ASX 200 lifts; Santos jumps on possible takeover interest from Aramco, Adnoc; Lendlease, Stockland deal hits ACCC hurdle

Middle East takeover talks may lure other Santos bidders. $1bn Lendlease, Stockland deal hits ACCC hurdle. Magellan June flows mixed, funds under management slip. Seven's retention bonus for Boral CEO. 

Commodity stocks are on a rollercoaster this week. Picture: Gaye Gerard

Welcome to the Trading Day blog for Thursday, July 4. The ASX 200 index closed 1.2 per cent higher to 7831.80 points on mining, energy and property gains. US markets closed mixed in a short session that saw Nasdaq and S&P 500 hit fresh highs.

The Aussie dollar was trading near US67.18c at 5.05pm AEST.

Updates

4:57 pm July 4, 2024

ASX 200 ends up 1.2pc a one-week high

David Rogers

Australia's stock market rises strongly to a one-week high after gains in global stocks, bonds and commodities, breaking above a key level on the chart.

Trading volume was light with the US closed Thursday for Independence Day.

US non-farm payrolls data are due on Friday.

In its best day in more than a week, the S&P/ASX 200 index ends up 91.91 points or 1.2 per cent 7831.8 after hitting an intraday high of 7835.7.

The close breaks above a chart resistance line from a Symmetrical Triangle pattern at 7823, but the record high at 7910 remains strong resistance for now.

The materials sector leads broad-based gains as iron ore hit a two-month high of $US113.95 a tonne and LME copper hit a three-week high of $US9912.5 a tonne.

BHP rose 2.6 per cent to a four-week high of $US44.77, Fortescue jumped 3.2 per cent and Rio Tinto gained 2.6 per cent while MinRes jumped 4.8 per cent.

Newmont gained 3.2 per cent and Evolution rose 4.1 per cent as spot gold rose 1.2 per cent to a two-week high of $US2,2356 per ounce.

Santos jumped 4.2 per cent as Bloomberg flagged Middle East takeover interest.

CBA jumped 2 per centn to $127.86.

Magellan jumped 6.1 per cent as performance fees improved.

West African Resources dived 14 per cent on a capital raise.

4:24 pm July 4, 2024

Aviation strike avoided

Robyn Ironside

Threatened industrial action by air traffic controllers has been thwarted, with Airservices Australia reaching an agreement with Civil Air.

The three-year deal includes an 11.2 per cent pay rise and an $8000 sign-on bonus for recruits, which can be taken as payment or superannuation.

It follows months of negotiations and an overwhelming vote in favour of protected industrial action which threatened to cause widespread disruption to air travel.

The strikes never eventuated as Civil Air and Airservices returned to the negotiating table to resolve issues around staffing and pay.

Airservices acting CEO Peter Curran said the agreement was the result of extensive good faith negotiations and would offer certainty to controllers. "This agreement will enable us to build operational resilience so we can provide the best possible service for Australia's aviation industry and the travelling public," said Mr Curran.

3:13 pm July 4, 2024

Copper to retest $US10K soon but fade iron ore: Citi

David Rogers

Citi sees copper retesting $10,000 a tonne in the weeks ahead on positive headlines from China policy easing announcements we expect around the Third Plenum meeting from 15-18th July.

"Our China analysts expect greater support through reforms for power grid investment and renewables from the plenum," says Citi analyst Paul McTaggart.

"We think the grid is an obvious focus for further investment to avoid bottlenecks for renewables additions.

"More property measures and monetary easing would also be copper-supportive."

But the US bank tells clients to "fade strength in iron ore" prices.

"Iron ore prices are likely to remain volatile ahead of China’s third plenum but fundamentals suggests risks are skewed to the downside and we maintain our three-month price target of $US95 a tonne," McTaggart says.

He says China's onshore steel demand remains muted with construction and infrastructure activity slowing due to inclement weather and the usual summer slowdown.

So China's steel inventories are increasing while port inventories of iron ore remain high, and its steel mill margins continue to be squeezed especially at current spot iron ore prices and steel output controls are likely to reduce iron ore demand.

In that backdrop, Citi is betting that new policy measures aimed at addressing the housing glut are unlikely to stimulate incremental steel demand.

1:46 pm July 4, 2024

Regal lifts on strong half-year performance

Valerina Changarathil

Investment manager Regal Partners' share price is up 3 per cent to $3.39 in afternoon trading following its upbeat preliminary half-year results released after market close on Wednesday.

Pre-tax performance fees for the six months to June 30 are likely to come in between $55m and $56m – a massive jump on the near $8m result in the prior corresponding period in FY23. Regal Partners said the fees have been driven primarily by a range of Regal Funds Management strategies, including Australian Small Companies, Resources Long Short, Tactical Opportunities, Resources Royalties and the Regal Investment Fund as well as funds relating to the PM Capital global strategy.

Regal’s funds under management (FUM) at June 30 is likely to total $12.2bn, after deducting around $300m of distributions net of reinvestments. That compares to$5.8bn in the first half of FY23. Net inflows for the June quarter are expected to be approximately $300m, taking net inflows for the first half to $700m.

E&P Capital’s Olivier Coulon said he was expecting a better result in terms of performance fees after "materially" lifting his expectations to $58.9m, from $23.9m previously, following Regal's April investor reports. "So this is modestly lower than our bullish forecast with the drawdown in the PM Capital Global fund responsible. We nevertheless see this update as pleasing given confirmation that several key funds crossed their HWMs (high water marks) over the period," he said in a note on Thursday.

"We think this result should remind investors of the significant upside RPL retains to strong investment performance," Mr Coulon said. "With a much higher percentage of the FUM now back above high watermark, we remain of the view that the risks to our outer year period PFs are to the upside." Regal's next FUM update is due later this month ahead of audited first-half results on August 26.

12:50 pm July 4, 2024 Highlight

ACCC cloud over Stockland earnings, Lendlease capital plans

Valerina Changarathil

The competition regulator's roadblock on their $1bn asset deal may impact buyer Stockland Corporation's FY25 earnings and Lendlease's capital recovery plans, analysts at Citi say.

In December, Lendlease and Stockland, along with its Thai partner Supalai, reached a deal to buy 12 community projects from Lendlease. The ACCC on Thursday outlined its concerns about the arrangement in relation to the impact on developer competition in the regions where the projects are sited as well as potential housing supply manipulation issues. The ACCC is accepting submissions on the matter until July 18 before a final decision on September 12.

Citi's note, led by equity analyst Suraj Nebhani, points out Stockland had about a 4 per cent contribution to FY25 earnings per share growth linked to the acquisition. "We now believe that SGP's earnings will see limited growth in FY25 EPS, unless the acquisition is finalised". "That said, given issues have been raised around ~26 per cent of the communities being sold, we do believe that the remaining portion of the acquisition will likely go ahead, with a lower contribution to earnings." Citi is buy rated on SGP, but expects the ACCC hurdle to weigh on the stock near term.

Also buy rated on Lendlease, the broker says the action "delays a key catalyst given the sale was likely to contribute $1.3bn out of the initial $1.9bn contracted divestments, and delays the capital realisation of a targeted $2.8bn over 12 months, announced at the strategy day in late May". While the deal may still go ahead in some form, the re-rating for LLC will likely now be delayed to post the final report being released by ACCC in September.

At 12.48pm AEST, Stockland's share price is 0.6 per cent lower at $4.23; Lendlease has shed 1.1 per cent at $5.63.

12:29 pm July 4, 2024

ASX 200 on cusp of breakout

David Rogers

Australia's share market is on the cusp of a technical breakout on the chart that could prompt a test of its record high in coming days.

The US market is closed Thursday and US non-farm payrolls data are due Friday.

The local market is having its best day in over a week after global stocks, commodities and bonds rose on Wednesday.

The S&P/ASX 200 index is up 1.1 per cent at 7824.1 after hitting a one-week high of 7826.6. It is testing the resistance line of a Symmetrical Triangle pattern at 7823.

A daily close above this line would signal a likely test of the record high at 7910.

If 7910 caps it could have another dip to about 7700 but can be expected to surge above 7910 within two months, based on a potential Ascending Triangle pattern.

The materials, energy and property are outperforming and only utilities are down.

BHP soars 2.5 per cent to a four-week high of $44.75 as iron ore futures hit four week highs above $113 a tonne on iron ore price gains on hopes of new measures to support China’s property sector at the Third Plenum from 15 to 18 July.

Newmont adds 3.3 per cent and Evolution jumps 4.6 per cent as gold rises.

Sandfire Resources climbs 4.9 per cent as copper rose 2 per cent.

Santos soars over 4.4 per cent as Bloomberg flags potential takeover interest.

Goodman Group drives the property sector with a 2.1 per cent gain after the US 10-year bond yield fell 7.3 basis points to 4.356 per cent.

CBA leads banks with a 1.2 per cent rise to $126.90.

Magellan jumps as much as 7 per cent on improved performance fees.

11:58 am July 4, 2024

Magellan up 7pc in best day in four months

Magellan Financial Group shares are having their best day in four months.

Magellan shares soar almost 7 per cent to a two-month high of $9.145.

In an update on funds under management and performance fees, Magellan said retail outflows were matched by institutional inflows last month.

And FY24 performance fees are expected to jump to $19m versus $11.5m in FY23.

The update suggests outflows are stabilising and performance fees are improving on the back of strategic changes after a long decline since 2020.

11:31 am July 4, 2024

Aussie banks not as expensive as some: UBS

David Rogers

Aussie bank shares are seen as "very expensive" but UBS says its clients see few catalysts on the horizon that could "fundamentally de-rate these stocks."

In 60 one-on-one meetings with UBS last month, clients asked if the sector is "becoming utility-like as the operating and business models become more commoditized".

They are also asked "where could the market be wrong on earnings for the banks; and "why have they outperformed".

"The sector's relative outperformance, within the context of light investor positioning, has clients asking why, and more importantly, what should they be doing from here," says UBS analyst John Storey.

At the end of June the Australian banks sector was up 15 per cent year to date versus 2.3 per cent for the ASX 200 index.

UBS is Sell rated on of the Australian banks except ANZ and Macquarie.

Mr Storey says their profits are more than ever a function of economic activity, as 80 per cent of their revenue comes from net interest income.

Bank profits peaked at about 2 per cent of nominal GDP in 2015.

At 1.3 per cent currently, its the second lowest level reported in the past 23 years.

But Mr Storey says the market capitalisation of Aussie banks relative to GDP is currently near its longer-term average, at 21 per cent. That's below a peak of 25 per cent in 2013 but above a trough of 15 per cent in 2020.

"However, compared to countries like, Sweden, Spain and Canada, the Aussie banks don't appear overly expensive, albeit earnings have held up better in these markets," Mr Storey says.

11:04 am July 4, 2024 Highlight

Govt, Amazon in $2bn secret cloud deal

Ben Packham

Australia’s defence and national security agencies will partner with Amazon Web Services to create a $2bn top secret data cloud to securely store and analyse the nation’s most sensitive information.

Three secure data centres and two control centres will be built at undisclosed locations for use by Australia’s intelligence community and the Australian Defence Force.

They will be air-gapped from the internet, accessible only by those with appropriate security clearances, and be operational by mid-2027. The purpose-built cloud will enable security agencies to apply the latest artificial intelligence and machine learning technology to vast, top secret data sets, and provide Defence with a resilient IT network for its military operations.

National security leaders said the cloud system would also allow greater co-operation with Australia’s Five Eyes intelligence partners.

10:58 am July 4, 2024

Santos takeover talk may lure bidders: MST

Perry Williams

Potential takeover interest from Saudi Aramco and Abu Dhabi's Adnoc in Santos may also indicate other rival bidders may consider their own offers, MST Marquee analyst Saul Kavonic said.

Bloomberg reported the two Middle East national oil companies were weighing bids for Santos, sending the company's shares up as much as 4.3 per cent on Thursday morning to $8.08, their highest level since August 2023.

Aramco and Adnoc's rumoured bids appear a "real stretch", according to Mr Kavonic, who said an offer for Santos would be a big step out of their comfort zone both politically and operationally.

However, it may be a signal to the market from Santos bankers that the company is effectively in play with another third party bidder potentially on the sidelines and the Middle East names being leaked to add tension to these talks.

"Other possible bidders include European majors, MidOcean, ConocoPhillips but all face value, funding and alternative priority hurdles," he added.

Santos in May said it was “open to all opportunities” to maximise the value of its assets, with more consolidation expected across the world oil and gas sector, according to chief executive Kevin Gallagher.

He added the company was not happy that its discussions about a possible merger with gas company Woodside earlier this year had leaked out.

Talks about a $52bn merger between the pair were scrapped in February.

Santos is one of Australia’s major gas producers with operations offshore from Darwin, the Cooper Basin in Queensland and South Australia and Papua New Guinea.