BusinessNow: Live coverage of financial markets and companies, with analysis and opinion
In a potential world first, an Aussie miner has thrown out the original concept behind dividends.
- Here, have some gold...
- A disaster waiting to happen
- SurfStitch shares crash 45%
- Slater & Gordon posts $1bn loss
- Why bulls and bears are both right
- Big stock earnings ‘underwhelmed’
- Broker rating changes
- ASX winners and losers in August
Welcome to the BusinessNow blog for Tuesday, August 30. A new report has been released into the Samarco dam collapse, Slater & Gordon and SurfStitch are both in the dog house with investors, and building approvals surged in July.
9.00pm: China plans Shenzhen stock link launch for November
Chinese regulators plan to let global investors buy stocks on the tech-heavy Shenzhen exchange via Hong Kong starting in the second half of November.
A rough time frame for the launch of the Shenzhen-Hong Kong Connect trading link was announced during a news briefing by the China Securities Regulatory Commission in Beijing on Tuesday. Details of the timing were revealed on a slide used in a presentation by the CSRC. Dow Jones
8.18pm:Apple hit with $US14.5bn tax slug
The European Union says Ireland has given illegal tax benefits worth up to €13 billion ($US14.5bn) to Apple and must now recover the unpaid back taxes from the US technology company, plus interest.
EU Competition Commissioner Margrethe Vestager said: “Member states cannot give tax benefits to selected companies-this is illegal under EU state aid rules.”
She said a three-year investigation found Ireland granted such lavish tax breaks to Apple over many years that the multinational’s effective corporate tax rate on its European profits dropped from 1 per cent in 2003 to a mere 0.0005 per cent in 2014. Read more.
8.04pm: Harper plays down AAA rating
Economist Ian Harper said the government spending that has weakened the budgetary position has likely been a key factor in keeping the resource-rich economy growing, along with the central bank’s record-low interest rates. He also played down concerns that a downgrading of the nation’s AAA-credit rating might poleaxe the economy.
“There isn’t any sign of a recession, at least not in my books, on the horizon here. But if there was a time to make sure that fiscal policy was doing its thing, then you might argue that now is the time,” Mr Harper said in an interview.
“What’s clear is that in the past, we have not recovered, or transitioned from the sort of experience we are currently going through, without a recession,” he said, referring to the economy’s transition away from mining-led expansion to broader-based growth amid sharp falls in commodity prices. Read more.
7.20pm:British mortgage approvals fall
The number of new mortgages approved in the UK fell in July to the lowest level in more than a year, a sign that the housing market cooled a little in the immediate aftermath of the UK’s decision to leave the European Union.
The number of new home loans approved by banks in July fell to 60,912, the Bank of England said on Tuesday. That’s fewer approvals than the 64,152 in June and the fewest since January 2015. Dow Jones.
7.03pm:Oil edges up as August rally wanes
Oil prices edged higher Tuesday amid lower trading volumes as the August price rally lost momentum, with crude hovering around $US47-$US50 a barrel.
The October contract for global benchmark Brent was up 0.35 per cent at $US49.43 a barrel, while US counterpart West Texas Intermediate was up 0.4 per cent at $US47.17 a barrel.
Monday’s bank holiday in the UK cut into trading volumes for both benchmarks. A similar holiday taking place this weekend in the US means that some observers expect the markets to remain stagnant until next week. Dow Jones.
6.44pm:Bazookas, sinks and central banks
When the Bank of England cut interest rates and announced a big bond-buying program this month, no kitchen sink was left standing.
Ahead of the decision, Bank of America Merrill Lynch issued a research note arguing “Bank of England Should Kitchen Sink It.”
As the pound sank and British shares jumped, it followed up with “BoE: ‘Kitchen Sink’ Thrown,” which is to say, it used every measure possible to protect the UK economy from the Brexit vote’s aftershocks.
Sink-throwing has joined sledgehammers, bullets, firepower and dry powder among the metaphors proliferating like kudzu around central-bank policy. Since the financial crisis, bankers have deployed a growing arsenal of unorthodox policy moves. In turn, that has required observers to invent a similarly unorthodox lexicon. Read more. WSJ
6.02pm: Roche play for Simonds Group
The wealthy Roche family have teamed with the Simonds home building family to make a takeover play for the troubled listed Simonds Group, writes Ben Wilmot.
The pair are close to announcing the play, which is likely to see Simonds leave the ASX boards after an unhappy experience as a listed company. Read more.
5.40pm:Dollar softens in late trade
The Australian dollar is slightly softer against the greenback, as currency traders look toward the release of US non-farm payrolls data on Friday for more hints on the timing of potential interest rate hikes in the US.
At 5pm (AEST) on Tuesday, the local unit was trading at US75.48 cents, down from US75.69c on Monday.
“The market is in a holding pattern ahead of non-farm payrolls on Friday,” National Australia Bank currency strategist Rodrigo Catril said.
But he said US Federal Reserve vice-chairman Stanley Fischer is due to speak on Bloomberg Television tonight, which could also be influential.
Last Friday, Mr Fischer said at the meeting of central bankers at Jackson Hole in the US that two interest rate hikes this year could be on the cards, but that depended on economic data.
In the meantime, Mr Catril said, the Australian dollar and the New Zealand dollar had been the most resilient currencies against the US dollar over the last 24 hours, reflecting positive risk appetite from investors and relatively good yields compared to other currencies. AAP
5.24pm:Carlyle’s Qube block trade
Brokerage Citi has executed a $350m block trade, selling Carlyle Group’s 9.5 per cent stake in Qube Holdings at $2.55 per share.
The sale represents a 2.5 per cent discount to the volume weighted average price of the last 5 days, according to the term sheet accompanying the deal.
5.08pm:APRA warns on hybrids
The nation’s chief banking regulator has issued a stern reminder to thousands of investors piling into hybrid securities in the hunt for better yields, warning these are the “first lines of defence” that will be used to assist banks that run into serious financial trouble, writes Michael Bennet.
As the The Australian Prudential Regulation Authority works on a range of new banking rules to be unveiled in the next 12 months, chairman Wayne Byres today said increasing banks’ loss absorption and recapitalisation capacity — as recommended by the financial system inquiry — would “take some time to complete” due to the importance of getting the “policy settings right”. Read more.
4.30pm:Stocks snap losing streak
The Australian sharemarket has snapped its worst losing streak in 10 weeks as the miners, CSL and Ramsay Healthcare led the index into positive territory.
The champagne will likely remain on ice, however, as the gain was more modest than expected.
After three consecutive days in the red, the S&P/ASX 200 jumped at the open but closed on the day’s low, just 0.2 per cent higher for the session at 5478.3 points.
Volume for the day was slightly higher than the 20-day average, with around $5.9bn worth of shares changing hands.
Ramsay Health Care stole the spotlight after delivering a 17 per cent rise in profit and a healthy beat to dividend expectations – the stock touched a record high and ended the session 7.8 per cent above its previous close at $81.49.
Ramsay’s rivals had a much rougher session. Estia Health tumbled 15.1 per cent in its second day of losses flowing from a weak earnings report and downbeat guidance, while Japara Healthcare and Regis Healthcare both dropped more than 3.5 per cent.
Investors cheered Austal’s $84m loss as the ship builder points to a strong year ahead – the stock shot up 14 per cent.
Aconex found some relief, with shares recovering 4.6 per cent after selling off in recent weeks.
Elsewhere, three of the big four banks pushed the heavy end of the index higher, with CBA adding 0.4 per cent, and ANZ and NAB both creeping 0.2 per cent higher, while Westpac lost 0.6 per cent.
CSL also did some of the heavy lifting, gaining 1.4 per cent, while Telstra fell 0.8 per cent.
Resources stocks had a strong session, with BHP rising 0.9 per cent, Rio Tinto gaining 0.8 per cent and Fortescue Metals surging 3.9 per cent despite the price of iron ore remaining flat overnight and oil dropping 1.4 per cent.
Elsewhere, Macquarie shares rose 1.7 per cent, Woolworths shares gave up 2.4 per cent and Wesfarmers edged 0.4 per cent higher.
4.10pm:ALP’s Wright joins BHP
ALP National Secretary George Wright is set to join resource major BHP Billiton, after earlier today announcing he will stand down after serving more than five years in the role.
As Joe Kelly reports, the move represents a return to the corporate sector for Mr Wright, who had previously held a senior communications position with National Australia Bank, before taking the ALP role.
Mr Wright, who steered Labor through two federal election campaigns, issued a statement today saying it had been an “enormous honour and privilege” to serve in the role. Labor leader Bill Shorten also thanked him for serving the party “with honour.”
Read more
3.55pm:ASIC outlines robo-advice rules
The corporate watchdog has published its guidelines for financial services companies offering so-called robo-advice in the burgeoning automated advice sector.
Five months after issuing its draft guidelines, ASIC has also highlighted the need for rigorous testing of the algorithms used to provide recommendations through a website or app where users seek tailored financial advice.
AAP
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3.41pm:iSelect’s health insurance warning
The head of comparator website iSelect, Scott Wilson, will head to Canberra tomorrow to meet Health Minister Sussan Ley, to discuss health insurance reform as he warns of a “worrying trend” of younger people not buying insurance, writes Sarah-Jane Tasker.
Mr Wilson, who today delivered a strong second half result including a 34 per cent jump in annual net profit after tax to $12.9 million, said he would meet Ms Ley and her advisers because the company was keen to take an active role in reform discussions.
“We are in a unique position with that level of data to be able to help the government. We have worked closely with the Minister and her advisers over the last six months on the trends we are seeing.”
“We have a core role to play in any of the reforms that happen,” he said.
Read more
3.14pm:ASIC bans payday lender director
A former director of a now-bust payday lender has been banned from engaging in any credit activity for 10 years as the Australian Securities and Investment Commission continues to crack down on the shady subsection of the lending world.
Peter Elfyd Llewellyn, formerly a director of PR Finance Group and Australian Money Exchange - both now in liquidation - was handed the ban amid a broader squeeze on the industry that has seen Australia’s largest payday lender, Cash Converters, find itself on the receiving end of a probe from ASIC.
2.55pm:Here, have some gold...
After gaining 625 per cent in 12 months, a little Aussie miner is literally throwing gold at its investors.
Resolute Mining, which is worth a bit over $1.2bn in total market-cap-terms, is believed to be the first company to offer investors with 5000 shares or more physical gold in place of a normal dividend payment.
At 2:15pm AEST Resolute stock was up almost 5 per cent for the day at $1.85, and while a golden dividend is great for headlines and photo-ops, investors are likely more impressed with the fact they’re getting a dividend at all.
The last (and only) time Resolute announced a dividend was back in 2012, when it dished out 0.5 cents per share. Today’s 1.7 cent dividend announcement is being warmly received but it does present a few questions.
Dividends usually exist to provide income to shareholders while their investment (hopefully) increases in overall value. By giving out physical gold, Resolute is offering investors the chance to double-down on their exposure to the gold price in the hope of further gains to be had down the track, which kind of contradicts the point of a dividend.
Heightened market volatility in the last 12 months, including Brexit and the prospect of a Donald Trump presidency, has seen the price of gold rocket almost 17 per cent higher to last trade at $US1,323.8. But the precious metal has traded in a relatively tight range since June 30 as fears seem to have faded.
As a result of the easing gains, gold miners Northern Star and Evolution are the third and fourth worst performing stocks on the local market over the last month.
2.12pm:A disaster waiting to happen
The most disconcerting aspect of the findings of the investigation into the Samarco tailings dam disaster is that, almost from the time it was constructed, the dam was a calamity in waiting.
The independent panel BHP Billiton and Vale commissioned to investigate the causes of the dam’s failure, which resulted in 19 deaths, an environmental disaster and massive costs to BHP and Vale shareholders, released its full report overnight, complete with a detailed animation of how the collapse occurred.
The starting point for a series of “incidents” that ultimately resulted in the collapse occurred during its erection in 2009, when construction defects meant the dam was so badly managed that the original design concept couldn’t be implemented.
Stephen Bartholomeusz
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2.03pm:CBA to exit India
Commonwealth Bank has unveiled plans to exit India, the fastest growing major economy in the world, following weak results and a tightening of the group’s strategy in Asia, Michael Bennet writes.
CBA, which has a relatively small on-the-ground presence in Asia mostly focused on Indonesia and China, said its sole Indian branch in Mumbai would be closed “after careful evaluation of our India business alongside our refocused strategy”.
CBA opened the branch in 2010, focusing on commercial customers and small businesses with a smaller presence in basic retail banking products like deposits, plus servicing Indians living in Australia.
Read more
1.43pm:FlexiGroup shares jump on result
Financial services provider FlexiGroup’s shares have surged 6 per cent as investors digested a full year report that revealed cash earnings in line with its forecasts, Daniel Palmer writes.
In the 12 months to June 30, its cash net profit rose 8 per cent to $97 million, in line with the revised guidance provided in May.
However, the group’s statutory earnings slumped 39 per cent to $50.2m owing to previously declared impairments, with the number falling just shy of projections for a $54.2m reading.
Read more
1.16pm:Judge questions Just restraint clause
A restraint clause imposed on the former chief financial officer of Solomon Lew’s Just Group was so broad it would stop her working in the coal industry, a Victorian Supreme Court judge said today.
Ben Butler writes that Justice Michael McDonald was hearing submissions from counsel for Just, Stuart Wood SC, on the opening day of what is expected to be a five-day trial in which the company seeks to stop Nicole Peck defecting to bitter rival Cotton On.
Just is a subsidiary of Mr Lew’s listed vehicle, Premier Investments.
Ms Peck’s contract contained a list of 50 brands — including Cotton On — for which she was barred for working for 24 months after leaving Just, but did not identify the company behind each.
Read more
1.01pm:A2 Milk is in trouble, according to Goldman
A2 Milk shareholders have been flooding to the exit this week as legislation changes in China threaten the heart of the company’s growth story.
The panic shown by investors has been given the nod from Goldman Sachs today, which has downgraded A2 Milk to ‘neutral’ from ‘conviction buy’ and cut its fiscal 2017 earnings per share estimate by 14 per cent.
“Following discussions with our industry contacts, we conclude that regulatory disruption in China is likely causing more aggressive inventory destocking amongst Chinese resellers than previously thought,” Goldman Sachs analysts Andrea Chong and Aaron Yeoh said.
“Visibility remains limited, and we believe that earnings risks for FY17E are skewed more to the downside.”
The stock has tumbled almost 17 per cent since last Monday, with rival Bellamy’s Australia falling a similar amount over the period. Blackmores, meanwhile is one of the worst performing stocks on the index this month.
A2 Milk remains 6.8 per cent higher in the year to date and rocketed up 367 per cent between June and December 30 of last year.
The company last traded down 2.5 per cent at $1.82, compared with an ASX200 rise of 0.5 per cent.
12.40pm:Want your dividends in gold?
It’s the ultimate golden handshake: resurgent gold miner Resolute Mining has hatched a novel plan that will allow its shareholders to receive their dividends in the form of actual gold.
Resolute, which mines gold in Africa and Queensland, announced this morning that investors with 5,000 Resolute shares or more can elect to be paid their dividend in gold through The Perth Mint, Paul Garvey writes.
Resolute managing director John Welborn described the policy as “unique”.
More to come
12.22pm:Buy Bendigo Bank: Market Matters
Marketmatters.com.au has sent out a trading alert recommending traders buy Bendigo & Adelaide Bank.
“Our positive view on the Australian banking space has been supported by a potential breakout of the S&P500 Bank Index,” the advisory service says.
“BEN has been performing well in recent times, and we envisage that this strength will continue. “This will put us marginally overweight the banks. However, we will be looking to reduce our exposure into strength if/when strength prevails.”
12.09pm:Expect more profit taking in ‘bond proxies’
Macquarie equity strategists say investors should expect more profit taking in “bond proxies” - particularly REITs - as another rise in US interest rates is likely to push up the “risk-free rate” (US bond yields).
And given an 8 per cent rise in the sharemarket since July, with the S&P/ASX 200 ex-financials index trading at 20 times forward earnings, “it is difficult to argue for more multiple expansion, particularly given the wide skew of earnings performance seen in the reporting season.”
But they don’t think recent hawkish comments from Fed officials permanently change the hunt for yield.
In their view, banks are the cheapest yield plays that are not considered straight bond proxies and could outperform REITs, infrastructure and utilities in a bond-driven sell-off.
“We also don’t think it means the market will need to go through a severe multiple adjustment despite price optics - this is a time to dial back risk not abandon equities.”
A severe de-rating would be the result of a policy mistake (excessive tightening) rather than a reset of yields higher that is not commensurate with some improvement in growth metrics, they say.
Macquarie favours ANZ and Westpac, and continues to like the yield and growth element of stocks and/or yield which has some valuation support.
The strategists favour AGL Energy, Contact Energy, Sydney Airport and Transurban and Telstra.
11.50am:Building approvals beat expectations
Building approvals surged 11.3 per cent in July versus the 1.1 per cent expected by economists. Year on year, building approvals rose 3.1 per cent versus the -8.1 per cent expected.
The Australian dollar jumped on the news, rising from US75.65c to US75.74c, before falling back.
Building approvals are typically volatile and won’t necessarily have implications for monetary policy, particularly since the RBA’s focus is currently on low inflation.
11.39am:Time to switch from CSR to Vocus?
Marketmatters.com.au has just put out a trading alert advising subscribers to switch from CSR to Vocus Communications.
“We see better risk reward in Vocus despite its recent underperformance,” the advisory service says.
“Last week, VOC reported a strong set of numbers, with revenue at the higher band of its guidance and EPS higher than consensus. That said, given the strength in recent selling, averaging at the current levels is a fairly aggressive move.
We believe the capital from CSR would be better utilised in VOC, shorter-term, based on our market view.”
11.33am:Telstra’s regional spread
Telstra’s terrestrial networks may have come under pressure in recent months but the telco is steadily fortifying its presence on the one front that holds the key to its international aspirations, Supratim Adhikari writes.
As the internet becomes crucial to our lives, the business of staying connected is underpinned by a vast, interconnected network of fibre-optic cables that run across the ocean floors. These subsea cable networks are the data transmission highways that connect continents and in Telstra’s case quite possibly the path to it becoming a serious player in Asia.
The telco currently operates the largest intra-Asia subsea network and Telstra’s head of international operations and services, Darrin Webb, said the subsea networks are the cornerstone of its international business. Mr Webb says the 400,000 or so kilometres of cable at Telstra’s disposal represents about 30 per cent of active capacity in the region.
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11.20am:Ramsay Health shares hit record high
Ramsay Health Care shares rose 7.4 per cent to a record high of $81.14 after it delivered a 17 per cent profit rise for FY16.
Analysts at CLSA and UBS say Ramsay’s guidance for FY17 EPS growth of 10-12 per cent is likely to be taken as conservative based on its track record.
Ramsay shares were last up 5.8 per cent at $79.80.
11.10am:Vic govt seeks permanent fracking, CSG ban
The Victorian government has snuffed out hopes of a onshore gas industry in the state by announcing it will legislate to permanently ban fracking and coal seam gas exploration, Rick Wallace writes.
The government has sided with the farming sector over the fossil fuel industry with the new policy, which also extends a moratorium on onshore conventional gas exploration to 2020.
The new policy has outraged the onshore gas industry with the former chairman of Lakes Oil, Rob Annells, saying it was politically motivated and ignored scientific evidence showing that farming and gas exploitation could coexist.
Read more
10.49am:Stocks lift at open
The Australian sharemarket has rallied in early deals, recouping some of Monday’s heavy losses as the big banks got a boost from moves offshore.
At 10.25am (AEST), the benchmark S&P/ASX 200 index rebounded 30.5 points, or 0.56 per cent, to 5,499.7, while the broader All Ordinaries index advanced 29.8 points, or 0.54 per cent, to 5,591.3.
Investors at home were happy to pile back into the local finance sector after shunning it for three straight sessions.
In early deals, ANZ and Commonwealth Bank rose 0.7 per cent, Westpac lifted 0.4 per cent and NAB surged 1 per cent.
10.28am:Ramsay shares surge on profit
Ramsay Healthcare shares have shot higher after the company delivered a 17 per cent profit rise this morning.
At 10:20am AEST shares in Ramsay were 4.6 per cent higher for the day at $79.17, which marks its strongest position in a month.
The broader ASX 200, meanwhile, is up 0.6 per cent at 5500 points.
CLSA says today’s result “implies a solid near-to-medium term earnings pipeline in Australia”.
“In addition, we believe there will also be the benefit of synergies from Ramsay’s global procurement program. Hence, barring unexpected issues in the UK NHS market and the French market, guidance looks conservative, in our view,” CLSA said.
10.20am:SurfStitch shares crash on $150m loss
Shares in online surfwear retailer SurfStitch have crashed 45 per cent to a record low after it posted a loss of more than $150m, with impairments and sinking margins putting severe pressure on its bottom line, Daniel Palmer writes.
The group is also pursuing asset sales, with the company putting a subsidiary it bought just nine months ago on the block.
The result came after a series of guidance downgrades from the embattled group over the past year, with investors also left stunned by the sudden departure of co-founder, and then chief executive, Justin Cameron in March.
In the year to June 30, SurfStitch reported a net loss of $154.7m despite booking a 7 per cent lift in retail sales.
At 10.37am AEST SurfStitch shares were down 45 per cent to 12.8c.
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10.08am:Slater & Gordon posts $1bn FY loss
Shares in besieged law firm Slater and Gordon have slumped 13 per cent after it confirmed a loss of over $1bn for fiscal 2016 and announced a sudden shake-up of its board that will see three directors depart and just one replaced.
For the 12 months to June 30, Slater and Gordon reported a loss of $1.02bn, in line with the revised guidance offered last week, Daniel Palmer writes.
The stunning red figure was largely driven by an impairment charge of $879.5m against its goodwill, with the majority realised in the first half.
In a statement to the market, the ASX-listed law firm said its fortunes had improved through the second half, but the group was still seen leaking cash with outflows of $20.9m.
For the first half the group had noted outflows of $83.3m, meaning it leaked $104.2m for the full year.
Even after stripping out provisions, writedowns, finance costs and restructuring charges the group reported a ‘normalised loss’ of $48.7m.
Shortly after the market opened Slater and Gordon shares were down 13 per cent at 49c.
Read more
10.03am:Sharemarket outlook “complicated” — UBS
The Australian share market outlook is complicated by the difficulty of estimating an appropriate PE ratio amid very low interest rates and moderate earnings growth, according to UBS.
“We believe it is prudent to assume single digit total returns over the coming year given high absolute multiples, but estimating market performance from here is complicated by estimating the appropriate P/E in regime of very low rates and moderate earnings growth,” UBS equity strategists David Cassidy and Dean Dusanic say.
“Multiples still look demanding in an absolute sense — particularly in industrials ex-financials but the relative appeal of equities against very low interest rates can’t be ignored.
Aggregate earnings trends look set to improve in FY17 due to a revival in commodity prices, though typical stock-specific earnings trends are steadier.
On the negative side, we view the revival of the Australian dollar presents something of a headwind for foreign currency earners, if sustained.”
Setting aside some currency headwinds, they say the bottom-up and aggregate earnings picture of market cap-weighted growth of 9 per cent and median growth of 6 per cent for FY17 looks a little high but not by a huge margin.
They maintain their targets of 5500 for end-2017 and 5650 for mid-2017 versus the current level of 5469.2.
9.48am:Why the bulls and bears are butting heads
“Sometimes market action lends itself to multiple interpretations,” CMC Markets chief strategist Michael McCarthy says, pointing to the contradictory market action as the world watches the Fed.
“The overnight rally in US stocks is a good example. The bears are arguing that investors are defying the Fed, and relying on weak data to keep interest rates low. The bulls are pointing to Fed confidence that the US economy is strengthening as a reason to buy shares. Take your pick,” Mr McCarthy said.
The local futures are pointing to a shallow bounce at the open following three negative days in a row — the first time that’s happened in 10 weeks — but the trading day “could turn pear-shaped by the end of the session,” according to the equity expert.
Watch out for Ramsay this morning
“Ramsay Healthcare shareholders could be concerned the share price will follow Estia Health’s example from yesterday. Despite profit growth of 17-18 per cent, Ramsay beat its own guidance but missed more positive market expectations. In the current febrile results environment, this may mean a double-digit percentage loss today.”
9.40am:Large cap results ‘underwhelmed’: UBS
Very large companies generally underwhelmed this reporting season, with size-weighted earnings estimates for FY17 downgraded by 1.7 per cent, even though FY16 results came in largely in line with expectations, according to UBS.
“The ‘very large cap’ universe — the top 20 or so stocks — is still struggling for earnings growth and on average produced somewhat disappointing results this reporting season, in our view,” UBS equity strategists David Cassidy and Dean Dusanic say.
The best results were typically in the mid capitalisation area, while small caps were better than the very large caps, albeit quite mixed.
The long-running EPS downgrade cycle — ex-resources — remains intact, in their view, although the starting expectations for FY17 don’t look overly ambitious, with the median stock, excluding resources, expected to deliver 6 per cent EPS growth in FY17, or 7 per cent ex-financials.
“This is likely to be on the high side, but not hugely,” the strategists say.
“The path of the Australian dollar is likely to be a key influence.”
They expect much better trends from the resources sector in FY17, with estimates currently in upgrade mode, “albeit this upgrade cycle depends on the iron ore price in particular staying resilient”.
In their view, the best large-cap results came from Ansell, BlueScope Steel, JB Hi-Fi, Orora and Treasury Wine Estates, while the disappointing large cap results came from AMP, Aurizon Holdings, CSL, Medibank Private and QBE Insurance Group.
9.20am:Broker rating changes
Estia Health cut to Underfperform vs Buy; target cut to $4.10 vs $6.50 — CLSA
Select Harvests raised to Hold vs Sell — Wilsons
Saracen Minerals raised to Hold vs Sell — Wilsons
Evolution Mining raised to Buy vs Neutral — UBS
A2 Milk cut to Neutral vs Buy — Goldman Sachs
9.09am:August’s ASX winners and losers
You could call this jumping the gun, with two full trading days remaining in the month … but let’s have a look at the scoreboard for August.
Earnings season has seen a number of brutal casualties but none more so than APN Outdoor, which has slumped almost 35 per cent after downgrading its full-year guidance last week.
Before the announcement the stock was up 33.5 per cent in the year to date but it now finds itself firmly in the August sin bin alongside Seven West Media, former market darling Aconex, and gold miners Northern Star and Evolution.
Blackmores has also been kicked a long way south in August as investors fret about potential Chinese regulatory changes: exporting vitamins and health products to China has become Blackmores’ bread and butter and pushed the stock up 500 per cent last year.
On the positive side, GWA Group has rushed 37.4 per cent higher this month after the dunny-maker impressed with sparkling numbers.
Others on the outperformers list are Ansell, Downer EDI and Flight Centre, which all gave the market reason to cheer during earnings season.
8.58am:Ramsay profit, dividend beat estimates
Australia’s largest private hospital operator Ramsay Health Care has topped market expectations by delivering a near 17 per cent jump in earnings for the full year.
For the 12 months to June 30, core net profit rose 17 per cent to $481.5m, at the top end of its guidance range for a 15-17 per cent rise and 1.8 per cent above Bloomberg’s market consensus of $473.1.
The earnings lift came on the back of an 18.1 per cent surge in revenue to $8.7 billion, ahead of analyst forecasts for $8.54bn.
Core EPS of $2.314 was slightly below the consensus estimate of $2.316, but the final dividend of 72c was well above the 62.5c expected.
Ramsay expects FY17 core net profit and EPS to rise 10-12 per cent versus Bloomberg’s consensus estimate of a 12 per cent rise.
“Solid volume growth, ongoing efficiencies, strategic acquisitions and further investment in our facilities, continue to underpin our strong financial performance,” Ramsay managing director Christopher Rex said.
David Rogers, Daniel Palmer
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8.28am:Worst losing streak in 10 weeks
Australian stocks are now on their worst losing streak for 10 weeks as the ASX capped off its third-straight day of losses yesterday.
Before Wednesday’s close the S&P/ASX 200 was flat for the month, and now it’s 1.7 per cent in the red with two sessions remaining in August.
That goes to show the mood was pretty stable during earning season, with huge movements in particular stocks not impacting the broader market, which remained flat.
As Deutsche Bank strategist Tim Baker points out: “This holds across both large and small caps, and may reflect a lack of conviction on what areas to move into.”
The local market is set to gain around 0.3 per cent today but it will be interesting to see if gains will be held throughout the sessions.
Keep an eye on BHP Billiton, which looks set to continue its topsy-turvy month with a 1.6 per cent jump at the open, according to its ADRs.
7.55am: Apple set to unveil iPhone 7
Apple is planning to host an event in San Francisco on September 7, at which the company is expected to unveil the latest iPhone amid softening sales of its flagship product.
Apple’s invitation for the event, which it released overnight (AEST), doesn’t mention the iPhone; however, the Cupertino, California, company in recent years has unveiled a new iPhone at its September event.
The Wall Street Journal reported in June that Apple plans to make only subtle changes with its new models, breaking with its recent pattern of overhauling the iPhone every two years.
7.15am:Australian market set to open higher
The Australian market is tipped to open higher following decent gains on Wall Street, after Federal Reserve chair Janet Yellen said the case for an official US interest rate rise had strengthened.
At 6.45am (AEST), the share price index was up 15 points at 5,566.
Ms Yellen, addressing a gathering of global central bankers on Friday, said the central bank was close to meeting its goals of maximum employment and stable prices, while describing consumer spending as “solid”.
Ms Yellen gave little indication of when the Fed would move but Vice Chairman Stanley Fischer suggested that a move as soon as September could be possible.
Locally, in economic news on Tuesday, the Australian Bureau of Statistics is due to release July building approval figures.
In equities news, Slater and Gordon and Ramsay Health Care are expected to post full-year results.
In Australia, the market yesterday closed lower amid growing expectations a US rate hike and stocks going ex-dividend after reporting earnings. The benchmark S & P/ASX200 index was down 46.3 points, or 0.84 per cent, at 5,469.2 points.
The broader All Ordinaries index fell 45.9 points, or 0.82 per cent, to 5,561.5 points.
7.05am: Dam cracks seen before disaster
Cracks were present at a tailings dam operated by BHP Billiton’s and Vale’s Samarco joint venture in Brazil more than a year before it failed, killing 19 people, according to an external report into the disaster.
Releasing the findings of the report by an expert panel of geotechnical engineers in Minas Gerais state in Brazil, panel head Norbert Morgenstern said the dam failed because the sands there became saturated over time and collapsed suddenly under pressure.
7.00am: Dollar higher against greenback
The Australian dollar has climbed to be trading at US75.68 cents at 6.35am (AEST), up from US75.51 cents yesterday.
6.50am: Iron ore dips to one-month low
The iron ore price has continued to track lower, even as Brazilian miner Vale received an upgrade on its credit rating due to surprisingly strong prices in recent months.
Iron ore fell 0.5 per cent to $US58.80 overnight, according to The Steel Index, from $US59.10 in the previous session.
6.40am:Wall St lifts as banks rally
US stocks rebounded overnight, led by a rally in financial shares.
The Dow Jones Industrial Average rose 108 points, or 0.6 per cent, to 18503. The S & P 500 gained 0.5 per cent and the Nasdaq Composite added 0.3 per cent.
Earlier, European shares closed lower as traders felt uncertain about the Federal Reserve’s rate hike plans, although London was closed for a holiday.
The Australian share market is set to follow the upbeat Wall Street leads, with ASX futures 16 points higher at 6.25am (AEST).
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