feel equities are at risk of being sold into strength in the near term as confidence remains subdued.
- Bendigo's results have helped set the pace for the banks with results driven by good net interest margin growth. While BEN didn’t necessarily shoot the lights out, the banks were just looking a little oversold over the past week and this played into its hands.
- The results showed good growth in cash earnings, while net profit was a touch below estimates. The dividend of 33 cents was bang in-line with estimates and the net interest margin was up modestly at 2.24%.
- CBA is also starting to ramp up heading into its results and the $80 mark also managed to lend some support.
- Treasury Wine has extended gains after receiving a competing takeover offer from a global private equity investor. This takeover is also at $5.20 cash per share and investors will be hoping this sparks a bidding war for the company.
Meanwhile, Japanese stocks have posted their biggest one-day jump in four months, with the Nikkei gaining 2.4 per cent to 15,130.52.
The index recouped most of its steep losses suffered on Friday, boosted by a slight drop in the yen and amid talk that the nation’s giant pension fund has freed itself to buy more domestic equities.
The sharemarket has closed higher, but gains were at the lower end of the regional spectrum.
The ASX200 rose 21.7 points, or 0.4 per cent, to 5457.0, while the broader All Ords gained 19.8 points, or 0.4 per cent, to 5449.4.
Among the sectors, financials added 0.5 per cent, materials rose 0.4 per cent, while gold fell 2.4 per cent.
Profit season has underscored just how finely tuned share price valuations are with big price swings on the upside and downside on the back of earnings results.
Numbers that drift above or below consensus have been rewarded and punished in equal measure.
Today, McAleese shares surged more than 20 per cent in response to confirmation that profit will meet the high end of guidance. JB Hi-Fi meanwhile reported disappointing sales despite an increase in profit, sending its stock down 8 per cent.
The theme was evident last week with a price drop for REA Group on Friday after it seemingly failed to over-deliver given a price-earnings valuation in excess of 40 times forecast earnings. REA’s shares fell 8 per cent though net profit rose 37 per cent.
And Cochlear surged 10 per cent on regulatory approvals and a rebound in sales as investor optimism returned to the company and chief executive Chris Roberts highlighted his “tremendous confidence” in the fiscal year ahead.
OzForex and QBE Insurance Group were on the wrong side of investors with sharp falls in the wake of trading updates.
Escala Partners chief investment officer Giselle Roux says the reasons behind the pronounced share price reaction can be attributed to short covering in the case of price rallies, or impatience with companies priced to perform in the case of price declines.
"The ones like Cochlear [are] about short covering. It came out with a result that wasn’t as bad as some thought it may be and you get a whole host of short covering coming in,” Roux explains.
“The other side is a more interesting one, so you see JB Hi-Fi being sold off a great deal [on Monday]. The company’s tried to reassure people that it sees sales growth this year, the market’s doing a very quick click and drag of that first month,” extrapolating a weak start over a whole 12 month period.Back to top
A Telstra share buyback is “very unlikely” despite the telecommunications company’s growing cash pile, according to Commonwealth Bank analysts.
Commonwealth Bank analyst Nathan Burley told clients Telstra was likely to keep the cash and stay flexible about its spending options instead of handing it back to shareholders.
His view contrasts with those from other fund managers and rival analysts who expect Telstra to launch a share buyback scheme worth at least $2 billion at its financial results announcement on Thursday.
“We believe Telstra is likely to remain conservative and keep flexibility, especially given investments and acquisitions are likely,” Burley said. “A buyback ... is also very undesirable and only marginally accretive at current prices.”
The company would have to buy $3 billion in its own shares back from current holdings just to improve its earnings per share by 3 per cent, he added.
The buyback talk has come about thanks to Telstra’s growing cash pile following the 70 per cent sale of its Sensis directories business for $454 million in January as well as its 76.4 per cent stake in Hong Kong mobile service business CSL for around $2 billion.
Most Telstra watchers expect the company to splurge the money on buying Asian businesses to help it generate large profits from the region.
The float of the cinema ticketing software business Vista Group International means a payday worth almost $NZ52 million ($47.4 million) for two former accountants from Auckland, Murray Holdaway and Brian Cadzow, who co-founded the company in 1996.
Vista started trading on the New Zealand Stock Exchange before the Australian market opened on Monday above the $NZ2.35 ($2.14) offer price at $NZ2.39 ($2.18), and by midday Sydney time the stock was up 7.7 per cent at $NZ2.53 ($2.31). On the Australian Securities Exchange the shares opened above the $2.14 offer price at $2.35, before easing to $2.30.
Reflecting on the deal that valued the company they co-founded at $NZ188 million ($171.50 million), the pair credit the vibrant culture of the local film scene for propelling their success.
Stock markets around the region are higher after tensions eased slightly in Ukraine but Japan is the clear outperformer.
The Nikkei is up more than 2 per cent after a report the nation’s pension fund has freed itself to buy more domestic equities.
The $1.3 trillion Government Pension Investment Fund temporarily removed a cap on local stock investment, the Nikkei newspaper reported.
‘‘The GPIF news is obviously positive and likely in the short term to push the market higher,’’ said Andrew Sullivan, head of sales trading at Espirito Santo Securities in Hong Kong.
Removing deviation limits would enable GPIF to allocate more of its assets to domestic stocks before changing its target for the asset class in an upcoming review of holdings. The fund is expected to boost its goal for local shares to about 20 per cent of its portfolio around September from the current level of 12 per cent.
The Turkish lira has advanced as Prime Minister Recep Tayyip Erdogan became Turkey’s first directly elected president, extending his rule through 2019.
The victory extends Erdogan’s leadership and consolidates the Justice and Development Party’s hold on power after a more than 13-year tenure, the longest period of political stability since a multiparty system was adopted in 1946.
‘‘What is important now is who will be the prime minister and, more than that, who will be the boss of the economy,’’ Afa Boran, a money manager at Amwal in Doha, Qatar. ‘‘There are some serious economic risks such as foreign debt and inflation.’’
Turkey’s currency is up 0.4 per cent to 2.1361 per US dollar and is 0.6 per cent stronger this year.
Erdogan’s 11-year tenure as premier saw annual growth average 5 per cent, with foreign investors pouring $US78 billion into Turkish stocks and bonds since 2006.
The nation’s economic growth has been fuelled by consumption and private-sector borrowing that swelled the current-account gap to 7.5 per cent of gross domestic product in the first quarter. That’s the biggest among the so-called fragile five economies most vulnerable to a withdrawal of foreign investment needed to finance their deficits. South Africa, Indonesia, India and Brazil are the other four.
Global ratings agency Standard & Poor’s has lowered the outlook on Canada’s banks from stable to negative in response to the government’s “bail-in” consultation paper that seeks to ensure that bondholders rather than taxpayers stump up the costs in the event of a bank failure.
The move could portent ratings actions against Australia’s banks as the Murray led financial system inquiry explores solutions to the “too big to fail” challenge that would prevent taxpayer funds being used to save failed institutions.
On Friday, the agency placed the ratings of several Canadian banks including Royal Bank of Canada and Toronto Dominion Bank on a review citing “reduced potential for extraordinary government support arising from the implementation of the new elements of the resolution framework for Canadian banks”.
Canada’s regulators have been exploring ways to respond to failed banks in a way that maintains the stability of the financial system but reduces the need for taxpayer funds to be used.
Such measures would likely force losses on bank creditors such as bondholders and reduced assumptions of government support therefore weakens the credit ratings of the banks.
The David Murray-led financial system inquiry is examining similar measures being introduced in Australia to solve the “too-big-to fail” problem and made reference to the decision by another rating agency Moody’s to review the ratings of Canada’s banks, which like Australia’s, are among the safest and highest rated in the world.
Commonwealth Bank’s credit strategist Scott Rundell said that S&P currently regards Australia’s government as being highly supportive of the banking sector.
Six lenders currently benefit from a ratings uplift as a result of “extraordinary” government support – ANZ, Commonwealth Bank, National Australia Bank, Westpac, Macquarie Bank and Cuscal.
“So if S&P's assessment of Australian government’s willingness to provide extraordinary support reduces to being 'supportive' from the current 'highly supportive', S&P’s issuer credit rating for the four major banks and Macquarie Bank might be lowered by one notch,” said Rundell in a note to clients.Back to top
Chinese iron ore futures have ticked higher as stockpiles at the country's ports dropped for a third straight week, reflecting firm demand as buyers sought cheaper cargoes.
Stockpiles of imported iron ore at China's ports fell by 900,000 tonnes to 110.65 million tonnes on Friday, according to industry consultancy SteelHome which tracks inventory at 44 Chinese ports.
The port stocks, however, remain not too far below a record high of 113.7 million tonnes. CBA said last week there needs to be a sharper decline in port inventory to outweigh the increase in supply and spur a stronger recovery in iron ore prices.
Iron ore for January delivery on the Dalian Commodity Exchange was up 0.2 per cent at 674 yuan ($US109.5) a tonne by midday, but still well below last week's high of 692 yuan.
"Some mills are preferring to buy cargoes from the ports which are about $US2-$US3 cheaper than new shipments," an iron ore trader in Shanghai told Reuters.
But some buyers are still facing tight credit conditions, from traders to mills, preventing them from buying shipments, said a trader in China's eastern Shandong province.
"The flow of money is tight. Even if mills are able to sell their steel products, they don't get paid on time. Traders are also having difficulty getting letters of credit," he said.
Iron ore for immediate delivery to China slipped 0.3 per cent to $US95.70 a tonne on Friday.
Woodside Petroleum has resurrected its relationship with Noble Energy via a new exploration deal off the coast of Gabon in West Africa, just months after the two companies failed to agree terms for the Perth-based producer to buy into the giant Leviathan gas venture in Israel.
Woodside in May ditched its $US2.5 billion ($2.7 billion) deal to buy into Leviathan after 18 months of negotiations.
Noble, the operator of the Leviathan gas field, put the collapse of the deal down to the changed plans for the development of the field, which chief executive Charles Davidson inferred had diminished the importance of Woodside’s liquefied natural gas expertise.
Three months on, the energy companies appear to have set aside their differences by striking a new agreement whereby Woodside has acquired a 40 per cent stake in an exploration, exploitation and production sharing contract in the Gabon coastal basin.
Noble holds a 60 per cent interest in the permit and will be the operator. It also holds a seismic commitment and option for future drilling.
Woodside chief executive Peter Coleman described the region as a high graded emerging oil province, helping the company to build its African expertise following recent exploration deals in Tanzania and Morocco.
“Once again, this opportunity reflects our disciplined and strategic approach to studying regional petroleum systems and is a good fit for our core capabilities in deepwater exploration,” said Mr Coleman.
Woodside shares are 0.4 per cent higher at $41.76.
Housing market sales continued to reflect positive housing market sentiment in the past week, particularly in Sydney where elevated auction levels for this time of year have cleared at greater than 75 per cent for the fifth consecutive week, ANZ notes:
- Home prices edged higher in the past week, with price growth easing to 11.2% in annualised trend terms. Trend price growth remained strongest in Melbourne (+1.7% m/m), followed by more moderate gains in Sydney (0.8% m/m) and Brisbane (0.1% m/m). In contrast, home prices continued to ease moderately lower in Adelaide and Perth.
- Auction sales continued to reflect buoyant home buyer and vendor sentiment, with the number of cleared capital city auctions remaining elevated for this time of year.
- Reflecting the rebound in consumer confidence in recent weeks, elevated auction clearance rates in Sydney and Melbourne in particular foreshadow strong sales demand and further housing price gains in the remaining months of 2014.
Ahead of tomorrow's NAB business confidence and conditions survey for July, the signals are pointing up:
Business confidence index now 119 says Roy Morgan - while 17.2 points below the Oct 2013 peak it is above the 4yr average of 118.5 #ausbiz— Tony Boyd (@TonyBoydAFR) August 11, 2014
Major regional markets are enjoying solid gains, led by Japan's Nikkei, which has jumped 2.2 per cent.
- Hong Kong's Hang Seng +1.2%
- Hang Seng China Enterprises +1.7%
- Shanghai Composite +0.9%
- Taiwan's TAIEX +0.9%
- Korea's KOSPI +0.7%
- Singapore Straits Times +0.8%
- Jakarta Composite +0.9%
- Kiwi NZX 50 -0.2%
Total lending finance soared 7.6 per cent in June to levels last seen before the GFC, underpinned by a 12.1 per cent lift in business lending, according to the ABS.
Total new lending in June was $72.9 billion – the highest since January 2008.
In original terms, lending totalled $84.1 billion in June 2014, the second highest total on record behind June 2007 ($90.8 billion), CommSec chief economist Craig James writes:
- While growth is being driven by business lending, both personal and housing loans are well up on a year ago. Simply, consumers and businesses are embracing cheap financing.
- And hopefully in the case of business, some of the extra dollars are being put to work in new investment, in turn leading to the hiring of more staff.
Jonathan Shapiro and Max Mason take a look at the growing threat of the “passive investment” revolution championed by regulators and asset consultants that is sweeping through the global investment industry.
As the David Murray-led financial systems inquiry shines a light on the high costs in the superannuation system, fees paid to active managers are being scrutinised as a way to strip out costs from a pension system considered one of the most expensive in the world.
Some local experts are warning of conflicting messages between costs and economic growth when it comes to the future of superannuation. “If we want really low costs in super, given that much of the costs relate to active asset management and unlisted assets such as infrastructure, you have to get rid of them and go passive,” said Tria Investment Partners’ Andrew Baker, an investment consultant.
“But at the same time, the government wants the super system to fund new infrastructure, the needs of growing companies, and to be able to bail out the financial system when it gets into difficulty. That’s active management.
‘‘You can’t have it both ways. If we want super to contribute to the economy – and it is – we have to accept higher costs than a passive approach.”
RetireAustralia’s initial public offer plans have been shelved with owners JPMorgan and Morgan Stanley unable to agree with brokers on a price for the listing, the AFR's StreetTalk writes.
The group, jointly controlled by investment banks JPMorgan and Morgan Stanley, is the largest private retirement group in Australia, and had been tipped for a $500 million IPO to kick off as soon as September with an ASX debut in time for Christmas.
It is understood that Morgan Stanley and JP Morgan pulled the plug on fast progressing float plans after failing to agree on a sale price, StreetTalk says.
Retirement groups including Aveo and New Zealand operators Ryman Healthcare and Summerset have done much to rehabilitate the reputation of the much-maligned retirement sector and deferred-management fee villages, but brokers warned the groups that persisting wariness towards the sector among investors would mean hopes for a lofty listing price wouldn’t eventuate.
There has been much conjecture over the value of the listing since whispers of the group’s listing plans started circulating in late 2013. Some pundits pinned the listing value circa $400 million while other groups put the value as high as $600 million.
More StreetTalk ($)
The recent pull-back provides an opportunity to cover your shorts in “higher beta stocks” like Bank of Queensland, write Credit Suisse strategists in their latest note which lists their best long and short ideas.
“Beta” refers to the degree to which a share price co-moves with the broader market.
“Our expectation of downside risk to Aussie bonds yields, even from here, also suggests it is prudent to tone down short positions in high yielding bond proxies like BOQ,” they write. They add in its place IAG.
That’s right – they reckon bond yields could continue to go down.
“Both our long and short positions have an average 2015 PE of 15x. However, our long positions provide a higher dividend yield (4.5% vs 3.9%) and free cash flow yield (6% vs 3.6%). In an environment of low or even falling bond yields we think our portfolio is well placed,” they write.
Below is their complete list of stocks they reckon will go up (long ideas) and stocks they think will go south (short ideas).
And one more on JB Hi-Fi, this time from Citi who have just send out the good, the bad and the verdict on the retailer's earnings results:
- Gross margins up: Gross margins rose 17bp, which may reflect a better sales mix.
- Dividend payout ratio: JB Hi-Fi total dividend was 84 cents, an increase of 17%. This is a step-up in the payout ratio to 65%, from 60% previously.
- Cash flow weak: JB Hi-Fi had operating cash flow fall 74% to $41 million. The result reflects timing of creditor payments primarily. Even so, the working capital to sales is at its highest level in at least 10 years.
- Costs rising faster than sales: Operating costs rose 5.7% in FY14 v sales growth of 5.3%. Reducing cost growth will be a challenge given fixed rent increases and higher wage rates.
- With slower sales growth and continued cost increases, we expect earnings to decline. Our FY15e EPS forecast is 11% below consensus.
- We have a 'sell' rating on JB Hi-Fi and target price of $15.50. The FY14 result was solid, but the sales risks facing the company are significant. Across the electronics industry, there is a weak new product pipeline and price deflation remains rampant.