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AGL and Woolworths were among the big gainers of the day, while the broader market closed flat.

The local market moved into the red

• AGL hit with first strike on exec pay
• SMSFs step into shadow banking
• Evans & Partners to merge with Dixon
• AGL flags buyback, ups div payout ratio
• Analysts put value on Inghams
• Macquarie’s valuation of Inghams
• Sydney fourth on housing bubble list

Welcome to the BusinessNow blog for Wednesday, September 28. The local market gave up early gains to close little changed, with AGL and Woolworths among the outperformers.

7.59pm:Positioning for the next market rally

David Rogers

Could the Australian sharemarket be on the cusp of another rally?

The analyst community isn’t enamoured with the local sharemarket right now, but that could be offering up some opportunities, according to Deutsche Bank.

Despite a pullback of up to 7.5 per cent in the benchmark S&P/ASX 200 share index this month, the proportion of S&P/ASX 100 companies that currently have “buy” ratings remains near a record low, although the number of companies in that group has risen slightly in recent months.

Deutsche Bank equity strategist Tim Baker says investors should ideally be looking at stocks that have underperformed the broader market and are now enjoying some upgrades from analysts.

His four-quadrant scatter plot of S&P/ASX 100 companies has AGL Energy in the best possible position. AGL surged almost 6 per cent on Wednesday on a share buyback announcement and higher dividend payout ratio guidance. Aurizon, Qube Logistics, Iluka, Spark Infrastructure, Sydney Airport, BlueScope Steel, James Hardie, GPT, Incitec Pivot and Sydney Airport are in a similar position. Read more.

7.31pm:Olympic Dam restarts after power cut

6.43pm:SA renewables transition reckless: Xenophon

Rachel Baxendale

South Australian Senator Nick Xenophon says heads will roll over the state’s energy arrangements, which have left it facing a blackout until at least 4am tomorrow after a huge storm cell took out the main power supply.

As recently as this week, a Grattan Institute paper entitled “The Canary in the Coal Mine” warned of “fragility” as a result of South Australia’s reliance on wind and other renewables, without sufficient baseload backup from other sources such as coal or gas.

Mr Xenophon said the state’s current energy arrangements were a “textbook case” of how not to transition to renewable energy.

“I support the renewable energy target, but it’s how you achieve it and how you achieve sensible greenhouse gas reduction policies,” he said.

“This has not been sensible, it has been reckless. We have relied too much on wind rather than baseload renewables, rather than baseload power, including gas, which is a fossil fuel but it is 50 per cent cleaner than coal and a good transitional fuel.” Read more.

6.28pm:‘Hard questions’ for power suppliers

Michael Owen

Federal Energy Minister Josh Frydenberg said it appeared the severe weather events had “impacted upon the interconnector”.

“This has had a flow-on effect,” he told Sky News.

“Clearly questions will be raised — serious questions will be raised that need to be answered as to how this extreme weather event could take out the whole of the electricity supply across a major state such as South Australia.

“I’ll be asking all of those very hard questions and no doubt my South Australian colleagues will as well because we cannot see a repeat of these events in South Australia or in other parts of the network because of the implications that it has for the community.”

6.11pm: Insurance claims in ‘tens of millions’

The Insurance Council of Australia chief executive Rob Whelan says preliminary assessment of central NSW claims indicated the bill will be steep.

Mr Whelan said the insurance losses would likely be in “the tens of millions of dollars”, although the full extent of losses will not be known for several weeks.

The Insurance Council of Australia has declared major flooding around Forbes in central NSW a catastrophe. AAP.

6.08pm:Asian shares hit by bank nerves, oil

Stocks in Japan led declines across the region, dragged by weak oil prices and jitters about the health of the nation’s banks.

The Nikkei Stock Average closed Wednesday down 1.3 per cent, with energy, banking and export sectors leading losses. Korea’s Kospi closed down 0.5 per cent, the Shanghai Composite Index ended 0.3 per cent lower, and Hong Kong’s Hang Seng Index was flat.

An oil-price slide in the US overnight Tuesday hit Japanese energy stocks. Saudi Arabia’s energy minister said the Organization of the Petroleum Exporting Countries wouldn’t reach a deal to curb output during talks this week in Algiers.

Oil prices recovered slightly in Asian trade Wednesday, with international benchmark Brent crude rising 0.4 per cent to $US46.17 a barrel.

That helped Japanese oil explorer Inpex narrow its losses. It ended down 0.4 per cent, after being off 2.3 per cent earlier. Japan Petroleum Exploration Co. was down 2 per cent. Dow Jones.

5.46pm:European stocks climb at open

Europe’s main stock markets rose at the open of trading on Wednesday, with London’s benchmark FTSE 100 index climbing 0.3 percent to 6,826.28 points.

In the eurozone, Frankfurt’s DAX 30 grew 0.6 percent to 10,425.89 points and the Paris CAC 40 gained 0.3 percent compared with the close on Tuesday to 4,413.12. AFP

5.32pm:Aussie holds ground as Yellen awaited

The Australian dollar is hovering just below US77 cents as traders wait for more potential clues from US central bank chief Janet Yellen on the timing of an expected interest rate hike.

At 5pm (AEST) on Wednesday, the local unit was trading at US76.85c, up from 76.78 US cents on Tuesday. Read more.

5.10pm:RBS agrees $US1.1bn settlement

Royal Bank of Scotland Group PLC has agreed to pay $US1.1 billion to a US regulator to resolve two civil lawsuits over the way it sold mortgage-backed securities in the run-up to the financial crisis.

The UK lender said the settlement with the National Credit Union Administration Board is substantially covered by existing provisions and will have no material impact on its common equity Tier 1 ratio — a measure of high-quality capital as a share of risk-weighted assets. Read more.

4.35pm:Stocks eke out modest gain

The Australian sharemarket has eked out a modest gain at the close despite a heavy drag from resources stocks through the session, writes Daniel Palmer.

At the closing bell, the benchmark S&P/ASX 200 index rose 6.5 points, or 0.12 per cent, to 5,412.4, while the broader All Ordinaries index gained 6.5 points, or 0.12 per cent, to 5,500.2.

The local market traded in the red for much of the afternoon, but finished as it started after the banks received a steady bid. Read more.

4.10pm:Bunnings CEO defends UK expansion

Bunnings Warehouse chief executive John Gillam has defended the group’s UK expansion, telling a network of executives there had been no surprises since its $705 million purchase of Homebase earlier this year.

Bunnings’ CEO John Gillam

The head of the Wesfarmers-owned home improvement giant was critical of the company it acquired, noting the amount of unavailable stock in Homebase stores was among the worst it had seen globally, but insisted the platform presented a strong long-term growth story.

“We are not particularly enamoured with the way it goes to market and … it’s not a particularly well positioned business,” Mr Gillam told delegates at an Australian British Chamber of Commerce lunch in Melbourne.

4.00pm:NBN scraps plans to use Optus HFC network

NBN has abandoned plans to upgrade the Optus HFC network for its fibre rollout and will instead pioneer a new fibre-to-the-curb technology, John Durie writes.

Optus will still collect its promised $800 million payment to transfer customers from its HFC network to the NBN.

NBN will continue with plans to upgrade the Telstra HFC network but converting the Optus network was considered too expensive.

Telstra is collecting $1.6 billion to help design and construct the upgrade on its network on top of the $98 billion in compensation for transferring its copper customers to the new network.
Read more

3.30pm:Woolworths among best of blue chips

Woolworths shares are up 2.1 per cent at $22.94 in afternoon trade, putting it among the best performing blue chips today in an overall flat market.

Despite the dip to $27.28 a share this month and the possibility of a head and shoulders top on the daily chart, it looks like the 200-day moving average at $22.66 is reverting to support in a longer-term sense.

Technically it looks like a break above $23.41 could start a move to retest the August peak at $26.05, while a break below $22.28 would suggest a longer pullback is underway.

3.15pm:AGL hit with first strike on exec pay

AGL Energy has suffered the ignominy of a first strike on executive pay at its annual general meeting this afternoon as more than 25 per cent of votes were cast against its latest remuneration report.

The action from shareholders will have executives on edge as AGM season kicks into gear.

Investors in the utility opted to exercise their right to pushback against a remuneration report that showed chief executive Andy Vesey’s take home pay had surged over 50 per cent from $4.4 million to an eye-watering $6.9m.

It came after AGL swung to a loss of $418m in fiscal 2016 as natural gas impairments of $795m weighed on the bottom-line.
Daniel Palmer
Read more

3.01pm:Low chance of bear market in bonds: AB

While significant easing of monetary policy around the globe is unlikely as negative effects start to outweigh the positives, the probability of a sizeable bear market in bonds is low, according to AllianceBernstein portfolio manager John Taylor.

He doesn’t see any prospect of aggressive policy tightening, as even a US rate rise this year will be small and the Fed is likely to wait a long time — possibly another year — before making its next move.

Nor does he expect any aggressive fiscal policy expansion in Europe, at least until after elections in France and Germany next year. “In other words, the situation will continue to muddle along for a while with yields remaining at current levels,” says Taylor, who helps manage AB’s Dynamic Global Fixed Income Fund.

“While this means lower returns for fixed-income investors, it also means that the much feared bear market in bonds remains some way off and, with luck and careful policy management by central banks, may yet be avoided.”

2.40pm:Magellan’s view on the cashless society

As a money manager laying bets on a new technological age potentially more disruptive than the Industrial Revolution, it’s no surprise that Hamish Douglass’s Magellan group has identified payments and the move to a cashless society as one of its key investment themes, Richard Gluyas writes.

The proliferation of internet-connected smartphones is accelerating the switch from cash and cheques to cashless forms of payment, such as credit cards, debit cards, electronic funds transfer and mobile payments.

Over a decade and a half, the average number of cheques written by an Australian in a year has plummeted from 35 per person to six, while the percentage of consumer payments made in cash fell from 69 per cent in 2007 to 47 per cent in 2013.

Magellan reckons there’s only a limited number of companies positioned to benefit from this tectonic shift, which is being driven by a mix of convenience and necessity as commerce increasingly goes online.
Read more

2.05pm:BHP’s firm line on Samarco

From Stephen Bartholomeusz’s column today:

Samarco’s failure to meet a scheduled interest payment on $US500 million of its bonds yesterday highlights the line that BHP Billiton and Brazil’s Vale have drawn between their social and legal obligations in the wake of last year’s disastrous tailings dam failure.

Samarco failed to meet a scheduled interest payment on $US500 million of its bonds yesterday.

While both companies have committed to funding the multi-billion dollar cost of environmental remediation and compensation for the collapse of the Fundao dam, they have also stressed that Samarco, while jointly owned by them, is a discrete legal entity with its own board and management. Moreover, its debt is explicitly non-recourse to them.

The relatively modest interest payment of about $US13.5m missed yesterday is one of several scheduled before the end of the year, amounting to more than $US50m, which are unlikely to be paid.
Read more

1.20pm:JB Hi-Fi’s ‘light touch’ on Good Guys

JB Hi-Fi chief executive Richard Murray said further integration of back office, supply and other operational systems with its newly acquired retail chain The Good Guys would be held back until after Christmas as both retail chains focus on the biggest retail trading period for the sector.

Mr Murray, speaking at a retail conference in Melbourne today, said he would be adopting a “light touch” to the integration of the business especially as all store managers within both businesses were squarely focused on Christmas planning.
Eli Greenblat
Read more

1.03pm:ASX200 turns negative

Australia’s S&P/ASX 200 has turned down 0.1 per cent to an intraday low of 5399.9 after reversing a 0.5 per cent intraday rise.

US S&P 500 futures are down 0.2 per cent and Asian markets are weaker despite overnight gains, with the Nikkei 225 down 1.5 per cent and the Hang Seng down 0.6 per cent.

While today’s price action is disappointing, the 100-day moving average held nicely yesterday at 5380 following a 7.5 per cent fall, which saw strong support from the 200-day moving average at 5200 this month.

12.50pm:Reasons to be positive Aussie equities

Baillieu Holst sees a lot of reasons to be bullish Australian equities right now.

Most of those reasons relate to the global monetary policy outlook, but others include:

• Chinese economic stability;
• Stable-to-improving commodity prices;
• A rising Australian dollar as a plus for capital inflow;
• Attractive equity market yields versus bonds, particularly for banks;
• The potential for governments to push for infrastructure projects;
• The September pullback in shares;
• A “dividend bonanza” flowing into equities; and
• The prospect of US political risk driving investment into emerging markets and Australia.

12.30pm:Conviction lacking in share market: DB

Conviction is currently lacking in the share market, with the number of “buy” ratings in the analyst community near record lows, according to Deutsche Bank equity strategist Tim Baker. Whether or not this is bullish from a contrarian point of view remains to be seen, but it’s interesting to note that the index bounced off the 200-day moving average near 5200 points after a 7.5 per cent fall this month.

The index now looks to be finding support above the 100-day moving average at 5380 and is currently at 5407.

11.45am:SMSFs step into shadow banking

Self-managed super fund owners are plugging a property financing gap left by the big banks and in the process limiting the risks of a significant housing downturn, Credit Suisse contends.

The activity is predicated on a push away from cash given stubbornly low interest rates, with SMSF owners looking for alternative asset opportunities.

This search has led them into the shadow banking sector, Credit Suisse’s Australia equities analyst Hasan Tefvik said, as they look to fill a hole opened as the big banks pull back from funding residential property developers.

“Over the last few months we have had numerous discussions with people in the business of channelling money towards residential developers from investors like SMSFs,” Mr Tefvik said.

“From our discussion we find ‘selfies’ are essentially buying three types of resi-developer securities — senior debt, mezzanine debt and preferred equity.”

Mezzanine debt is proving the most popular, with an internal rate of return of around 15 to 20 per cent per annum as against just 2 per cent returns in some savings accounts.

Daniel Palmer
Read more

11.26am:Morgan Stanley, CS weigh in on Inghams

In the latest analyst research out for the float of Inghams, Morgan Stanley bucked the trend, offering an equity value between $1.145bn and $1.526bn, which is far lower than the estimates from other banks, while the Credit Suisse analyst valuation range falls between $1.347bn and $1.66bn. For further analyst valuations, read our earlier blog posts here and here.

Bridget Carter

11.01am:Evans & Partners to merge with Dixon

Australian stockbroking firm Evans & Partners has announced a merger with Dixon Advisory, one of the nation’s largest self-managed superannuation fund service providers, writes Daniel Palmer.

David Evans of Evans and Partners.

The enlarged group will be known as Evans Dixon, although existing businesses Evans & Partners, Dixon Advisory and Walsh & Company will retain their individual brand names.

The terms of the deal were not disclosed.

More to come

10.50am:Former CBA exec faces US fraud charges

Former Commonwealth Bank IT executive Keith Hunter is facing charges of conspiracy to commit securities fraud and wire fraud in the US after he recently pleaded guilty to similar charges in Australia, writes Daniel Palmer.

The US Department of Justice formally charged Mr Hunter overnight, according to Bloomberg, on the grounds he was complicit in a scheme that saw fraudulent multi-million dollar contracts exchanged between CBA and US software firm ServiceMesh ahead of the latter’s purchase by Computer Sciences Corp.

The actions are believed to have pushed Computer Sciences to overpay for ServiceMesh by around $US98 million ($127.8m).

Read more

10.33am:Stocks jump at open

The Australian sharemarket has jumped at the open, rebounding quickly from its first loss in six sessions yesterday.

At the 10.15am (AEST) official market open, the benchmark S&P/ASX 200 index rose 23.5 points, or 0.43 per cent, to 5,429.4, while the broader All Ordinaries index rallied 22 points, or 0.4 per cent, to 5,515.7.

CMC Markets chief market strategist Michael McCarthy said markets would largely follow the lead of the US, where gains were recorded following the first presidential debate, although weakness in crude and gold prices would likely cap any local gains.

“A lack of data leaves Asia Pacific investors in a vacuum today. Sandwiched between strong share market leads overnight and Fed chair Yellen’s testimony to Congress tonight, regional markets will likely reflect sentiment ‘on the ground’ today,” he said.

“In Australia, stronger US stock prices are offset somewhat by weaker oil and gold.

“These commodity moves speak directly to the most over-traded sectors on the Australian market, and may see an otherwise positive day stained with red.”
Daniel Palmer

10.20am:AGL shares climb on update

AGL’s wide-ranging update, including announcing a share buyback, a higher dividend payout ratio target and a steady advance in earnings for the full year, has seen its shares shoot up 6.9 per cent to $18.90 in early trade.

The action coincides with news of the surprise appointment of Oil Search chief executive Peter Botten to its board ahead of its annual general meeting today.
Read more

9.55am:ASX guards against further outages

ASX chief executive Dominic Stevens has pledged to guard against a re-occurrence of last week’s outage in his first annual general meeting speech as leader of the stock exchange group.

Mr Stevens, who only assumed the top job at the start of August, said the outage that afflicted the exchange, since blamed on an unprecedented hardware failure relating to a database, was “regrettable”.

ASX chief executive Dominic Stevens has pledged to guard against a re-occurrence of last week’s outage.

“The events of last week were highly unusual and unprecedented. We have already taken steps to guard against a recurrence,” he told shareholders at the Sydney meeting. “At this stage, our software and hardware vendors confirm having never seen this type of malfunction before.”

“People are understandably upset because it rarely happens. Nevertheless, we are working hard to make our systems even more resilient,” he said.

9.40am:AGL flags buyback, ups div payout ratio

AGL has announced an on-market share buyback of $596m, worth up to 5 per cent of its shares on issue, along with an increase in its dividend payout policy to about 75 per cent of underlying profit. This compares with an average of 60-65 per cent of profit in the past five years.

It has also flagged underlying profit of $720m-$800m for fiscal 2017 assuming normal trading conditions for the rest of the year. That’s in line with Bloomberg’s consensus estimate of $760m. Expect the share buyback and dividend policy and the earlier appointment of Oil Search CEO Peter Botten to the board to drive significant share price gains today.

9.24am:Touchcorp to raise $25.6m

Touchcorp is raising $25.6 million through Wilsons and Bell Potter to fund special hardware and software requirements.

The raise will include a non-underwritten placement of 12.8 million shares at $2 per share.

The price represents a 4.8 per cent discount to its last closing price of $2.10.

The offer will close at 4pm today.

Touchcorp is listed on the Australian Securities Exchange and is a full-service payments provider, that, once integrated with a webstore, will enable acceptance of Visa and Master Card payments.
Bridget Carter

9.18am:Analysts put value on Inghams

Further analyst numbers are filtering out for the valuation of Inghams Enterprises.

Analysts are valuing Inghams Enterprises at up to $1.67bn.

Citi expects the company’s equity value to sit between $1.383bn and $1.63bn, equating to between 9.5 times and 10.8 times its forecasted earnings before interest, tax, depreciation and amortisation and between 14 and 16.5 times its annual net profit.

Macquarie’s analysts expect the business to be worth between $1.3bn and $1.67bn, while Goldman Sachs believes the group’s value sits between $1.302bn and $1.593bn.

Bridget Carter
More to come

9.06am:Peter Botten to join AGL board

Oil Search CEO Peter Botten will join the board of AGL, the companies say.

The ASX-listed utility said Mr Botten would join the company from October 21.

He will not replace a current director, meaning the AGL board will expand to nine.

This is an interesting move given both companies are in the energy space. Potentially positive for deals between the two.
Read more

8.52am:Macquarie values Inghams at up to $1.67bn

Macquarie Capital has ascribed an equity value to Inghams Enterprises of between $1.3 billion and $1.67bn as investment banks working on the deal circulate their analysts’ research this morning.

It comes after DataRoom flagged on Monday that the company would likely float as a business worth somewhere between $1.5bn and $1.7bn.

Bridget Carter

Read more

8.39am:Sydney fourth on housing bubble list

Sydney’s housing market is one of the most risky in the world, ranking fourth in an index of major cities facing the threat of a housing bubble, writes Turi Condon.

Sydney is now seen as the fourth riskiest city for a housing bubble.

Vancouver, where house ­prices have surged more than 25 per cent since the end of 2014, tops a global real estate bubble index collated by investment bank UBS. London and Stockholm also led Sydney on the list, which found six financial centres in the highest risk category. Only Chicago ranks among the 18 cities assessed as “undervalued”.

“House prices of the cities within the bubble risk zone have increased by 50 per cent on average since 2011,” UBS noted. The other cities in the report had seen average growth of 13 per cent.

In 2012, Sydney was at the bottom of a list of Asia Pacific cities, but moved to the top of the index in four years.
Read more

7.15am:Australian market set for soft open

The Australian market looks set to open flat or slightly down after Wall Street gained following the first of three televised US presidential debates.

At 6.45am (AEST), the share price index was down five points at 5,402.

Democratic presidential candidate Hillary Clinton and Republican Donald Trump yesterday went head to head in the first of three televised debates ahead of the US presidential vote on November 8.

Locally, in economic news on Wednesday, Reserve Bank of Australia Assistant Governor (Financial System) Malcolm Edey is slated to speak at the Australian Financial Review retail summit in Melbourne.

In equities news, ASX and AGL Energy hold their annual general meetings in Sydney.

Foxtel chief executive Peter Tonagh is scheduled to speak at an American Chamber of Commerce in Australia lunch in Sydney.

In Australia, the market yesterday finished lower, but did claw back some earlier losses following signs Clinton was leading the presidential debate. The benchmark S & P/ASX200 index fell 25.5 points, or 0.47 per cent, to 5,405.9 points.

The broader All Ordinaries index lost 25.4 points, or 0.46 per cent, to 5,493.7 points.

AAP

7.05am:Dollar slips

The Australian dollar has lost most of the gains it made against its US counterpart after the greenback rose following the first US presidential candidate.

At 6.35am (AEST), the local unit was trading at US76.67 cents, down from US77.40 cents yesterday.

Republican candidate Donald Trump and the Democrats’ Hillary Clinton went head to head in the first of three televised debates in the lead-up to the US presidential election on November 8.

AAP

7.00am:Banks up outlook as iron ore dips

The iron ore price has edged down for the second day in a row, even as another investment bank upgraded its assumptions after the commodity has remained stubbornly resilient this year, Elizabeth Redman writes.

Iron ore fell 0.4 per cent to $US56.20 overnight, according to The Steel Index, from $US56.40 the previous day.

Read more

6.55am:BHP’s Samarco misses interest payment

Troubled Brazilian mining company Samarco Mineração’s publicly traded bonds plummeted to eight-month lows after it missed an interest payment on $US500 million in bonds.

Bank of New York Mellon, the trustee on the debt, said that Samarco had missed the payment to bondholders Monday but added that the company is still in the 30-day grace period for payment. A spokeswoman for the bank declined to comment further. Samarco, a joint-venture between Brazilian mining giant Vale and Australia’s BHP Billiton, declined to comment.

Dow Jones

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6.50am:OPEC considers output cut

OPEC plans to discuss today a proposal that would cut almost 1 million barrels a day of global production over one year, said people involved in the discussions, setting up a showdown between Saudi Arabia and Iran.

The plan isn’t expected to be agreed to on today when the Organization of the Petroleum Exporting Countries plans an informal gathering on the sidelines of an energy conference in Algiers. The scenario is meant to start discussions that could pave the way for an agreement when the producer group meets again in November, the people said.

Dow Jones

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6.40am:Wall St rises despite oil dip

US stocks rose overnight, boosted by gains in technology and consumer shares.

Meanwhile, a fall in oil prices weighed on energy shares as investors remained sceptical major producers could reach a deal to limit production.

The Dow Jones Industrial Average rose 133 points, or 0.7 per cent, to 18228. The S & P 500 rose 0.6 per cent, and the Nasdaq Composite rose 0.9 per cent.

European markets closed slightly lower as investors continued to worry about the health of German lender Deutsche Bank.

Dow Jones

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