BusinessNow: Today’s finance and business news, plus analysis and opinion
The local sharemarket powers past 5900 in a strong showing across the board and a late surge from BHP.
Welcome to the BusinessNow blog for Monday, April 10.
Bridget Carter 5.26pm: Adamantem mooted as Dixon buyer
Adamantem Capital is being mooted as the private equity firm that may be about to buy Dixon Hospitality.
Bruce Dixon was the former chief executive of the services company Spotless once it was owned by Pacific Equity Partners, where Adamantem’s partners, Anthony Kerwick and Rob Koczkar previously worked.
Mr Dixon, who is Dixon Hospitality’s chief executive, could not be reached Monday evening.
Both Koczkar and Kerwick have been on the hunt for acquisitions for some time.
The media shy pair, which have not confirmed their interest, had circled the stationery group Staples before it was snapped up by private equity firm Platinum. But a Dixon spokesperson denied that the pair were the buyers of Dixon Hospitality.
While Quadrant Private Equity could be seen as a logical buyer, sources say that it is not a suitor.
It is understood that Adamantem has approached investment bankers before about buying Dixon, which has been advised by Citi.
More to come from DataRoom.
Daniel Palmer 5.04pm: ASX hits two-year high on BHP push
The local sharemarket has jumped almost 1 per cent to open the week, rocketing to a two-year high as a push for a BHP restructure boosted that group’s shares almost 5 per cent.
At the close, the benchmark S&P/ASX 200 index surged 50.4 points, or 0.86 per cent, to 5,912.9, while the broader All Ordinaries index bounded 46.3 points, or 0.78 per cent, to 5,948.9.
It represented the best finish for the local bourse in two years and again has it closing in on the magical 6,000 point mark, which hasn’t been reached since February, 2008.
3.57pm: BHP shares jump on activist’s spur
BHP Billiton (BHP) shares surge 4.8pc to a 6-week high of $25.79 surge on restructure recommendations.
Activist hedge-fund Elliott Management Corp wrote to BHP shareholders urging a unified corporate structure, asset spinoff and improve capital returns, Bloomberg says.
Elliot says BHP should unify into a single Australian-headquartered company, demerge its US petroleum business, and return capital through buybacks that would maximise tax credits and discourage expensive cash acquisitions.
Elliot has already spoken to BHP management, saying the changes could boost shareholder value by about 50 percent. Elliott said it owns about 4.1 percent of BHP’s London-listed shares and has rights to acquire 0.4 percent of its Australian stock, according to Bloomberg.
3.38pm: Happiness eluded Wall St titan
Charles Murphy used to walk home through New York City’s Central Park to his 19-room townhouse for dinner with his family. Last year, he began voicing worries about money to his boss, hedge-fund billionaire John Paulson, who often joined him along the way.
At 56 years old, Mr Murphy had a net worth in the tens of millions of dollars. He entered Columbia University at 16 and later earned law and business degrees at Harvard and Massachusetts Institute of Technology.
On Wall Street, he had a ringside seat to some of the biggest financial events of the past 20 years, from the 1990s merger boom to the dotcom bust to the Bernard Madoff scandal and the travails of American International Group Inc — read more here
Wall Street Journal
2.52pm: The Reject Shop shares hit 11-year low
Reject Shop analysts and investors are gingerly dusting themselves off after the stock slumped late last week following the company’s admission that the profit will be much lower than expected and it may not release a dividend.
A new strategy cooked up late last year to focus on everyday products caused a flutter of positivity, but as Morgan Stanley says today “clearly this transition has not been successful”.
The analysts, led by John Stavliotis, have hacked 34 per cent off their full-year forecast for The Reject Shop following “a heavy focus on variety products that didn’t sell well, exacerbated by a weak consumer environment”.
Morgan Stanley analysts cut the retailer’s recommendation to ‘Equal-weight’ from ‘Overweight’ and cut 41 per cent off its 12-month target price, bringing it to $5.35 from $9.15.
They admit they read the scene wrong when The Reject Shop took a new approach late last year and have been left red faced.
“One of the cases for turning positive on The Reject Shop in October 2016 was a strategy to focus on everyday products at lower prices to reduce merchandise risk in the business,” equity analysts John Stavliotis, James Bales and Wayne Ma.
“Clearly this transition has not been successful. The failure raises concerns of TRS’s ability to effectively compete on price and offering on everyday products.”
“Stock looks cheap but risk to earnings remain and we don’t have confidence of sales stability; move to equal-weight.”
Shares in The Reject Shop (TRS) slumped 35 per cent on Friday and are currently another 9 per cent lower at $4.65 — the lowest the stock has been in 11 years.
2.33pm: Bullard backs shrinking Fed balance sheet
St Louis Fed chief and FOMC member James Bullard has backed the Fed’s plan to start shrinking its balance sheet this year.
“Ending balance sheet reinvestment may allow for a more natural adjustment of rates across the yield curve as normalisation proceeds,” he said.
“We should be allowing the balance sheet to normalise naturally now, during relatively good times, in case we are forced to resort to balance sheet policy in a future downturn.”
This confirms that a key part of the reason for balance sheet normalisation is to allow the yield curve to steepen in response to official rate hikes.
A problem for the Fed is that overall US financial conditions have actually eased since the Fed started tightening rates in December 2015.
It could be implied that, if the US were to experience another downturn from here, quantitative easing would be less effective while the balance sheet is so large.
Equally, Bullard would have no problem with the Fed using QE again “if forced” to do so “in a future downturn”.
In the bigger picture, the “Bernanke put” lives on.
Stephen Bartholomeusz 2.05pm: Growth in domestic roaming: Vodafone
Vodafone’s Inãki Berroeta’s renewed call for the Australian Competition and Consumer Commission to declare mobile roaming is a reminder that a draft decision on the issue is now imminent.
Berroeta referred to the “competitive failure’’ of the mobile market in regional Australia in a speech to the CommsDay summit in Sydney, arguing that domestic roaming was the most common and best solution to ensuring increased investment and increased competition.
The ACCC was originally scheduled to publish its draft decision before Easter but it appears the timetable has slipped slightly and the telcos expect that it will be announced shortly after Easter.
There’s a lot riding on the final outcome.
Goldman Sachs has estimated it could cost Telstra (TLS) $546 million of annual earnings if its network in rural and regional Australia is declared.
1.20pm: Morgan Stanley drops RBA rate cut call
Morgan Stanley has abandoned its prediction of further RBA rate cuts this year — it now expects the RBA to keep the cash rate on hold at 1.5 per cent this year.
That leaves only JPMorgan, Nomura, RBC, Macquarie and Capital Economists calling for cuts.
“Speculative conditions in established Sydney and Melbourne housing are the ‘rock’ preventing further rate cuts that are, in our view, needed to boost aggregate demand — in large part through a lower AUD,” Morgan Stanley strategists Daniel Blake and Chris Nicol say.
“Meanwhile, the weak labour market and highly-geared household balance sheets are the ‘hard place’ preventing the cash rate from being hiked to tackle housing imbalances.”
They say market expectations of a hike by August 2018, misses the fact that a 3 per cent cash rate is equivalent to 6.25 per cent pre-GFC given world-leading household leverage.
Bridget Carter 1.07pm: Activist Bolton tightens grip on 360 Capital
Shareholder activist Nicholas Bolton has tightened his grip on Tony Pitt’s 360 Capital Total Return Fund (TOT).
Aurora Funds Management, which is backed by Mr Bolton, has lifted his stake from about 13 per cent to 18 per cent in what is seen as a move to extract further value in the $48 million listed property investor.
The fund was last week trading at $1.18 per share, which compares to its net tangible assets — which is the underlying value of its property portfolio — at $1.38.
More to come from DataRoom.
12.41pm: Worley hits 2-year high on Dubai buy
WorleyParsons shares jumped 3.7pc to a 2-year high of $11.49 after a $175m share raid this morning.
Dubai-based Dar Group appears to have lifted its stake to 19.9pc after 15m shares changed hands at $11.50/share.
Dar made an unsolicited takeover proposal for WorleyParsons in November 2016.
WorleyParsons’ board declined to engage in discussions at that time.
WOR last up 3.7pc at $11.45.
12.24pm: Stag profit for Moelis investors
Investors in the Moelis IPO have enjoyed a 24 per cent stag profit today after shares in the investment bank (MOE) jumped to $2.91 after listing today.
Moelis shares last at $2.85 vs. $2.35 IPO price.
12.14pm: Aussie dollar drops to February low
AUD/USD has fallen to a two-and-a-half-month low of 0.7482, the lowest the currency has traded since February 17.
A sustained break of 0.7491 could trigger a fall to the December low at 0.7160.
Elizabeth Redman 11.57am: 360 Capital halts trade for raising
Property investment and funds management company 360 Capital Group (TGP) has been placed in a trading halt as it prepares for a capital raising for its listed 360 Capital Total Return Fund.
360 Capital said it could participate in the raising as an underwriter or sub-underwriter of the non-renounceable rights offer, and may also take up its entitlements in such a rights offer.
The group expects its shares to return to trade by Wednesday morning.
11.40am: Home loans fall below expectations
February home loans fell 0.5 per cent month-on-month, undershooting the consensus expectation of no change.
Investor loans tumbled 5.9 per month-on-month, weakest since September 2015, ahead of the latest tightening of lending regulations.
Owner-occupied loans fell 0.5 per cent month-on-month.
11.32am: ASX hits 5900 as US futures rise
Australia’s S&P/ASX 200 share index is testing resistance at 5900.
The index had hit a 6-day high of 5901.1 in late morning trading.
That’s in line with resistance from last week’s high and the May 2015 peak.
This comes amid a 0.2pc rise in US stock index futures.
Index last up 0.6pc at 5896.8.
11.08pm: What to expect from housing finance data
Australian housing data due February are due at 1130 AEST.
Bloomberg’s consensus estimate is for no change versus January.
In light of concerns over housing debt, the focus will be on investor loans.
However, this data pre-date the latest macroprudential regulations designed to curb interest-only and investor loans.
10.42am: Spotless’ Takeovers Panel bid denied
The Takeovers Panel has declined Spotless’ (SPO) application for proceedings against Downer in its off-market takeover bid.
Downer (DOW) agreed to provide additional disclosure in a replacement bidder’s statement, in particular in relation to clarifying the operation of withdrawal rights for accepting Spotless shareholders while the bid is conditional.
“The Panel concluded there was no reasonable prospect that it would make a declaration of unacceptable circumstances,” it said.
10.35am: CHARTS: Aussie dollar tests fresh lows
AUD/USD is currently testing support from the March 9 low at 0.7491.
This follows Friday’s close at 0.7500, which broke the 100-DMA at 0.7513.
The reaction to 0.7491 could determine whether AUD/USD tests 0.7160 or 0.7750 in coming weeks.
CFTC data showed speculative longs were pared slightly to 49,600 vs. 53,100 in the past week.
AUD/USD last 0.7501.
10.24am: Morgan Stanley drops rate cut call
Morgan Stanley has abandoned its prediction of further RBA rate cuts this year — it now expects the RBA to keep the cash rate on hold at 1.5 per cent this year.
That leaves only JPMorgan, Nomura, RBC, Macquarie and Capital Economists calling for cuts.
“Speculative conditions in established Sydney and Melbourne housing are the ‘rock’ preventing further rate cuts that are, in our view, needed to boost aggregate demand — in large part through a lower AUD,” Morgan Stanley strategists Daniel Blake and Chris Nicol say.
“Meanwhile, the weak labour market and highly-geared household balance sheets are the ‘hard place’ preventing the cash rate from being hiked to tackle housing imbalances.”
They say market expectations of a hike by August 2018, misses the fact that a 3 per cent cash rate is equivalent to 6.25 per cent pre-GFC given world-leading household leverage.
10.17am: Broker ratings update
IAG Insurance (IAG) raised to Overweight vs. Equal-weight — Morgan Stanley
Mineral Resources (MIN) raised to Overweight vs. Equal-weight — Morgan Stanley
The Reject Shop (TRS) cut to Equal-weight vs. Overweight — Morgan Stanley
More broker ratings changes here
10.05am: Is there any taming the gold streak?
The price of gold briefly hit a five-month high on Friday after Donald Trump ordered the bombing of a Syrian government air base, and local gold stocks jumped as a result.
Seven of the top ten performing stocks on the ASX 200 last week were gold miners.
“Gold looks interesting,” IG chief strategist Chris Weston said.
“There is a battle underway in gold and if you read social media one could believe that we are seeing the start of a new Cold War and this in itself should support gold, but again I want to see the bulls getting the upper hand and that means waiting for the close through $US1264.
“On the other hand, one must respect price and I am a seller of gold through $US1239 (the 31 March low and double top neckline) for a move into $1200.”
On Friday the US dollar price of gold broke through $US1264 and spiked to $US1271 but slipped noticeably to close at $US1254.
9.50am: Buy the ‘dips’ in miner play: CLSA
CLSA has upgraded BHP, RIO, AWC, FMG and S32 after lifting its commodity forecasts.
BHP, RIO and Alumina are rated Buy vs. Outperform, Fortescue gets an Outperform vs. Sell, and S32 is rated Underperform vs. Sell.
CLSA increased its base metal (ex-nickel) forecasts an average of 11 per cent in 2017 and 18 per cent in 2018, while its iron ore forecasts rose 25 per cent for 2017 and 10 per cent for 2018. Thermal coal price forecasts rose 18 per cent and 7 per cent for the same periods.
That saw its Australian mining sector earnings forecasts revised up 11 per cent on average and price targets raised 5 per cent.
“We are mindful of the argument that mining equities are considered a beta play on the underlying commodity, and see commodity price normalisation as a risk,” the broker says.
“However, total shareholder return is more than a function of commodity price movements.
“With higher free-cash-flow yields, capital management upside, operational catalysts, production growth, productivity and cost out benefits, we believe select equities will outperform underlying commodities. We advocate ‘buying the dips’ in quality names.”
9.36am: Market to give iron ore the slip
Australia’s S&P/ASX 200 is expected to open up 0.4 per cent at 5885 based on futures fair value, which would be yet another bounce off the 5830 support level established last week.
A daily close above 5900 could test 6000, but the market looks range bound within 5830-5900 while awaiting fresh catalysts.
Spot iron ore fell 6.8 per cent to a 4-month low of $US75.45, in line with a fall in iron ore futures during Friday’s local session.
Thus it won’t necessarily generate a further slide in iron ore miners though traders will be watching the futures today.
BHP ADR’s Australian dollar equivalent close at $24.66 actually implies a 0.3 per cent rise at the open.
And CLSA has upgraded BHP, Rio Tinto and South 32 this morning.
Higher bond yields may weight on bond proxies today, with utilities weakest in the S&P 500.
Energy was also surprisingly weak considering WTI crude rose 1 per cent to $US52.24.
WTI crude is up 0.5 per cent at $US52.50 in early trading.
Some degree of caution may prevail as investors eye tensions between US, Russia and the Assad regime in Syria — note that gold is flat after paring most of its rise on Friday following the US strike.
S&P/ASX 200 last 5862.5.
Daniel Palmer 9.06am: Iron ore rouses the bears
Iron ore has plunged over 7 per cent, falling into a technical bear market as investors fret over near record high Chinese stockpiles.
At the end of the latest session, iron ore for immediate delivery to the Port of Tianjin in China slumped 7.3 per cent, or $US5.90, to $US75 a tonne.
It marks the lowest point for Australia’s key export since November 30 last year and comes just four weeks out from the Federal Budget.
While the 20.6 per cent tumble in value since the commodity reached a multi-year peak of $US94.50 in February will have Canberra nervous, iron ore still remains above the $US68 a tonne projection factored into forecasts through until June 30.
More to come.
Annabel Hepworth 8.55am: Growth at stake in lobby power
New investments in electricity and gas networks could be stifled if proposed new restrictions to the ability of energy businesses to appeal the regulator’s pricing rulings go ahead, the Turnbull government has been warned.
The peak infrastructure group has written to Environment and Energy Minister Josh Frydenberg, escalating the fight against the plan to overhaul the process known as the “limited merits review” that allows energy networks to appeal decisions by the Australian Energy Regulator.
8.45am: Broker ratings changes
BHP Billiton (BHP) raised to Buy vs. Outperform- CLSA
Rio Tinto (RIO) raised to Buy vs. Outperform — CLSA
South32 (S32) raised to Underperform vs. Sell — CLSA
Alumina (AWC) raised to Buy vs. Outperform — CLSA
Fortescue (FMG) raised to Ouperform vs. Sell — CLSA
WorleyParsons (WOR) cut to Sell vs. Hold — Morningstar
G8 Education (GEM) raised to Buy vs. Hold — Morningstar
The Reject Shop (TRS) cut to Neutral vs. Buy — UBS
8.40am: Suitors flock to Mantra appeal
Bridget Carter and Scott Murdoch write:
Another suitor has emerged for hotel operator Mantra (MTR). This time Minor International is being touted as a potential buyer.
Thai group Minor International, which also owns restaurant and cafe chains such as The Coffee Club, purchased a majority interest in Mantra’s Australian rival, Oaks Hotels and Resorts, in 2011.
It has also been suggested that Marriott, based in the US, has been circling the operation.
Read more from DataRoom here
Scott Murdoch 8.30am: Tabcorp deal trumps Packer
Tabcorp (TAH) will today reveal an exclusive wagering deal with NSW pubs to effectively stop rival CrownBet from extending its controversial clubs agreement to hotels across the state.
Tabcorp and CrownBet are locked in an ongoing battle after the James Packer-backed gaming group reached a deal in February to provide exclusive digital wagering services to 1200 clubs across the state.
The loss has been a major sticking point for Tabcorp, which is pushing ahead with its ambitious bid to create an $11 billion mega-gaming group with rival Tatts Group. CrownBet has teamed up with Racing Victoria to protest against the merger proposal and argued the deal will leaving punters worse off across the east coast.
However, Tabcorp chief executive David Attenborough will today announce a deal with Australian Hotels Association NSW for a five-year wagering partnership.
6.50am: Dollar falls below US75c
The Australian dollar has fallen further against its US counterpart, dropping below the US75 cent mark.
At 6.35am (AEST), the Australian dollar was worth US74.94 cents, down from US75.24 cents on Friday.
Westpac’s Imre Speizer said the local currency had continued its grind lower since Friday, from US75.40c to US74.95c while the greenback had risen 0.5 per cent against a basket of major currencies.
The Australian dollar today would be “vulnerable to a break below the 0.7500 area (9 March low) towards 0.7450, the stronger US dollar at play,” he said. But, the local currency is slightly higher against the yen and the euro.
AAP
6.45am: Stocks set to rise at the open
The Australian share market is set for a modestly positive start to the week before attention shifts to an expected lift in employment figures.
US stocks ended flat on Friday after a weaker-than-expected jobs report and US missile strikes in Syria in response to a deadly chemical weapons attack, with the Dow Jones industrial average down 0.03 per cent, the S & P 500 down 0.8 per cent and the Nasdaq 0.02 per cent.
However Australian stocks are tipped to climb at the open. At 6.45am (AEST), the SPI futures index was up 14 points.
AMP Capital chief economist Shane Oliver said the US missile strikes against Syria had caused some uncertainty in financial markets but it looks to have been short-lived, as has been the case in the past in response to limited military strikes and most terrorist attacks.
“This is likely to remain the case as the strike was highly targeted and proportional to the chemical attack and does not signal increased US involvement in Syria,” Dr Oliver said.
On Friday, Australian shares and the local currency rebounded after coming under pressure
following the strike on Syria that caused a plunge in regional equity markets and sparked a rally in oil and gold prices.
Shares recovered to close slightly higher on the back of strong gains across the energy sector.
The benchmark S & P/ASX200 index closed 6.2 points, or 0.11 per cent, higher at 5,862.5 points.
The broader All Ordinaries index was up 5.3 points, or 0.09 per cent, at 5,902.6 points.
This week, jobs data on Thursday will be the main focus for Australian investors. The market forecast is for a rise of 20,000 jobs in March and the unemployment rate remaining at 5.9 per cent.
Today’s housing finance data for February will also be of interest, with the market forecast for a flat result.
Commonwealth Bank economist Kristina Clifton said conditions in the housing market remain in focus following the Australian Prudential Regulation Authority’s decision to implement additional measures to slow the growth of interest-only loans and loans with high loan to valuation ratios. The Reserve Bank of Australia is concerned soaring housing prices are pushing up the level of household debt relative to incomes.
Ms Clifton said the RBA will elaborate further on its views on housing in its financial stability review on Thursday.
Westpac, which expects a one per cent dip in owner occupier loans, said the value of investor loans could remain strong in February as lenders moved to increase investor loan rates in March and APRA’s harder line on macro prudential measures was announced in April.
AAP
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