Trading Day: Miners, supermarkets lead but ASX trims gains
Stocks pulled back but remained in the green for the day, buoyed by miners and Metcash. NSW and Victoria downgraded by S&P.
- Westpac sells Pacific businesses
- Kogan fined over promotion
- Santos in new LNG supply deal
- Infratil may sell Tilt stake
Welcome to the Trading Day blog for Monday, December 7. Australian stocks faded but remained higher to close with an 0.6 per cent gain for the day after record highs on Wall Street and more gains in the price of iron ore. Locally, RBA Governor Philip Lowe addressed the Australian Payments Network and Metcash swung back to profit in the first half.
Bridget Carter 7.08pm: IGO raising $800m
DataRoom | IGO will raise $800 million to fund a potential acquisition of a $2bn-plus stake in Western Australia’s Greenbushes lithium mine, according to sources.
The company will also secure $1bn of debt for the $2bn transaction.
It comes as it emerged that IGO has tapped investment banks Citi and Macquarie Capital for the deal.
IGO was placed in a trading halt on Monday ahead of an equity raising that will be announced to the market by the end of the week, should it complete a deal.
The company already has about $500m on its balance sheet to fund the acquisition.
Grant Samuel was working on a sale this year of a stake in Greenbushes, with parties running the ruler over the assets understood to have included Rio Tinto, Wesfarmers and Fortescue Metals.
Greenbushes is controlled by Talison Lithium, which is 51 per cent-owned by China’s Tianqi Lithium, and is considered to be one of the best lithium mines in the world.
US-based lithium specialist Albemarle owns the remainder.
Expectations were that the Chinese owner would refinance the asset or Albemarle would take up its pre-emptive rights to buy the remaining interest.
Tianqi Lithium was earlier considering a sale of up to 51 per cent of its holding and a deal could be worth at least $2bn.
Tianqi Lithium had been assessing options as it wrestled with a major debt pile in China, and a sale could help it refinance the asset.
Tianqi Lithium’s debt woes follow its acquisition in 2018 of a stake in the Chile-based lithium production and distribution company SQM from Nutrien for about $4.07bn.
Talison has been producing lithium at Greenbushes since 1983. Located 250km south of Perth, the area has the world’s highest grade and largest hard rock deposit of the lithium mineral spodumene.
It comes as IGO moves to sell a 30 per cent stake in its Tropicana gold mine in Western Australia through investment bank Macquarie Capital.
Bridget Carter 7.04pm: New Link bidder emerges
DataRoom |
SS&C Technology Holdings has made a rival $5.65 per share bid for Link Administration Holdings.
Link was placed in a trading halt Monday pending an announcement about a potential change of control transaction.
An announcement was out on the new $3bn-plus bid Monday evening.
It comes after Pacific Equity Partners and The Carlyle Group made an offer where shareholders would get $3.80 per share, but including the 44 per cent PEXA interest that Link owns in PEXA, they would get $5.40 a share, valuing the entire company at about $2.9bn.
The private equity firms had the bid rebuffed but are currently carrying out due diligence.
SS&C Technology Holdings has tapped investment bank Citi for Link the bid.
The US-based company is no stranger to the Australian market.
It last year entered a bidding war for Australian software company GBST.
Perry Williams 4.52pm: Fears time running out for refineries
Viva Energy, owner of the under threat Geelong refinery in Victoria, says it has a responsibility to the nation to try and keep the facility open amid ongoing tough industry conditions.
Concerns are mounting that time is running out to safeguard the future of the three refineries - Viva’s Geelong plant, Ampol’s Lytton facility in Brisbane and ExxonMobil’s Altona in Melbourne - despite the federal government unveiling an assistance package for the industry including the introduction of a production payment based on their fuel security contribution to Australia. BP has announced plans to close its Kwinana refinery in Western Australia.
Viva said it was in regular talks with the Morrison government over the assistance package.
“It was a very substantial and material package the government made. It’s obviously very important given it’s a long term package it gets designed in the right way. That’s been the focus of discussions,” Viva chief executive Scott Wyatt told The Australian.
“It underscores the importance of the business not just to us, but to the country and we’ve got a responsibility to government to do what we can to try and preserve that capability.
I think we’re well placed to give a fulsome update on refining before the end of the year.
The fuels retailer said margins remain tough but operations have restarted at the refinery after maintenance.
“Obviously refinery margins remain challenging, so it’s no surprise there.
Global demand is still pretty weak and looking forward we expect that to continue throughout 2021 and beyond. Geelong, however, has now restarted all its processing units following the major maintenance work we did this year as expected. And I guess with restrictions being relaxed in Victoria and recovery in sales re emerging, there’s a very real opportunity now for the site to return to full production which is good news. But obviously the environment still remains very challenging,” Mr Wyatt said.
4.41pm: 9-month high before shares pull back
Australia’s sharemarket hit a nine-month high before closing up 0.6 per cent at 6675, near the low end of a 6653.4 to 6714.7 intraday range.
An early rise followed offshore gains in anticipation of more US fiscal stimulus following disappointing US non-farm payrolls data.
There was also a lot of strength in the materials sector after Macquarie lifted its price targets and ratings for a number of miners are recent commodity price gains.
BHP, Fortescue Metals and Rio Tinto were by far the biggest points contributors with gains of 2.1-3.8 per cent, while OZ Minerals rose 2.9 per cent and Sims surged 6.7 per cent.
There was also considerable strength in the Tech sector with Xero up 4.2 per cent after Goldman initiated with a Buy rating and Afterpay up 2.2 per cent after a favourable speech on the regulatory outlook from the BNPL sector from RBA Governor Lowe.
The Consumer Staples rose sector as Metcash surged 10 per cent on strong 1H results and a strong start to 2H20, with Woolworths up 1.9 per cent and Coles up 1.6 per cent.
Banks started strongly on higher bond yields and price target upgrades from Bell Potter, but bond yields pared their rise to 5bps, leaving ANGB up 0.5 per cent.
IGO entered a trading halt for a material transaction, rumored to be a controlling stake in the Greenbushes lithium mine with an equity raising also expected.
Downer confirmed it is in talks with MACA on a possible sale of Mining West and Link Administration was halted for a potential change of control deal.
The intraday pullback came after Reuters reported that the Trump Administration was planning to sanction at least a dozen Chinese officials from Hong Kong and the Mainland over the recent disqualification of opposition lawmakers in Hong Kong.
1.58pm: S&P strips NSW of AAA rating
NSW has lost its coveted AAA credit rating with S&P Global Ratings
The state’s long-term issuer credit rating fell one notch to AA+/Stable from AAA/Negative as the coronavirus pandemic slashes revenue projections and fuels public spending including on a large infrastructure program.
S&P said the state will post historically large operating and after capital account deficits this fiscal year, pushing debt sharply higher even if prospective asset sales eventuate.
The stable outlook reflects S&P’s expectation that NSW’s budgetary performance will improve during the next few years as the economy climbs out of a COVID-19-induced recession, and it undertakes balance-sheet reforms to help fund a portion of its large infrastructure pipeline.
But new borrowings will see NSW’s debt rise substantially to levels consistent with AA+ rated peers.
With the two formerly AAA-rated states - Victoria and NSW - falling, questions must be asked about Commonwealth’s AAA rating.
1.52pm: ASX fades further
Australia’s share market continues to fade along with US index futures, after a strong intraday rise.
The S&P/ASX 200 was up 0.3 per cent at 6653.4 after rising 1.2 per cent to a 9-month high of 6714.7, marginally above its late November peak of 6713.3.
It came as S&P 500 futures turned down 0.3 per cent after rising 0.3 per cent intraday.
Reuters said the US is preparing to sanction at least a dozen Chinese officials from Hong Kong and the Mainland over the recent disqualification of opposition lawmakers in Hong Kong.
The move could come as soon as Monday, the news agency said, according to unnamed sources.
Bridget Carter 1.26pm: IGO taps Citi, Macquarie for raising
IGO has tapped investment banks Citi and Macquarie Capital for an equity raising to fund a potential acquisition of a stake in Western Australia’s Greenbushes lithium mine, according to sources.
IGO was placed in a trading halt Monday in relation to the potential acquisition, and ahead of an equity raising that will be announced to the market by the end of the week should it complete a deal.
It comes after Grant Samuel was working this year on a sale of a stake in Greenbushes, with parties running the ruler over the assets understood to have included Rio Tinto, Wesfarmers and Fortescue Metals.
Greenbushes is controlled by Talison Lithium, which is 51 per cent-owned by China’s Tianqi Lithium, and is considered to be one of the best lithium mines in the world.
US-based lithium specialist Albemarle owns the remainder.
Expectations were that the Chinese owner would refinance the asset or Albemarle would take up its pre-emptive rights to buy the remaining interest.
Tianqi Lithium was earlier considering a sale of up to 51 per cent of its holding and a deal could be worth at least $2bn.
Melissa Yeo 1.05pm: ASIC sues iSignthis and boss Karantzis
ASIC has launched legal action against the ASX-listed payments group iSignthis alleging breaches of its continuous disclosure obligations and false and misleading representations, as well as seeking orders that its chief executive be disqualified.
The group, which has been suspended from trade since October last year, is alleged to have failed to disclose material information in relation to three integration agreements, and the termination of its relationship with VISA.
Further, ASIC has targeted the group’s chief John Karantzis, with proceedings also related to his involvement in alleged breaches and “his failure to take reasonable steps to ensure information that he gave to ASX was not false or misleading”.
“ASIC is seeking declarations and pecuniary penalties against iSignthis and Mr Karantzis. ASIC is also seeking orders that Mr Karantzis be disqualified from managing corporations.
It comes after several concerns have previously been flagged by the market operator, including questions of the details in key contracts announced by the company.
1.04pm: Victoria downgraded by S&P Ratings
Victoria has lost its rolled-gold AAA credit rating, with ratings agency S&P cutting its rating on the state to “AA” from “AAA” citing a weaker fiscal outlook.
S&P said the state’s operating and after-capital account deficits and debt burden have deteriorated sharply, with debt reaching about 200 per cent of operating revenues in 2023 from 70 per cent in 2019.
S&P said the prolonged lockdown has led to more significant effect on the state’s economy than elsewhere and the government’s path to fiscal repair will be more challenging.
The downgrade of Victoria’s long-term credit rating by two notches to AA, with a stable outlook, comes after it was previously AAA, with a negative outlook.
Nick Evans 12.38pm: IGO shares halted for announcement
Nickel producer IGO has called a trading halt ahead of the mooted acquisition of the Greenbushes lithium mine in Western Australia.
It is unclear whether the acquisition also includes Tianqi’s recently constructed lithium hydroxide plant in Kwinana, south of Perth, but such a purchase would immediately IGO into a significant player in the battery chain.
China’s Tianqi Lithium owns 51 per cent of the mine, with lithium major Albemarle, controlling the minority stake. But Tianqi hit debt problems when the lithium price crashed in 2019, and has been struggled to pay down $US3.5bn worth of debt taken to buy a stake in fellow lithium major SQM in 2018.
It put its share of Greenbushes, the world’s richest hard rock lithium operation, on the block earlier this year and has been fielding interest from across the world in the operation.
Albemarle has previously indicated it may exercise its right of first refusal over Tianqi’s stake but it, too, has struggled under the market downturn that has pushed a number of Australian lithium miners to the edge.
IGO has been looking for options to expand beyond its existing Nova nickel mine in WA for some time. It made a failed bid for WA nickel miner Panoramic Resources in earlier 2020 and bought a stake in New Century Resources mid-year when the company was nearing a deal to buy Vale’s Goro nickel mine, but sold out shortly afterwards.
Tianqi paid $US847m for Greenbushes in 2013, but ran into financial difficulties soon after and sold a minority stake in the operation to Albemarle for $US475m in 2014.
IGO last up 0.1 per cent at $5.095.
Lilly Vitorovich 12.19pm: Seven West in ‘turnaround’ share surge
Morningstar says Seven West Media shares have surged almost 70 per cent since its FY20 results in August following a “turnaround in investor sentiment”.
“Dire concerns about Seven’s excessive debt pile are giving way to greater optimism about how it may be cut, via the current asset ‘garage sale’ process, in addition to likely improved earnings,” senior equity analyst Brian Han says in a new research report.
Han says Seven’s market capitalisation of around $390m is “closing in on its current net debt of $425m, a position that is much more comfortable than back in August when Seven’s market capitalisation was half of its net debt”.
The media group’s further debt reduction hinges on the sale of its studio business and interests in Ventures and TXA transmission facilities, he adds.
“These uncertainties are why we continue to assign a 50 per cent probability of zero value in the equity, weighted against our going-concern value of 40c per share.”
Morningstar has a fair value estimate of 20c on Seven versus its current share price of 25c.
12.06pm: Airbnb boosts IPO price range
Airbnb plans to boost the proposed price range of its initial public offering, the latest sign that the red-hot IPO market is ending the year on a high note.
Airbnb is boosting the range to between $US56 and $US60 a share, from $US44 to $US50, people familiar with the matter said. The new range would give the home-rental company a valuation of as much as $US42 billion on a fully diluted basis.
DoorDash, the food-delivery company that is expected to debut Wednesday, one day before Airbnb, plans to price its shares at the high end of or above its already increased range of $US90 to $US95 a share, people familiar with that offering said. That would give the San Francisco company, the largest among its peers, a valuation of as much as $US36 billion or more.
Dow Jones Newswires
11.49am: ASX trims rise to 0.7 per cent, US futures fade
Australia’s S&P/ASX 200 share index trimmed its intraday rise to 0.7 per cent, after rising as much as 1.2 per cent to a record high of 6714.7 in early trading.
There was no obvious trigger for the pullback, but it came as S&P 500 futures pared a 0.3 per cent intraday gain.
Such dips have been well supported in recent days with the index on track for its fifth-consecutive daily gain.
The Materials sector was by far the strongest with BHP up 2.6 per cent, Fortescue up 4.2 per cent and Rio Tinto up 2.3 per cent, after Macquarie boosted its price targets in response to commodity price gains.
Energy was also outperforming, with Santos up 2.8 per cent and Woodside up 1.1 per cent.
Metcash remained strongest in the ASX200 with a 9.3 per cent rise after reporting a 43 per cent rise in first half underlying profit and a strong start to the second half.
The surge in Metcash helped other supermarkets stocks, with Coles up 1.1 per cent and Woolworths up 1.3 per cent,
Banks trimmed some of their early gains as bond yields also lost steam.
10.55am: ASX up 1.2 per cent to 9-month high
Australia’s S&P/ASX 200 share index rose 1.2 per cent to a 9-month high of 6714.7, slightly above its late November peak of 6713.3.
It came amid strong gains in the heavyweight mining and banking stocks.
The top five points contributors were BHP up 2.6 per cent, Fortescue up 3.6 per cent, CBA up 0.6 per cent, Rio Tinto up 2.1 per cent and NAB up 1.1 per cent.
The Tech, Energy and Consumer Staples sectors also outperformed.
Afterpay rose 1.7 per cent, Santos rose 3 per cent and Metcash rose 8.7 per cent.
Eli Greenblat 10.44am: Woolies steps up online operation
Woolworths has broadened its bricks and mortar infrastructure to cater to the fast-growing demand for online grocery shopping that has taken off through the COVID-19 pandemic.
The supermarket giant has opened a new multi-million dollar online customer fulfilment centre in Lidcombe to better serve home delivery in Sydney.
The new fulfilment centre will offer customers access to more than 20,000 extra delivery windows each week. The new 15,000sqm site - equivalent to 12 Olympic swimming pools - is Woolworths’ largest online hub in Australia and will create up to 900 new jobs for personal shoppers.
Woolworths’ online sales increased by 100 per cent year on year between July and September 2020 and now account for eight per cent of total supermarket sales. Other grocery chains such as Coles have also witnessed a large uptake of online shopping and home delivery since the pandemic emerged.
The Lidcombe purpose-built facility has wider aisles and more shelf space than a standard supermarket, allowing personal shoppers to handpick orders from a range of around 20,000 products quickly, accurately and efficiently.
Damon Kitney 10.37am: Crown in Melbourne eases pandemic curbs
The James Packer-backed Crown Resorts has confirmed that its Melbourne casino will further increase its capacity for patrons from this Wednesday, but with some continued restrictions.
The number of members of the public permitted at any one time will be limited to 50 per cent of the maximum capacity for the facility stated in the occupancy permit, the company told the ASX on Monday.
The number of members of the public permitted in each indoor space at any one time will be limited by the density quotient of one person per four square metres.
“Notwithstanding the above, physical distancing and hygiene protocols remain in place. Crown expects to and will continue to engage with the Victorian Government on the implementation of these revised Directions,’’ the company said.
Crown Melbourne restarted its table games on November 25 but turned off every second gaming machine in the facility to comply with COVID restrictions.
Crown’s Melbourne’s casino had been closed since the end of March due to COVID before it re-opened last month.
David Swan 10.35am: Kogan.com fined over promotion
Online retailer Kogan.com has been fined $350,000 after the Federal Court found it breached Australian consumer law with a “tax time” promotion in 2018.
In proceedings brought by the ACCC, the court found Kogan’s promotion to be false and misleading. The retailer offered a 10 per cent discount with the code ‘TAXTIME’, but had increased the prices of more than 600 of its products immediately before the promotion.
More than 10 million Kogan customers were sent emails and 930,000 were sent text messages promoting the sale.
“We brought this case because we were concerned that the advertised price reductions were not genuine savings,” ACCC Chair Rod Sims said in a statement.
“Many consumers who took up the offer on one or more of the 600 or so products in many cases actually paid the same as, or more than, what they would have paid immediately before and after the promotion.”
The ACCC had been seeking a $2m penalty.
Kogan was fined $32,4000 four years ago for similar conduct regarding a Father’s Day promotion.
Last week Kogan agreed to pay $122.4 million for one of New Zealand’s leading online retailers Mighty Ape.
10.28am: ASX opens higher, eyes 9-month high
Australia’s sharemarket rose a stronger-than-expected 1.2 per cent to an eight-day high of 6711.4 on broad-based gains.
A daily close above 6683.3 would set a fresh nine-month high on a daily close basis and a break above 6713.3 would set a fresh nine-month high on an intraday basis.
S&P 500 futures rose 0.3 per cent after a Republican senator said Republican leaders Trump and McConnell will back a $908bn pandemic relief package.
US futures gains added to the strength in Australian shares where the Materials, Energy, Tech and Real Estate sectors outperformed.
Resource-sector heavy weights BHP, Rio Tinto and Fortescue surged 2.6-3.4 per cent after Macquarie boosted their price targets after commodity price gains.
Santos rose 3.3 per cent after WTI crude oil rose 1.4 per cent to $US46.26 a barrel.
Banks rose on the back of a jump in bond yields with NAB up 1.1 per cent.
Metcash surged 8.5 per cent after strong first half profit and a strong start to the financial year.
Xero rose 3.2 per cent after Goldman Sachs initiated with a Buy rating.
Eli Greenblat 10.14am: Funtastic deals put rocket under sales
Funtastic, which recently acquired a hobby and toys business to revamp and restructure the once laggard ASX company, has reported a strong uplift on sales for its new businesses, including the Toys R Us chain.
Funtastic said that following the successful completion of the acquisition of the Hobby Warehouse Group - which includes e-commerce businesses Hobby Warehouse, Toys R Us and Babies R Us - it had witnessed rocketing growth.
Consolidated revenue for November of $7.1m, was up 60 per cent and gross profit for November of $2m was up 78 per cent.
Funtastic said revenue for the first quarter of $14m generated a consolidated gross profit of $3.6m.
The Toys R Us website delivered strong results in November with total organic and direct sessions (excluding paid search) increasing by more than 200 per cent, while Google search impressions increased by more than 360 per cent.
Funtastic CEO Louis Mittoni said: “We are very pleased with the performance of the company during this period. It is indicative of the solid teamwork within our business divisions and the strong connection between shoppers and our brands.
“Our e-commerce channels contributed the larger proportion of the gross profit and the results are a prelude to what we anticipate in the next several years, with the continued relaunch of Toys R Us, the launch of Babies R Us and continuation of our digital-first e-commerce road map”.
John Durie 10.05am: UBS snares Macquarie staff
UBS has picked up two senior sales staff, with Melbourne-based Julia Thomas and Sydney based Luke Taper leaving Macquarie.
The moves follow some high-profile departures from UBS to Barrenjoey Capital and Jarden, highlighting the changes in personnel in the industry.
Ben Wilmot 10.02am: Charter Hall buys more Aldi centres
The Charter Hall Group has confirmed the logistics boom is running hot and has snapped up a further $281.5m worth of logistics facilities occupied by German supermarket giant Aldi.
The deal builds on Charter Hall’s move earlier this year in which it teamed with Allianz Real Estate to buy four ALDI leased logistics assets for $648m.
The latest play is an expansion of this 50/50 joint venture between Charter Hall Prime Industrial Fund and Allianz Real Estate, acting on behalf of several Allianz group companies.
The pair have acquired a further two Aldi distribution centre assets, located in Derrimut, Melbourne and Staplyton-Yatala, Brisbane.
The portfolio comprises a total gross lettable area of 106,614sq m on a total combined site area of 309,900sq m and benefits from a low overall site coverage ratio of 34 per cent, providing flexibility for future development expansion or reconfiguration to future proof the assets.
The Melbourne logistics facility is in the prime industrial precinct of Derrimut, 23 kilometres west of the Melbourne CBD. The Queensland logistics facility is located in the Staplyton-Yatala industrial precinct, which is a major distribution hub located halfway between Brisbane and the Gold Coast.
9.48am: ASX approaching 9-month high
Australia’s share market may go close to hitting a fresh nine-month high today.
Friday night futures relative to fair value suggest the S&P/ASX 200 will open up 0.7 per cent at a seven-day high of 6680.5, while it would need to break the recent peak at 6713.3 to hit a new nine-month high.
Bad news was good news for the US market on Friday as very weak US jobs data fuelled fiscal stimulus hopes, pushing the S&P 500 up 0.9 per cent to a record high of 3699.1 and the US 10-year bond yield up 6bps to 96.6 per cent.
Record numbers of new coronavirus cases in the US in the past three days confirms Thanksgiving was a major spreading event, and while vaccines are coming, the complacency of US citizens risks economic weakness.
But barring a downturn in US stock index futures today, the Australian market stands to benefit from additional positives.
First is the chance of a surge in Afterpay after RBA Governor Lowe’s indication that regulators won’t stop the no-surcharge rule in the BNPL sector anytime soon.
Second is Bell Potter’s substantial price target upgrades of ANZ, NAB and Westpac plus an upgrade of Westpac although CBA was downgraded by the broker.
Third is Macquarie’s substantial price target upgrades of BHP, Rio Tinto and Fortescue and its upgrades of Newcrest and Evolution.
Fourth, is the ongoing M&A activity, with Downer confirming its in talks with MACA.
Fifth is the surge in bond yields today which should help the Financials sector.
9.40am: MACA looking at Downer mining
MACA Limited has confirmed it is giving consideration to the potential purchase of Downer EDI’s mining west division, following media speculation in The Australian’s DataRoom column on Monday.
“The process is ongoing and MACA would only pursue a binding offer to acquire the business if it were to align with its strategy and deliver value for the Company’s shareholders,” the company said in a statement.
“There can be no assurance that any transaction will result from discussions with Downer and MACA will continue to inform the market in accordance with its continuous disclosure obligations.”
9.36am: Westpac sells Pacific businesses
Westpac says its has sold its its Pacific businesses – Westpac Fiji and Westpac’s 89.91 pe rcent stake in Westpac Bank PNG – to Kina Securities for up to $420 million.
Westpac’s Jason Yetton says the sale follows the bank’s strategic decision to focus on consumer, business and institutional banking in Australia and New Zealand.
“We are taking another step in becoming a simpler, stronger bank while ensuring a high
standard of banking services is maintained for our Pacific customers, as well as
providing new opportunities for our people.”
He added: “Kina is a strong brand in the region and is well positioned with deep local
knowledge to continue to help our consumer and business customers succeed.”
The sale price is made up of $315 million payable at completion and $60 million to be
paid six-monthly over the following 18 months for Westpac PNG. The sale price also
includes earn-out payments of up to $45 million which are scheduled to occur annually
over 24 months following completion and are subject to the business performance of
Westpac Fiji.
It is expected there will be an accounting loss on sale of approximately $230 million
including a foreign currency translation reserve loss, which will be based on exchange rates on completion.
Completion of the transaction is subject to various regulatory approvals in Fiji and PNG
and Kina Bank shareholder approval.
9.27am: Tabcorp to appeal higher tax bill
Tabcorp has received an amended tax assessment lifting a $62m liability to $71m including $9m in ATO imposed penalty interest.
The assessment relates to the income tax treatment of licence fees incurred by Tatts Group in relation to monitoring gaming machines in NSW.
“Tabcorp will appeal the amended assessment and retains the view, supported by external professional advice, that on the balance of probability that the deductions are allowable,” the company said.
9.25am: Village in halt ahead of vote result
Village Roadshow has entered a trading halt pending the release of the results of a shareholder vote on the BGH takeover offers due to occur later today,
An outcome is expected to be announced after 4pm.
9.23am: Santos in LNG supply deal with Mitsubishi
Santos has signed a binding long-term LNG supply and purchase agreement with Diamond Gas International, a subsidiary of Mitsubishi.
Under the agreement Santos will supply 1.5m tonnes of LNG from Barossa every year for ten years at a price based on the Platts Japan Korea Marker.
Santos managing director and CEO Kevin Gallagher said the agreement with DGI was another significant step towards a final investment decision on Barossa.
“The SPA (the agreement) delivers a firm LNG offtake arrangement which represents over 80 per cent of Santos’ equity LNG volume from the Barossa project at our expected 50 per cent interest level following the previously announced sell-down to JERA, while the JKM-indexation provides portfolio balance to our existing oil-linked LNG offtake agreements from GLNG and PNG LNG,” he said.
“It also represents the first Santos long-term equity LNG sale from one of our major LNG projects, demonstrating our marketing capability to meet customer needs in the market,” Mr Gallagher said.
9.20am: What’s impressing analysts?
Accent Group started at Positive: Evans & Partners
Afterpay started at Outperform: $124 price target: Credit Suisse
ANZ price target raised 15 per cent to $24.50: Buy rating kept: Bell Potter
BHP price target raised 7 per cent to $46; Outperform rating kept: Macquarie
CBA cut to Hold: Bell Potter
City Chic Collective started at Positive; $3.26 price target: Evans & Partners
Deterra Royalties price target raised 10 per cent to $5.50; Outperform rating kept: Macquarie
Evolution raised to Neutral: Macquarie
Fortescue price target raised 15 per cent to $23; Outperform rating kept: Macquarie
Jupiter Mines cut to Neutral: Macquarie
Newcrest raesed to Neutral: Macquarie
Qantas raised to Hold: Morningstar
Qantas price target raised 18 per cent to $6.20: Buy rating kept: UBS
Panoramic Resources raised to Neutral: Macquarie
Rio Tinto price target raised 7 per cent to $118; Outperform rating kept: Macquarie
West African Resources raised to Outperform: Macquarie
Westpac raised to Buy; price target raised 15 per cent to $22.50: Bell Potter
Western Areas raised to Outperform: Macquarie
Xero started at Buy: $157 price target: GS
Perry Williams 9.00am: Viva deal to speed LNG import plan
Viva Energy has entered into partnership deals with major international energy operators as it looks to accelerate plans to import LNG at its Geelong site in Victoria.
A memorandum of understanding has been struck with France’s Engie and Japan’s Mitsui along with a second accord between Viva’s major owner Vitol and VTTI.
“In addition to potentially providing substantial future demand for the gas processed through the facility, the Partners bring significant international operational and project expertise in similar LNG regasification terminals, and commercial experience in the Australian gas and electricity markets,” Viva said in a statement.
It aims to make a final investment decision on the import plant by mid 2022 with gas supplied by 2024.
Viva is looking to import LNG at Geelong in Victoria as part of efforts to transform the site into a major energy hub and the company’s board on Monday signed off on a front end engineering and design study.
Viva has sketched up plans for a broader energy hub at Geelong including solar and battery storage, the manufacture of hydrogen and gas power generation which the international partners may also consider as part of any plans.
A floating LNG import vessel would be located at Corio Bay, adjacent to the Geelong refinery.
The company faces severe pressure on its refinery, one of only four remaining in Australia, and plans to update the market in December on running Geelong beyond the first quarter of next year after incurring substantial losses this year.
Australia’s southern states urgently require new sources of gas to fill a looming supply shortfall as production from offshore Victoria dries up.
9.00am: BNPL no-surcharge rule safe for now: Lowe
Shares of Australian buy-now-pay-later tech companies including Afterpay, Zip co and EML Payments may surge Monday after Reserve Bank Governor Philip Lowe indicated that the “no-surcharge rules” underpinning their business models are safe for now.
While in line with market thinking on the subject, this latest regulatory guidance from the RBA may cause a positive reaction, as it indicates regulators want to give the BNPL sector room to grow and would prefer to use voluntary arrangements with BNPL providers if needed in regard to surcharges.
In a speech to the Australian Payments Network on “Innovation and Regulation in the Australian Payments System”, RBA Governor Philip Low says the preliminary view of a “Review of Retail Payments Regulation” by the Payments System Board is that the BNPL operators in Australia have not yet reached the point where it is clear that the costs arising from the no-surcharge rule outweigh the potential benefits in terms of innovation.
“So consistent with its philosophy of only regulating when it is clear that doing so is in the public interest, the board is unlikely to conclude that the BNPL operators should be required to remove their no-surcharge rules right now,” he says.
He notes that the board’s long standing view is that the right of merchants to apply a surcharge promotes payments system competition and keeps downward pressure on payments costs for businesses.
“This is especially so when merchants consider that it is near essential to take a particular payment method for them to be competitive,” Dr Lowe says.
“The board also recognises that it is possible that no-surcharge rules can play a role in the development of new payment methods.
While new payment methods can be developed without them, these rules can, under some circumstances, make it easier to build up a network and thereby promote innovation and entry.”
Dr Lowe points out that even the largest BNPL providers still account for a small proportion of total consumer payments in Australia, notwithstanding their rapid growth, new business models are also emerging, including some that facilitate payments using virtual cards issued under the designated card schemes that are subject to the existing surcharging framework, and the increasing array of BNPL providers is resulting in competitive pressure that could put downward pressure on merchant costs.
The board expects that “over time a public policy case is likely to emerge for the removal of the no-surcharge rules in at least some BNPL arrangements” and some of the BNPL operators are growing rapidly and becoming widely adopted by merchants, particularly in certain sectors, Dr Lowe says.
“As part of the bank’s ongoing consideration of this issue, Bank staff will be discussing with industry participants possible criteria or thresholds for determining when no-surcharge rules should no longer be allowed,” he says.
“If the point is reached where the board’s view is that the public interest would be served by the removal of a no-surcharge rule, the board’s preference would be to reach a voluntary agreement with the relevant provider.
This would be similar to the approach adopted with American Express and PayPal. In the event that this were not possible, the Bank would discuss with the Australian Government the best way to address the issue.”
8.50am: Metcash sales growth ‘unprecedented”
Metcash said recent demand for its products had remained strong after reporting unprecedented sales growth in the first half of the 2021 fiscal year.
Metcash reported a net profit of $125.1 million in the six months through October, compared to a $151.6 million loss at the corresponding period of the 2020 fiscal year.
Directors of the company declared an interim dividend of 8 cents a share, up 33 per cent on a year ago.
Like rivals including Woolworths Group and Coles Group, Metcash has benefited from shoppers spending more in stores during the coronavirus pandemic and the trend for them to shop local rather than travel further afield to buy their goods. Metcash operates the IGA grocery chain and hardware brands including Mitre 10 and Thrifty-Link.
“Our retail banner groups are ideally positioned to continue benefiting from the change in consumer behavior to more ‘local’ shopping, and their improved competitiveness supported by our MFuture initiatives is assisting them to retain new and returning customers to their stores,” said Chief Executive Jeff Adams.
Metcash said half-year revenue rose by 12 per cent to $7.1 billion, with underlying earnings before interest and tax up 30 per cent at $203.0 million.
Sales momentum has continued into the first five weeks of the second half, Metcash said.
“The second half will cycle the negative impact of bushfires in 2H of FY 2020, and it also includes the cycling of significantly higher sales volumes in Food and Hardware in March and April 2020,” the company added.
Dow Jones Newswires
8.43am: HomeCo completes raising
HomeCo has successfully completed a $125m raising announced on December 4 through the issue of 32.9m stapled securities at $3.80 each, a 2.6 per cent discount to the December 3 trading price.
The capital will be used to fund the acquisitions of six health, education and government service assets as well as the Gregory Hills Home Centre in Western Sydney.
8.39am: Event cinema deal at risk
Event Hospitality & Entertainment’s $305m sale of its German movie theatre business Cinestar to Vue International is in danger of falling through unless a third party buyer can be found to purchase some theatre locations to clear a regulatory hurdle.
The movie theatre operator’s sale of the Cinestar business was conditionally approved by the German Federal Cartel Office on the basis six theatres be sold to third parties by December 14.
Only one has been completed, and now Event says there is a “material risk” that the entire deal is in danger.
“The group continues the discussion with Vue in relation to the divestment and the Cinestar sale, but the most recent proposal put forward by Vue has made it clear that there is a material risk that Vue will not complete the divestment by the FCO’s extended deadline,” Event said in a statement.
“Should the divestment not occur by the deadline, the Cinestar sale as notified to the FCO will be prohibited by the FCO.”
7.40am: Infratil to consider selling Tilt stake
Infrastructure investment company Infratil says it will undertake a strategic review of its shareholding in Tilt Renewables.
Tilt is a leading renewables platform in Australia and New Zealand and is listed on the ASX.
Infratil currently owns 65.5 per cent of Tilt’s outstanding shares.
It says it has recently received a number of inquiries in relation to its Tilt shareholding.
“Given strong demand for high quality renewables platforms globally, Infratil considers it is prudent to assess alternatives for its Tilt shareholding, including divestment of its position,” Infratil said.
“Any decision to pursue a particular proposal would need to demonstrate a material increase in expected returns and shareholder value relative to the current positive outlook. The strategic review is scheduled to be concluded within six months.”
Infratil Ceo Marko Bogoievski said he still supported Tilt’s management but had to abide by shareholders by reviewing its stake.
“We continue to be highly supportive of Tilt and its management team, however, the strong interest in Tilt has tipped the balance in favour of initiating the strategic review today,” he said.
Cliona O’Dowd 6.00am: ASX set for strong start to week
The Australian sharemarket is poised to open in positive territory after US markets closed out last week at record highs despite weaker-than-expected jobs figures.
ASX futures are pointing to a 42-point, or 0.6 per cent, gain at the start of the week’s trade, with the big miners expected to show strength as the iron ore price scales near eight-year highs.
The Australian dollar was this morning at US74.2c.
In overseas trade on Friday, miners BHP and Rio Tinto were firmly higher after the iron ore price rose by $US7.50, or 5.4 per cent, to $US145.30 a tonne, its highest point since March 2013.
Over the week, iron ore rose by $US14.35, or 11 per cent, amid Brazilian miner Vale’s latest production estimates, which were lower than expected, and surging Chinese demand for iron ore.
In London trade on Friday, Rio finished up 1.3 per cent and BHP closed up 1.7 per cent. Both miners are expected to add to last week’s gains when trade opens on the ASX on Monday morning.
As nations across the globe prepare for extensive vaccine rollouts, and amid hopes for the economic recovery that will follow, there is further upside potential for the iron ore price, according to CommSec chief economist Craig James.
“If the global economy gets a wriggle on, the vaccine rolls out, and case numbers start to go down … there could be more and more demand for steelmaking materials such as coking coal and iron ore,” Mr James said. “There’s certainly more upside potential than downside.”
In the US on Friday, lower-than-expected job numbers in November spurred hopes that a new financial aid package will soon be agreed by congress.
This pushed sharemarkets to record highs, with the Dow Jones closing up 1 per cent for the week, the S&P 500 up 1.7 per cent and the Nasdaq up 2.2 per cent.
The US unemployment rate fell to 6.7 per cent, from 6.9 per cent, but the drop was caused by more people dropping out of the workforce entirely. And the jobs report showed that a key sign of holiday enthusiasm — the hiring of thousands of workers to help with the holiday retail rush — simply didn’t happen this year.
COVID-19 rates are spiking throughout the US, depressing economic activity. Vaccines may be approved as soon as this month, but they won’t be widely distributed until well into 2021.
5.30am: Metals prices signal bets on global recovery
Investors are piling into wagers on industrial metals like copper and nickel, betting that coronavirus vaccines and stimulus programs will drive a boom in manufacturing activity as part of a global economic resurgence.
Prices for copper have risen to their highest level in almost eight years. Iron ore, the main ingredient of steel, is one of the best-performing assets in 2020. Other raw materials, such as aluminum and zinc, have added roughly 15 pe rcent since the end of September and 40 per cent or more since mid-May. And shares of metals producers, including Freeport-McMoRan Inc. and Century Aluminum, are on a tear, climbing alongside other stocks closely tied to economic growth.
Industrial metals are the building blocks of construction, key to making everything from houses to electric cars. Their prices are particularly sensitive to manufacturing activity in China because the country accounts for roughly half of global demand for copper and other materials. The faster-than-expected recovery there has sparked a reversal in prices, which had languished in recent years due to trade tensions between the U.S. and China, even before pandemic lockdowns dented demand.
The climb highlights the scope of the recent market rally, which propelled major stock indexes to all-time highs. Vaccine trial results and U.S. President-elect Joe Biden’s victory eased sources of angst on Wall Street, fueling bets that economic stimulus measures will further juice asset prices. With stocks at records and bond yields still near all-time lows, some of that money is now moving toward raw materials, which remain well below their historic peaks.
Dow Jones
4.49am: Climate change shapes private-equity deal making
Carlyle Group has long weighed how potential risks like an economic recession or commodity price increases would affect a company before investing in it. In one recent deal, a person close to the firm said it added a couple of new risks to the list: rising sea levels and extreme weather.
Carlyle is one of a growing number of private-equity investors that are factoring the effects of climate change into their investment decisions, as hurricanes, floods, droughts and wildfires become more frequent and severe. Such firms also are seeking to reduce the carbon footprint of their portfolio companies and help those companies spot climate-related risks, as regulators and other industry stakeholders demand more transparency into the connection between business and climate change, industry executives say.
“You’re beginning to see investors in real estate and infrastructure really try to get their arms around how this kind of risk can affect the value of their assets and the physical operations of their assets,” said Jay Koh, co-founder and managing director of private-equity firm Lightsmith Group, which backs businesses that help others build resilience to global warming. “I think that has started to move into the private-equity realm as well.”
Climate change also is creating investment opportunities for private-equity firms, which are amassing large volumes of capital to back renewable-energy producers and other businesses that help reduce carbon emissions. Private-equity firms worldwide raised $US40.97 billion for renewable energy-focused funds this year through late October, already eclipsing the $US34.81 billion they collected in all of 2019, according to data provider Preqin Ltd.
In some cases, firms that invested almost exclusively in traditional oil-and-gas deals are shifting their focus to renewables or reinventing themselves. One, Ara Partners, which launched in 2017 as a network of midmarket private-equity firms focused on different parts of the energy industry, now backs businesses that help reduce carbon emissions, such as low-carbon chemical producers. The firm earlier this year closed a $US400 million fund focused on the strategy.
Other private investment firms also are addressing climate change through impact funds, which seek to generate financial returns as well as social and environmental benefits. Although many impact investors include climate change as part of a broader impact investment strategy, a few have raised vehicles specifically targeting climate change’s effects. For example, Morgan Stanley Investment Management’s alternative-investment arm earlier this year raised $US110 million for a new fund focused on businesses that seek to reduce global warming and pollution, or preserve natural resources and ecological diversity. The pool added to the $US800 million in impact investments the unit already manages, the bank said.
Dow Jones
4.40am: Wall Street recap
Wall Street stocks surged to fresh records on Friday, extending a post-election rally as disappointing US jobs data boosted the prospects for fiscal stimulus.
All three major indices finished the week at all-time highs, with the Dow Jones Industrial Average gaining 0.8 per cent to 30,218.26.
The broadbased S&P 500 jumped 0.9 per cent to close at 3,699.12, while the tech-rich Nasdaq Composite Index advanced 0.7 per cent to 12,464.23.
The rally came even following government data showing the jobs recovery stalled, as US employers added just 245,000 new jobs in November.
And though the unemployment rate dipped to 6.7 per cent from 6.9 per cent, the lowest since the pandemic struck, that was due to Americans leaving the workforce.
Noting that new COVID-19 cases are “raging” in the US, FHN Financial’s Chris Low warned in a note “job growth will be sluggish for the next three or four months, minimum.” Still, Low pointed out that US approval of the first coronavirus vaccine could come as soon as next week.
Analysts said the weak jobs data provides further impetus for Congress to enact a new stimulus package, and Senate Republican leader Mitch McConnell and House Speaker Nancy Pelosi have revived efforts to hash out a deal.
President-elect Joe Biden reiterated the need for immediate support, saying “if we don’t act now, the future will be very bleak. Americans need help and they need it now.” JJ Kinahan, chief market strategist at TD Ameritrade, said the fresh stock records “might seem jarring” in light of the soaring coronavirus counts in the United States, but noted that the market is looking to vaccines and an economic recovery in 2021.
“Keep in mind that the stock market is a forward-looking beast, meaning that current activity in the main indices may be reflecting a good bit of investor anticipation of what might happen months from now,” Kinahan said in a note.
AFP
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