ASX 200 drops before budget; Anglo to sell assets as fends off BHP; GUD jumps; Karoon eyes output growth

Anglo American to divest or demerge assets, including Aussie coal mines, as rebuffs BHP takeover. Karoon Energy targets oil output lift. Inquiry head takes aim at Star reforms. ARN Media still chasing SCA. GUD jumps. 

The Australian sharemarket is expected to open flat, slightly lower ahead of Tuesday’s federal budget. Picture: Gaye Gerard

Welcome to the Trading Day blog for Tuesday, May 14. The ASX 200 closed 0.3 per cent lower at 7726.80 points. Global investors await US producer prices tonight and inflation data on Wednesday night. 

The Aussie dollar is trading near US66.03c.

Updates

4:59 pm May 14, 2024 Highlight

Anglo to sell Aussie coal mines

Megan Neil

Anglo American plans to sell its Australian coal mines as part of its restructure, saying it has strong buyer interest in its steelmaking coal assets.

After rejecting a sweetened $64bn takeover offer from BHP Billiton, the London-headquartered miner plans to sell or demerge several assets as it simplifies its portfolio to focus on copper, premium iron ore and crop nutrients.

Anglo says its steelmaking coal assets will be divested and it is "currently responding to strong buyer interest".

"Anglo American intends to divest its high quality steelmaking coal business, with proceeds used to reset Anglo American's balance sheet," the company says.

Anglo's Australian-based steelmaking coal business includes five operating mines plus additional development projects and joint venture interests. Its tier one steelmaking or metallurgical coal assets include the Moranbah North and Grosvenor mines in Queensland.

4:46 pm May 14, 2024

ASX slips 0.3pc before Federal Budget

David Rogers

Australia's share market fell slightly in quiet trading before the Federal Budget at 0730pm AEST and US and Australian economic data this week.

The S&P/ASX 200 index closed down 0.3 per cent at 7726.8 after falling to 7714.6. Share trading value was well below average.

On the charts, the index found support from last week's low near 7715 and its 50-day moving average near 7729 but didn't bounce much.

Most sectors fell with property, industrials, tech, energy, staples and communications underforming and discretionary and health care in the green.

Transurban fell 1.9 per cent, ANZ lost 0.7 per cent, Goodman fell 0.8 per cent, Fortescue fell 0.9 per cent and Xero dropped 2.2 per cent.

Wesfarmers gained 0.5 per cent, Aristocrat added 1.2 per cent, Sonic gained 2,2 per cent, Alumina jumped 6.9 per cent tracking Aloca, and GUD surged 12 per cent on relief that it reaffirmed its earnings guidance on Monday.

Analysts say the Government will aim to to strike a balance between providing cost-of-living relief without inflaming the RBA's inflation concerns.

"Media reports suggest the Government expects its cost-of-living relief measures, including rent and power bill relief, to help inflation return to the RBA's 2-3% target by Christmas," says IG market analyst Tony Sycamore.

"We think the Government is overlooking the link that households' money saved in one area will likely be spent elsewhere."

"The only question is will it stir inflation by being stimulatory and cause the RBA to fret – or will they do the right thing by the economy and keep it contained," said Bell Potter's Richard Coppleson.

4:37 pm May 14, 2024 Highlight

Anglo to sell assets as fights BHP

Megan Neil

Anglo American will sell or demerge several assets to simplify its portfolio as it fends off BHP Billiton's takeover approach.

The London-headquartered miner plans to focus on copper, premium iron ore and crop nutrients.

Anglo American says it will divest its steelmaking coal assets, demerge Anglo American Platinum, and divest or demerge its De Beers diamond unit, and is also exploring options to divest its nickel operations.

"Our decision to focus Anglo American’s portfolio in our world-class resource asset base in copper and premium iron ore – while retaining our crop nutrients optionality at Woodsmith – marks a major new phase in executing our strategy," Anglo American chief executive Duncan Wanblad says.

“We expect that a radically simpler business will deliver sustainable incremental value creation through a step change in operational performance and cost reduction."

The strategy was unveiled in London, less than a day after Anglo American rebuffed a sweetened $64bn takeover offer from BHP. The world's biggest miner's bid continues to rely on the spin-off of Anglo's 79 per cent stake in South Africa’s Anglo Platinum and the separate spin-off of the 70 per cent-owned Kumba mining operations also based in South Africa.

Mr Wanblad said the revamp represented the most radical changes to Anglo American in decades.

"I believe these are the right decisions to position Anglo American to capitalise on the outstanding resource endowment opportunities within our portfolio today," he said.

"Our proven and differentiated capabilities within Anglo American, our global relationship networks and our longstanding reputation as a responsible mining company will help us unlock numerous of these and other opportunities in the jurisdictions where our experience and track record are most valuable and most valued, namely in South America and Southern Africa."

3:46 pm May 14, 2024

Budget won't alter RBA rate path: Saxo

Megan Neil

The federal budget is unlikely to change the RBA's interest rate path, according to Saxo head of foreign exchange strategy Charu Chanana.

"Treasury predictions in the budget show inflation dropping to 2.75 per cent by December, which means inflation will be back in the 2-3 per cent RBA target range," Ms Chanana says.

"This is quite dovish compared to RBA’s outlook … the budget announcement is thus likely to underscore the case of no more rate hikes from the RBA, and could even leave the door open to price in rate cuts for this year if inflation surprises to the downside.

"The RBA’s rate path is unlikely to be altered by the budget announcement, and it could still well be the last of the G10 central banks to cut rates," she says.

Ms Chanana says the budget is likely to be neutral to negative for the Aussie dollar in the short run, but could fuel bullish bets on the currency in the medium-to-long term.

CBA senior economist Kristina Clifton says the bank expects limited reaction by the Aussie dollar to the release of the budget, in line with previous years.

"We expect AUD/USD to consolidate around 0.6600 ahead of important data on Wednesday (Australian wages, US CPI) and Thursday (Australian jobs)." The dollar is trading at US66.02c.

3:14 pm May 14, 2024

Morningstar sees pathology stocks recovery

Megan Neil

The market is underestimating the margin recovery of pathology providers Sonic Healthcare, Healius and Australian Clinical Labs, according to Morningstar analyst Shane Ponraj.

Mr Ponraj says the pathology providers appear to have fallen out of favour with the market, with margins now below pre-pandemic levels. "While the market doubts a return to pre-pandemic profitability, we see several reasons to expect a stronger recovery than market consensus," he says in a research report.

"We expect all three major providers to exceed pre-pandemic group EBIT margins by at least 2 percentage points by fiscal 2028 through increased pricing, stabilising costs, and scale benefits."

He says Morningstar also forecasts a five-year revenue compound annual growth rate of 5 per cent for the pathology industry, with roughly two-thirds coming from expected volume growth and the rest from pricing. "Demand is driven by population growth, ageing demographics, higher disease incidence, wider adoption, and more testing."

Mr Ponraj says Sonic Healthcare, Healius, and Australian Clinical Labs shares have fallen roughly 60 per cent on average since the beginning of 2022, but long-term volume growth drivers are intact. "In the near term, we expect elevated volume growth as patients return to routine diagnostic testing and general practitioner attendances recover on new bulk-billing incentives."

2:55 pm May 14, 2024

NAB lifts notes bookbuild to $1bn

Megan Neil

National Australia Bank has increased the size of a new additional tier 1 capital security offer to $1bn.

NAB originally intended to raise $750m through the NAB capital notes 8 offer.

The bank now says it has allocated $1bn of NAB capital notes 8 and set the margin at 2.60 per cent per annum following successful completion of the bookbuild for the offer.

The offer is expected to open on May 21.

2:31 pm May 14, 2024

Consumer squeeze continues: Westpac

Megan Neil

Credit and debit card activity shows a continued consumer squeeze as people cut back on discretionary spending, the latest Westpac card tracker index shows.

Westpac says the index firmed slightly over the two weeks to May 4, rising 1.8 points to 133.1. "Activity continues to move along in fits and starts," Westpac senior economist Matthew Hassan says.

The report says the latest weakening is relatively broad-based across discretionary components, with hospitality, travel and durables all contributing negatively to quarterly growth and gains across the remainder slowing materially.

"The sporadic gains around a weak underlying trend are likely to be a feature for some time yet, with household disposable incomes not set to see much support until the second half of the year," Mr Hassan says.

"While moderating inflation is starting to see purchasing power stabilise, the July tax cuts will mark the first material boost to disposable incomes. How much of this plays through to spending will be of key interest – consumer sentiment and card activity set to provide the earliest clues to any impacts."

2:05 pm May 14, 2024

ARN committed to pursuing SCA

Chris Herde

ARN Media said it remained committed to pursuing Southern Cross Austereo after a private equity firm unexpectedly pulled out of negotiation on the weekend over the planned takeover.

ARN chairman Hamish McLennan said he was surprised when Anchorage Capital Partners elected to cease participating in the planned takeover in what would have been Australia’s largest listed radio deal.

“I thought it was an excellent deal for all shareholders, and we’re more committed than ever,” he told The Australian after the company’s AGM on Tuesday

“ARN wants to see the deal through. We’ve had some extremely interested inbounds since Anchorage pulled out. We are regrouping and looking forward to engaging with SCA again.”

The issue and ARN’s future direction was dealt with and the company’s AGM on Tuesday, with a significant portion of shareholders unhappy with the company’s executive team by 20.2 per cent voting against accepting the renumeration report.

2:04 pm May 14, 2024 Highlight

Bell takes aim at Star reforms

Glen Norris

Star inquiry head Adam Bell SC says it's unclear what the troubled gaming group is doing to reform itself in order to retain its Sydney casino licence.

The Bell II inquiry was held in closed session on Tuesday to discuss the finances of Star after Mr Bell earlier took aim at the company’s remediation efforts, describing them as “amorphous” and lacking “clarity.”

Mr Bell, who will ultimately recommend to the NSW Government whether Star is suitable to hold its Sydney casino licence, said a promised “reset” of remediation plans by the company were more than a year behind schedule.

Responding to closing submissions from counsel assisting the inquiry Caspar Conde, Mr Bell said he didn’t “have any clarity as to precisely what is being done about” the reset.

“Mr Conde, my impression is that the evidence about a reset in the remediation plan is somewhat amorphous,” said Mr Bell. It is not the first time Mr Bell has taken aim at the slow progress of reform at Star, after his earlier inquiry in 2022 found Star had not met its obligations to prevent money laundering and organised crime links.

1:07 pm May 14, 2024

Bonza staff to remain stood down

Robyn Ironside

Bonza employees have been told they will remain stood down at a town hall meeting until at least May 29, as administrators seek formal expressions of interest in the airline from various "interested parties".

Flight cancellations will also be extended to this date, meaning more customers will become "contingent creditors" with no refunds currently available.

Kathleen Vouris of Hall Chadwick addressed the town hall meeting, telling about 200 employees a data room had been set up to provide information to interested parties.

"We have over 20 interested parties; we need to whittle that down but we still need time to properly deal with those parties," Ms Vouris said.

"We are asking for proper expressions of interest by close of business Thursday, that may get pushed out to Friday as we gauge interest around how useful the data room has been by that point."