ASX gains 0.7pc as miners lift, Harvey Norman jumps
Shares rose 0.7pc amid a surge in resources, while retailers cheered strong results from Nick Scali and Freedom Foods appointed a new boss.
- Harvey Norman rallies on sector strength
- AMP Australia chief quits
- Ventilator demand lifts ResMed
- JPMorgan bullish on gold
That’s all from the Trading Day blog for Thursday, August 6. The ASX added 0.7pc thanks to a lift in mining stocks, while retailers such as Harvey Norman cheered positive results from Nick Scali.
It comes after Wall Street gained on hopes for a deal on a new US coronavirus relief package with US futures suggesting more gains to come overnight.
Ben Wilmot 8.40pm: BCH looks to move into Village
Private equity powerhouse BGH Capital is looking to seal a long-running deal to take over the iconic Village Roadshow operation after tying up a crucial slice of the register as it attempts to secure its $468.5m bid.
The Melbourne-based company has tied up a block of shares controlled by the Kirby family and former chief Graham Burke that accounts for about 40 per cent of the company.
Their connection was announced via a substantial shareholder notice filed by BGH, but industry players that rival suitor PEP may still be circling after showing interest last year.
The BGH bid has been in the wings for months with its exclusivity locked in as it set terms that included bonuses if Village’s theme parks and cinemas opened before a shareholder vote on its future. The bid was initially pitched at $2.40 a share, but as the coronavirus crisis has slammed its movies and theme park business this is expected to come in closer to $2.20 a share.
Dissident US shareholder Mittleman Brothers has lashed the sale of Village and it has a stake of about 8.5 per cent, which could influence the deal’s chances.
Robyn Ironside 7.16pm: Branson keen to connect with Virgin Australia
Sir Richard Branson’s Virgin Group will continue to push for a stake in a rejuvenated Virgin Australia despite the financial woes of its Virgin Atlantic airline.
As Virgin Australia CEO Paul Scurrah outlined plans for the airline’s relaunch on Wednesday following its sale to Bain Capital, Branson’s Virgin Atlantic filed for protection in a US bankruptcy court.
The move was undertaken to shield the airline’s assets in the US, as it sought to put into effect a $2bn rescue package to help Virgin Atlantic see through the COVID crisis.
A Virgin Atlantic spokesman sought to clarify the court action as one that supported the solvent recapitalisation of the carrier rather than a chapter 11 bankruptcy filing.
“In order to progress the private-only solvent recapitalisation, the restructuring plan is going through a court-sanctioned process to secure approval from all relevant creditors before implementation,” he said.
“With support already secured from the majority of stakeholders, it’s expected the restructuring plan and recapitalisation will come into effect in September.”
He said they were confident in the plan for Virgin Atlantic which was cutting 3500 jobs, and unsuccessfully sought the equivalent of a $900m loan from the British government.
Eli Greenblat 6.46pm: Bumper deal to secure Buderim Ginger
A battle for control of Australia’s pre-eminent ginger manufacturer, the publicly listed Buderim Ginger, has led to a new bidder pushing aside Global Foods by slapping a $13m deal on the table to gain control of its ginger facilities and the Ginger Museum.
The improved deal from the Himstedt family, who made their money in cooking ingredients, has beaten an original $8.3m offer made in June and will see Buderim Ginger flush with cash as it prepares to invest further in its macadamia farms as well as broaden out into the highly popular plant-based proteins.
Buderim Ginger announced late Thursday night that it has entered into binding agreements with the Queensland-based Himstedt family to sell the company’s combined ginger and tourism business assets for total consideration of $13m subject to customary adjustments.
The Himstedt’s made their fortune from their family company, Queen Fine Foods, which became famous for its range of vanilla essences, food colourings, baking ingredients and food decorations.
The sale is expected to be completed in September 2020 subject to satisfaction of customary conditions precedent including Fiji regulatory approval. The net cash proceeds generated by the sale will be applied to debt reduction and working capital as the company focuses its resources on expanding the macadamia business and adjacent opportunities.
6.01pm: Nintendo reports bumper $US1bn net profit
Nintendo on Thursday reported net profit surged to $US1bn in the first quarter, with players stuck at home during the coronavirus virus driving extraordinary demand for the gaming industry.
The Japanese giant raked in 106.5 billion yen for the three months to June, a more than six-fold increase from 16.6 billion yen a year earlier.
Sales more than doubled to 358 billion yen, as demand for its popular Switch console remained robust, as the device entered the crucial fourth year since its launch.
The results far exceeded the expectations of analysts and come on the back of the runaway success of both the Switch and Nintendo’s hit “Animal Crossing” game.
“Sales for the entire Nintendo Switch family rose 166.6pc year-on-year to 5.68 million units,” the firm said, referring to both the original Switch and the stripped-back Switch Lite.
Nintendo is one of a “handful” of major companies seeing significant business opportunities from the coronavirus outbreak, analysts said.
“Demand for video games has remained strong among people staying home following the pandemic,” Hideki Yasuda, an analyst at Ace Research Institute in Tokyo, told AFP ahead of the results.
“The lockdown boom is expected to continue for now,” he added. Despite the blockbuster figures, the Kyoto-based firm declined to upgrade its full-year forecast, leaving intact its projection of 200 billion in net profit for the fiscal year to March, down 23 perfect from the previous year.
AFP
5.03pm: Freedom Foods appoints Perich as chief
Freedom Foods has appointed Michael Perich as its interim chief, after the sudden departure of former chief Rory Macleod and probe into the company’s finances.
The health food company said it was undertaking a detailed review of its operations in the wake of the revelations revealed in June, noting that Mr Perich had been taking a lead role in the review.
The Perich family is the largest dairy farming family in Australia and become major shareholders of Freedom in 2005, with a roughly 60pc stake in the group.
“It has become clear that for the successful recapitalisation of the Company there is a need for executive ownership and accountability to implement the operational turnaround. This cannot wait for an external search for a new CEO to be completed,” the company said in a statement.
Mr Perich, who replaces current acting chief Brendan Radford, will step down from his role as a non-executive alternate director for Ron Perich, while Perry Gunner will resume his role as non-executive chairman as part of the reshuffle.
Tim Bryan, alternate director for Tony Perich, has also been appointed as alternate director for Ron Perich.
Trading in Freedom Foods shares will remain suspended until October 30 at the company’s request.
Read more: Tony Perich to back Freedom Foods raising
Eli Greenblat 4.59pm: Myer extends debt facility
Myer has won some breathing room on its debt and covenants in the wake of COVID-19, signing a binding term sheet with its existing lenders to amend and extend its bank facility until August 2022.
However, it revealed its earnings have taken a hit from store closures, the fall in consumer confidence and less traffic in its stores and in key city locations – especially in Melbourne – as people stay in lockdown.
Myer said in a statement to the ASX its amended debt facility of $340m compares to the existing facility of $360m.
The reduced size in part reflects the company’s success in deleveraging the balance sheet during the past two years evidenced by reducing peak requirements, Myer said, with a peak debt level for 2019 of $220m (compared to $290m a year earlier), and an increase in net cash at the end of the first half 2020 by $65m to $103m when compared to fiscal 2019.
The lenders have agreed that no covenant testing will be required at the end of fiscal 2020, given the significant impact of COVID-19 on Myer’s operations during the second half of 2002.
Covenants for future periods will continue to be tested quarterly as per the previous facility but have been adjusted down and will range during the term of the facility.
Myer chief financial officer Nigel Chadwick securing this new facility with existing lenders is testament to the work undertaken during the past two years.
4.50pm: Resources offsets health drag
The resources sector carried the benchmark higher on Thursday, offsetting heavy losses in the healthcare sector.
ResMed shares led the worst performers losing 7pc even after reporting a COVID-fuelled surge in demand for ventilators, while heavyweight Cochlear lost 0.9pc.
Scentre’s warning of a 10pc property valuation decline spread to rival Vicinity too, both shares finishing down 2.3pc and 3pc respectively.
Here’s the biggest movers at 1pm:
Bridget Carter 4.32pm: Palisade out of John Laing renewable race
DataRoom | Palisade Investment Partners and First State Super have withdrawn from the competition to buy John Laing’s Australian renewable assets.
It comes after parties were short-listed on Tuesday for the wind energy projects.
The departure of the consortium from the competition, which was advised by RBC and Grant Samuel, is understood to have come after it was unprepared to pay up for the assets on offer.
Working on the sales process is Macquarie Capital.
Other groups earlier said to be in the mix have been First Sentier Investors, advised by JPMorgan, ICG, Neoen and Federation Asset Management, advised by PwC.
Parties were asked to resubmit their first-round bids by July 24 after the nature of the portfolio on offer was recut and the suitors initially expected to hear if they had made the second round of the competition last week.
The bidders are now vying for a smaller portfolio after John Laing opted to exclude solar assets in its Australian business, including the Sunraysia Solar Farm and the Finley solar project, both in NSW.
4.11pm: Mining outperformance lifts ASX 0.7pc
Shares closed out the day just shy of daily highs, with outperformance in the major miners driving strength for much of the session.
By the close on Thursday, shares were up 41 points or 0.68 per cent to 6042.2.
A 4.9pc jump in BHP accounted for much of the lift, while ex-dividend trade in Rio held shares back to a more moderate 1.5pc lift.
ResMed pulled back by 7.4pc despite seemingly positive full year results, while Harvey Norman jumped 7.5pc and Nick Scali soared by 14.5pc after the latter posted a profit jump for the year amid increased home furniture spend.
Ben Wilmot 3.01pm: Village Roadshow locks in funding
Takeover target Village Roadshow says it is still locked in talks with private equity suitor BGH Capital which is expected to deliver a $468m takeover bid within days.
The company also revealed it has secured additional funding of $70m from its existing lenders and the Queensland government, which is keen to keep its theme parks running to protect jobs.
As part of the deal Village has given an undertaking to raise a minimum of $35m via new shareholder equity or equity like instruments.
This must be completed by the earlier of the half year results announcement in February 2021 or three months after the termination of a transaction with BGH Capital.
Village said the additional debt facility will be sufficient to fund its cash needs for the next 12 months. The forecast is based on the existing trading environment and is subject to change, in particular if there are changes in current COVID-19 regulations.
The company said $43m of the new facility was a short-term facility of 12 months with the balance having a five-year tenor.
The company says its Queensland operations, including its theme parks, are open, albeit operating at a reduced capacity to comply with COVID protocols. These rules have slashed entry numbers to half the capacity for each major theme park.
Cinemas in metropolitan Melbourne and some areas of Victoria are also closed in line with strict Victorian government rules for the next six weeks.
VRL shares last down 0.47pc to $2.12.
Perry Williams 2.30pm: Empty CityLink to hit Transurban: Macq
Toll road giant Transurban faces a sizeable earnings hit from Victoria’s Stage 4 COVID-19 lockdown as traffic disappears on the CityLink road which connects the city and airport, Macquarie said, with falls mirroring steep declines seen in Europe.
CityLink accounted for over a third of Transurban’s group earnings in the 2019 financial year and a slowdown in the six months to June 30 will worsen in the first half of the 2021 financial year as traffic dries up. Traffic could fall by up to 90 per cent during the six-week lockdown, the broker estimates.
“CityLink is likely to see an immediate impact for the 6-week lockdown. While July activity was softening, expectation is now for a collapse in traffic in the order of 80-90 per cent. Italy, France and Spain (Atlantia) experienced more than -80 per cent for 3-5 weeks. We have factored in a 6-week decline at 80-85 per cent, and then a ramp profile similar to previously,” Macquarie analysts said.
Transurban would suffer a $130m earnings impact in the 2021 financial year based on the traffic slowdown in a move that “materially hurts” the FY21 dividend by up to 11 per cent and 12 per cent lower in FY22.
“Uncertainty around Melbourne is expected to see dividend guidance delayed,” Macquarie said.
Sydney’s toll road use has reverted back to June levels with declines of 13-20 per cent, further raising risks for investors.
Transurban’s earnings are forecast to be 11.4 per cent lower in FY21 and 2.5 per cent softer in FY22.
The second wave of the pandemic in Melbourne has sparked fresh volatility for Transurban which in late June had seen a bounce back of suburban traffic on its sprawling toll road network as COVID-19 restrictions eased. Still, the company said city roads remained sluggish due to the staggered return of office workers.
Shares in Transurban, which reports annual results on August 12, last down 0.5 per cent to $13.74.
Bridget Carter 1.46pm: Freedom Foods raising plans emerge
DataRoom | Further details are emerging about the equity raising plans for Freedom Foods.
DataRoom reported on Thursday that the company is expected to launch an equity raising to secure at least $100m as it works with its advisers Moelis, PwC and Ashurst to assess its financial situation.
It comes after the sudden departure of chief executive Rory Macleod and chief financial officer Campbell Nicholas at Freedom Foods and after the company made additional write downs to its stock, which were unexpected.
The latest suggestions are that an equity raising will be fully underwritten by the company’s 54 per cent shareholder, dairy billionaire Tony Perich and the Perich family.
Shares in the equity raising are expected to be sold at around the company’s last traded share price of $3.01.
A dilemma for fund managers who hold shares in the stock has been at what price they should value Freedom Foods at in their portfolios.
This is given a raising is on the cards and they are typically undertaken at a discount to the last traded share price of the stock.
Read more: Freedom Foods ‘exploring options’
1.33pm: Lockdown hit sends shares, $A lower
The Australian dollar and shares came off intraday highs after PM Scott Morrison said Treasury had quantified the September-quarter economic hit from Victoria’s coronavirus lockdowns as $7bn to $9bn.
AUD/USD dipped from 0.7213 to 0.7184 and the S&P/ASX 200 retreated from 6049.3 to 6013.3, paring a 0.8pc intraday gain to 0.2pc.
The fiscal reality check from the PM should not come as a surprise and in any case it could presage additional fiscal stimulus plans from the Federal Government.
But it has injected a note of caution after recent gains in risk assets.
10-year bond yields also pared intraday gains, but were mostly tracking US Treasuries.
1.24pm: BHP could surprise with special dividend
Heavyweight iron ore miner BHP has scope for a special shareholder payout of up to US30c per share thanks to strong iron ore prices, as its net debt is forecast at the low end of its target range.
Macquarie analysts factor in a final dividend of US0.60c per share at BHP’s upcoming results on August 18, but say there is potential for a further special dividend, with $US1.7bn in headroom from its target debt range.
“Iron ore remains the dominate division and is expected to contribute 64pc of divisional earnings,” the broker writes.
“Buoyant iron ore prices also remain the key driver, with BHP’s earnings increasing by 28pc and 64pc in FY21 and FY22 respectively in a spot price scenario.”
BHP shares last up 4.2pc to $39.55.
1.02pm: Shares dial back gains
Shares have pulled back from an early jump, with strength in mining stocks supporting a 0.3 per cent lift.
At half time, the ASX200 is higher by 18 points to 6014 – from earlier highs as much as 6049.3.
A 4 per cent jump in BHP is doing a lot of the heavy lifting, as Macquarie tips the stock to deliver dividends at its upcoming results, while rival Rio is higher by just 0.8pc as it trades ex-dividend and Fortescue is up 1.1pc.
Major banks are mixed, CBA down 0.3pc while ANZ, NAB and Westpac add between 0.1pc and 0.5pc.
Here’s the biggest movers at 1pm:
12.47pm: OneVue goes to court over Sargon receivables
Financial platform provider OneVue is taking Chinese financial services group China-Taiping to court, over the proceeds of a recent financial advisory sale.
In the latest in a string of dramas for the group flowing from the collapse of Sargon earlier this year, OneVue today said it had been unable to reach agreement with fellow Sargon creditor China-Taiping over the sale proceeds of Madison and Sequoia and the payment of receivers costs related to the sale of Madison.
“Although it remains OneVue’s preference that an agreement be reached out of court with China-Taiping, OneVue considers it necessary to commence Court proceedings to resolve the dispute and finalise the realisation of the MFG and SEQ proceeds,” it said in a statement.
12.37pm: Lockdown to trim G8 Education earnings
Victoria’s additional lockdown measures will weigh on the already under pressure childcare operator G8 Education, notes RBC, as it trims its outlook for the ASX-listed stock.
Analyst Gerry Sherriff reduces his earnings estimates for CY20 and CY21 by 7pc and 9pc respectively, saying G8 is likely to forgo some parent fee revenue as all children except those of “permitted workers” have to stay home.
Around 30pc of the group’s centres are based in Victoria.
Still, Mr Sherriff retains his outperform rating on the stock, noting his forecasts for a material 90pc jump in earnings in CY21.
GEM last traded down 0.4pc to 78.7c.
Eli Greenblat 12.20pm: Asahi to come under CUB banner
Japan’s Asahi Beverages will combine its two alcohol businesses, Carlton & United Breweries and Asahi Premium Beverages with the newly merged brewers to operate under the iconic Carlton & United Breweries name.
The giant international brewer has also confirmed that CUB chief executive Peter Filipovic will stay on at the combined beverage companies as their boss.
The brewing businesses will be combined by the fourth quarter of 2020.
CUB became a part of Asahi Beverages on June 1 as part of a massive realignment of the global beer industry that saw Asahi buy CUB for $16 billion last year.
The combination will deliver a leading range of alcohol beverages, including Asahi Super Dry, Great Northern, Carlton Draught, Peroni, Corona, VB, Carlton Dry, Pure Blonde, Mountain Goat, Vodka Cruiser, Somersby Cider, Woodstock Bourbon, the Yaks, Pirate Life, 4Pines and Balter.
Read more: Cheers! Asahi’s CUB buy approved
Richard Ferguson 12.01pm: Melbourne lockdown to dent economy by $12bn
Melbourne’s six-week stage four lockdown will cost the nation up to $12bn and unemployment is now due to peak at 13 per cent, Scott Morrison says.
The Prime Minister said in Canberra that new Treasury estimates show the lockdowns will cost the real economy between $7 and $9bn in the September quarter.
Combined with the damage of the stage three lockdown, it will cost the nation $10 to $12bn overall.
“This is a heavy blow, a heavy blow: 80 per cent of this economic cost is expected to be in the affected areas of Victoria, of around $6 billion to $7 billion in that state,” Mr Morrison said on Wednesday.
“The remainder represents a preliminary estimate, and I underline that, of the broader impact of confidence in other states and supply chain impacts from the shutdown of certain industries in Victoria.”
Follow the latest coronavirus news at our live blog
Lachlan Moffet Gray 11.57am: Xtek taps market for $9m
DataRoom | Listed defence tech developer and drone distributor Xtek has tapped the market for $9.2m through Canaccord Genuity Limited and Bell Potter Securities.
The institutional placement will see 13.3 million shares raised at a price of 69c a share, a 15.8 per cent per cent discount on the current price of 82c a share.
The $43.6m company entered a trading halt on Wednesday.
A term sheet sent to investors said the proceeds would be used to increase the manufacturing capacity of its US XTclave ballistic armour and composites manufacturing facilities and pursue further growth options.
Eli Greenblat 11.55am: Farm Pride Foods reveals bird flu outbreak
One of Australia’s biggest egg producers, Farm Pride Foods, whose hens lay more than 7 million eggs per week, has revealed there has been a suspected outbreak of Avian influenza at its Lethbridge farm facility in Victoria.
The ASX-listed Farm Pride, whose shares have collapsed by more than 70 per cent in value in the last two years as it is beset by a range of operational and financial problems, called for a trading halt in its shares Thursday morning.
“The trading halt is necessary to assist the company in managing its continuous disclosure obligations as the company expects to make an announcement to the market in relation to a suspected Avian influenza outbreak at its Lethbridge farm facility,’’ the company said in an ASX statement.
The company is asking for a trading halt until Monday.
Farm Pride reported first half sales of $45.68 million for 2020, as its net loss blew out to $754,000.
Its results this year were hurt by the east coast drought and higher feed prices with those conditions expected to continue, the company recently warned. The company’s finances have also struggled under the weight of investing in new cage free infrastructure to meet the demands of customers.
Lachlan Moffet Gray 11.40am: Centuria data centre buy underwhelms
Centuria Industrial’s left-field bid for Telstra’s Melbourne data centres has been met with little excitement from analysts, who have refrained from upgrading neutral recommendations on the listed real estate investor.
The UBS-advised process included such names as AMP Capital, UniSuper, John Laing, APN Property Group and Charter Hall and was concluded with a surprising result of a sale of the assets to Centuria Industrial by Telstra on Wednesday for $416.7m – although Centuria was in the mix, the industry did not expect it to be a strong contender.
The sale of the 3.2 hectare Clayton complex includes a leaseback of 30 years to Telstra, alongside two options to Telstra to extend the lease for 10 years and comes as buyers chase low risk investment opportunities amid the challenging economic conditions linked to the COVID-19 pandemic.
In UBS research note, analysts said that the assets purchased at a 4.2 per cent yield would be dilutive to earnings to the tune of -7 per cent, and would shave 20 basis points off net property income growth.
Eli Greenblat 11.34am: Harvey Norman rallies on sector strength
Shares in Harvey Norman rallied 6 per cent this morning as positive comments from rival furniture retailer Nick Scali on the strength of the sector looks to have lifted investor confidence.
Harvey Norman, which sells furniture, bedding, computers, kitchenware and electronics, rose 6 per cent to $3.975 in morning trade. It is the best performing stock in the S&P/ASX 200.
Earlier Nick Scali posted solid profit and sales for fiscal 2020 despite the COVID-19 crisis and forecast a strong first half of 2021 thanks to a rebound in furniture sales since May and continuing in to July.
Read more: Nick Scali predicts first-half sales surge
Perry Williams 11.19am: Iberdrola takes controlling Infigen stake
Spanish renewables giant Iberdrola has won control of Infigen Energy after crossing the 50 per cent threshold for its $893m takeover offer and plans to appoint directors to the board.
Iberdrola controls 52.75 per cent of Infigen after picking up 37m shares acceptances of its 92c a share offer and a further 24m shares through the market on Wednesday.
Rival bidder, the Philippines controlled UAC Energy, owns a 20 per cent stake.
The Spanish company said it can now nominate a majority of directors to Infigen’s board subject to two independent directors remaining until it acquires all the shares. Its offer has been extended for two weeks until August 19 from an original August 7 deadline as a result of crossing the 50 per cent level.
Infigen on Monday said it expects profits to fall in the 2021 financial year and has suspended shareholder distributions indefinitely as sharply lower electricity prices and a fall in demand from COVID-19 eased volatility in the national electricity market.
10.38am: ASX rising 0.8pc
Australia’s S&P/ASX 200 share index rose 0.8c to 6049.1 early trading after offshore gains.
Resources stocks are outperforming, with BHP up 3.7pc, Western Areas up 4pc, South32 up 3.8pc and Independence Group up 3.3pc after commodity prices rose.
Financials are also outperforming with Westpac and ANZ up 2pc and Macquarie up 1.3pc.
A 0.3pc rise in S&P 500 futures is helping. Updated coronavirus figures for VIC and NSW are awaited.
Press reports suggest VIC has 471 new cases, which would be well down on Wednesday’s record 725 increase.
Lachlan Moffet Gray 10.24am: MotorCycle Holdings closes 6 dealerships
Listed motorcycle franchisor MotorCycle Holdings has told the market that six of its 31 dealerships will be impacted by the stage four lockdown in Victoria, with the stores remaining open to fulfil click and collect orders.
In a statement to the ASX, the company said that the partial closure of the stores over the six-week lockdown period could impact sales to the tune of $9m, while its wholesale motorcycle accessories businesses, Cassons, may be impacted to the tune of $1m.
Approximately 100 staff will be impacted, 70 per cent of whom are registered for the Jobkeeper program.
The company said its other locations around the country continue to trade strongly, with the sale of some vehicles increasing, although general deteriorating conditions throughout March and April meant the company qualified for the Jobkeeper wage subsidy program.
Cash on hand as of August was $40m.
It comes as Federal Chamber of Automotive Industries figures released in July show motorcycle, ATV and SSV sales increasing in the last quarter by 24.5pc over the same period in 2019.
MotorCycle holdings did not say if it would revise its June full-year guidance of underlying EBITDA of $24m to $27m.
MTO shares were trading flat at $1.65 in early trade.
Read more: New car sales show Victoria in the economic slow lane
10.10am: Shares rising 0.3pc
Shares are lifting by 0.3pc in early trade, buoyed by mining and energy stocks while healthcare reverses.
At the open, the ASX200 was higher by 15 points or 0.3pc to 6016.6.
A 2.6pc lift in BHP is a key driver, along with outperformance again in the major gold miners – Newcrest and Evolution.
AMP shares slipped slightly on news of the exit of national chief Alex Wade, while ResMed shares are slipping 4.3pc even after handing down strong profit for the year.
9.46am: Reports the eye of banking storm: Citi
Citi’s Brendon Sproules says reporting season will be “the eye of the storm” for banks.
But with loan-loss recognition deferred, declining economic activity and lending demand, as well as the prospect of continued lockdowns, the banks may find this reporting season difficult to provide a true picture of performance, he warns.
He says Victoria’s stage 4 lockdowns will keep investors “laser focused” on how loan losses have evolved since May, and the unknown impact of those lockdowns should lead to modest top-ups to provisions.
While regulatory provisioning relief on deferred borrowers will keep recognised impaired loans low, he sees modest loan loss provision top-ups in primarily unsecured personal and commercial lending for deteriorating borrower credit ratings and scores.
Forward looking statements on revenue and cost of funds may be positive, since a lack of lending and strong deposit growth has seen a fall in domestic deposit costs.
“The high likelihood that banks use the build-up of excess deposits to repay long term wholesale debt as it comes due, drives our higher than consensus net interest margin forecasts in FY21,” Mr Sproules says.
CBA reports next Wednesday and NAB updates next Friday. Bendigo results are out the following Monday, followed by Westpac and ANZ updates in the next two days.
9.39am: Stocks to watch
- Fortescue cut to Sell – Bell Potter
- Galaxy Resources cut to Hold – Bell Potter
- Qantas reinstated Neutral – JP Morgan
Perry Williams 9.29am: Beach writedowns ahead, warns Citi
Citi analyst James Byrne has downgraded Beach Energy to neutral from buy on valuation grounds and expects the South Australian oil and gas producer may disclose writedowns ahead of its annual results on August 17.
Beach’s net profit after tax outlook has been cut by 4 per cent for FY20, 5 per cent for FY21 and 14 per cent for FY22 by the broker due to lower assumptions over the level of successful Cooper Basin oil exploration wells.
Beach’s price target has also been lowered by 12 per cent to $1.76 from $1.99.
The company is alone among Australia’s energy majors in not recording an impairment from this year’s oil market crash and Citi said investors should be on high alert from August 12 to 14 with Beach historically announcing writedowns in the days leading up to financial reports.
Santos is Citi’s preferred pick in the sector with its projects breaking even at $US40-50 a barrel while still able to progress growth projects.
Read more: LNG producers write off $20bn
9.18am: Offshore gains to lift ASX
Australia’s share market is set to rise on offshore gains albeit local coronavirus numbers will be closely watched.
Overnight futures relative to fair value suggest the S&P/ASX 200 will open up 0.7pc at 6043 points. If it exceeds Tuesday’s high at 6059.5 the index will have reached a 5-day high.
But traders may be inclined to sell into early strength while awaiting VIC and NSW virus numbers.
The S&P 500 rose 0.6pc to a 5-month high of 3327.8 and the Nasdaq rose 0.5pc to a record high of 10998.4.
The fourth-consecutive rise in the S&P 500 came amid positive vaccine results from Novavax, hope of a US fiscal stimulus deal this week and a stronger-than-expected US ISM Services PMI data.
US ADP payrolls were much lower than expected but were mostly ignored by markets because they have severely undershot non-farm payrolls data recently.
In a positive sign for the risk appetite, small caps continued to outperform, with the Russell 2000 up 1.9pc to a 5-month high of 1546.2. Also positive for risk was a new 5-month low close of 22.99 per cent in the VIX volatility index.
Spot gold rose 0.9pc to a record-high close of $US2038.12 as the US dollar index hit a 27-month low against the major currencies.
Dalian iron ore futures rose 2.6pc to CNY907.50 a tonne, Brent crude oil rose 1.7pc to $US45.17 and the LME metals index rose 1.2pc.
Joyce Moullakis 9.05am: Wade quits AMP Australia
Embattled AMP has suffered another blow with the head of its large Australian business Alex Wade abruptly exiting “effective immediately”, after just 18 months at the wealth group.
Mr Wade – who ran the wealth and banking operations after they were merged to create a larger Australian division – will “step down from his role, effective immediately”, AMP said in an ASX statement on Thursday. No explanation was given in the statement for the departure.
Mr Wade was appointed to run AMP’s wealth business in December 2018 and joined a month later.
“AMP has accepted the resignation and confirms Mr Wade will leave the business,” the company said.
Blair Vernon, New Zealand Wealth Management chief, has been appointed acting head of AMP Australia while a process is conducted to find a permanent replacement.
“We have a strong team in AMP Australia, who have been transforming the business, managing the successful separation of AMP Life, reshaping advice and increasing our focus on clients,” AMP chief executive Francesco De Ferrari said.
8.56am: Lovisa shutters 30 Melbourne stores
Jewellery retailer Lovisa says it has temporarily closed 30 of its stores across Melbourne from today, in line with Victoria’s Stage Four restrictions.
The company’s global support centre and Australian distribution centre, both located in Melbourne, will continue to operate.
In addition, government closure orders in the United States have also forced the closure of 19 of the chain’s Californian stores since July 14, and two New York stores since March.
8.47am: Metcash appoints Bell as CFO
Grocery, liquor and hardware wholesaler Metcash has announced that Alistair Bell has been appointed to succeed Brad Soller as chief financial officer.
Metcash said Mr Bell was a highly experienced executive having held various CFO, COO and strategy positions with public, private equity and multinational companies spanning various industries.
Most recently, Mr Bell was Group CFO of GrainCorp, a position he held for almost 10 years overseeing the finance, treasury, corporate development and strategy functions.
The appointment follows Metcash’s announcement in early March regarding the planned retirement of Mr Soller.
Mr Bell will join Metcash on September 1 and work with Mr Soller on his induction and a smooth transition into the CFO role, Metcash said.
MTS last traded at $2.80.
8.41am: COVID to hit Scentre portfolio by 10pc
Shopping centre operator Scentre says its portfolio value will take a 10pc hit from the coronavirus pandemic at the upcoming results, as stores close and tenants seek rent relief.
In an update to the market this morning, Scentre said it expected the carrying value of its property portfolio to decrease by 10pc from December 2019, while net operating cashflow was expected to be in excess of $250m.
The group noted it had not received any funds from the government under its JobKeeper scheme.
Still, it said pay cuts for its board and executives, first imposed in May to ease the burden of the pandemic, would be scrapped from August 1 – with all fees and fixed remuneration reverting to previous levels.
SCG last traded at $1.97.
8.20am: Nick Scali posts flat FY profit
Furniture retailer Nick Scali has posted full-year underlying net profit of $42.1m, unchanged from the previous year.
This was above recent guidance of $39-$40m, it said.
Sales revenue for the year decreased by 2 per cent to $262.5m, with negative same store sales of 6.7 per cent.
Nick Scali says it estimates a revenue loss through temporary store closures during the pandemic of approximately $9m-$11m.
“Contrary to the decline in sales revenue, written orders grew by 9 per cent with same store sales orders up 4 per cent.”
Nick Scali said an online store launched during pandemic closures achieved more than $3m in sales for the quarter.
The company declared a final dividend of 22.5c per share, up 12.5 per cent.
David Ross 7.40am: Ventilator demand lifts ResMed
Dual-listed Australian medtech ResMed has posted a 13 per cent revenue growth for the year on the back of never seen before demand for its ventilator products.
The San Diego based business, which started life in Australia, saw net operating profit surge 84 per cent in the fourth quarter 2020 and 40 per cent for the year.
The company declared a cash dividend of $US39c per share.
Despite the company’s core business in sleep assistance products being hammered, Resmed saw revenue peak at USD$2.957bn for the year.
Revenue in ResMed’s masks product line declined 8 per cent in its European, Asian and other markets or eked out single-digit or low growth in the fourth quarter of 2020.
While medical device revenue in its European, Asian and other markets grew 32 per cent in the same period.
Speaking on ABC Radio National Resmed CEO Mick Farrell said the results had “been a tale of two markets”.
“We made 150,000 ventilators both invasive ventilators and non-invasive ventilators and that helped hundreds of thousands of people with their breathing,” he said.
“Our core business was dramatically slowed down double-digit slowed down for patients showing up for sleep apnoea.”
7.20am: Facebook takes on TikTok
Amid Chinese short-form video app TikTok’s US troubles, Facebook says it is launching what amounts to be a competing short-video feature inside its Instagram app.
Launched in 50 markets around the world, the short-form video addition to Instagram is focused on those users creating short clips of things such as dance and comedy video, which are displayed to users in a series of the most popular videos when they open the app. Though the company began development roughly a year ago, the new feature is similar to TikTok’s app, which has achieved remarkable success in the US, growing to 100 million U.S. users and hundreds of millions around the world.
The short, 15-second videos that Instagram has now added in the form of Reels, prompted TikTok CEO and former Walt Disney executive Kevin Mayer to call Reels a copycat product in a blog post and pointed out that another of Facebook’s prior efforts, called Lasso, failed.
Dow Jones
6.50am: Bullish on gold, mixed on miners
JPMorgan is bullish on the value of gold that has been removed from the ground. It’s perhaps less so on the bullion below it.
The investment bank’s mining analysts have lifted their estimates on the outlook for gold and have increased the near-term gold price forecast from $US1850 an ounce to $US2000. The analysts kept their long-term gold price view at $US1600/ounce.
The analysts, however, on average only marked up their target price on Australian gold miners by 5 per cent. They upgraded IGO and St. Barbara to overweight, and downgraded Saracen Mineral Holdings to neutral. They kept Newcrest Mining at neutral and Evolution Mining at underweight.
While production reports were in line with expectations, guidance for the fiscal 2021 has disappointed, both on production and capital expenditure. Not all the miners are equally sensitive to rising gold prices, they add.
“It’s no surprise that the names we like are the ones most leveraged to higher prices based on our modelled assumptions, but there is also a strong element of turnaround and catch-up of underperformance. Absolute valuations have been less relevant in our recent conversations with clients, but we continue to stay true to 1x-net-present-value-based price targets across the sector,” the analysts said.
Dow Jones Newswires
6.20am: ASX to rise at the open
Australian stocks are poised to open higher, after world markets gained ground on optimism over a US COVID relief package. Oil, gold and iron ore prices all rose.
At about 6am (AEST) the SPI futures index was up 23 points, or 0.4 per cent.
Yesterday, the local market slipped 0.6 per cent but held on to the key 6000 level by the close, as banks pared early losses, while strength in gold prices prompted a fresh rally in gold miners.
The Australian dollar was higher at US71.88c.
Spot iron ore rose 0.4 per cent to $US118.45, gold extended its rally, up 1.4 per cent to $US2049.30 and Brent oil gained 1.7 per cent to $US45.17.
6.10am: Wall St up on relief package hopes
US stocks rose White House negotiators said they aim to reach a deal on a new coronavirus-relief package by the end of the week.
The S&P 500 gained 0.64 per cent as of the 4pm close of trading in New York. The tech-heavy Nasdaq Composite added 0.52 per cent. The Dow Jones Industrial Average advanced 1.4 per cent, or about 373 points, boosted by a big gain in shares of Walt Disney.
Investors have been watching for signs that the government will deploy more fiscal stimulus to help counter the economic damage caused by the pandemic. Many economists expect last week’s expiration of $US600 in enhanced weekly unemployment benefits to lead to a sharp drop-off in household spending.
Negotiators from the White House said Tuesday that they aim to reach agreement with Democrats on another aid package by week’s end. Both sides have said they made progress in talks to bridge differences on unemployment payments and other proposals.
“You can’t spend what you don’t have,” said Norm Conley, chief executive and chief investment officer at JAG Capital Management. “With as many people out of work as there are, that would have a negative impact on consumer spending if this deal, or some sort of deal, didn’t materialise in the next week or two.”
Economists have worried that a rise in US coronavirus infection rates last month could curtail economic recovery as some regions moved to impose local restrictions to curb the number of cases. Wednesday’s ADP National Employment Report showed non-farm private-sector employment in the US increased by 167,000 jobs in July, smaller than the 1 million increase economists expected.
This week, new coronavirus cases have inched lower, lending to optimism for faster economic recovery.
Also on the radar for markets: Deteriorating relations between Beijing and Washington, which are likely to weigh on investor sentiment. The US and China have agreed to high-level talks on August 15 to assess Beijing’s compliance with the bilateral trade agreement signed early this year, The Wall Street Journal reported.
Gold gained 1.3 per cent to $US2046.80 a troy ounce, extending a bull run that has gained momentum during the coronavirus pandemic. This year’s sharp drop in yields on U.S. Treasurys to levels below the expected pace of inflation is making gold, which doesn’t generate an income, more attractive as a store of value. The precious metal, viewed as a haven asset, is also drawing investors concerned that the economic fallout from the pandemic may lead to another rout in stocks.
“It reminds me of the price rally in 2011 when gold posted its previous record,” said Carsten Fritsch, an analyst at Commerzbank. He said gold could climb higher given guidance from the Federal Reserve that central bankers will keep interest rates low. “There’s no hint of higher interest rates in the near future, even if there’s an uptick in economic activity,” he said.
Brent crude oil rose 2.4 per cent to $US45.51 a barrel, its highest since Saudi Arabia and Russia started a price and production war in March. Optimism among investors, falling U.S. inventories and a weaker dollar have supported oil. The ICE U.S. Dollar Index, which measures the greenback against a basket of currencies, fell 0.6 per cent.
Dow Jones Newswires
5.45am: Gold rally persists
Gold prices settled sharply higher, extending a record run for the precious metal that has helped it to log four straight gains and eclipse a historical milestone above $US2000 this week.
December gold closed up $US28.30, or 1.4pc, at $US2049.30 an ounce, marking a fresh record for the commodity even as stocks broadly gained.
The yellow metal has soared by more than 34pc in 2020, surpassing the year-to-date rally in the Nasdaq Composite Index, which has risen by 22.5pc over the same period.
Dow Jones
5.40am: Markets rise as US stimulus seems close
Stock markets on both sides of the Atlantic climbed after a mixed Asian showing, with hopeful traders tracking talks on a key US stimulus package.
Uncertainty about the global economic outlook caused by the coronavirus pandemic meanwhile caused investors to hedge their bets, helping gold to fresh highs day after the haven asset broke through $US2000 per ounce for the first time.
“Stocks are back in rally mode,” said Chris Beauchamp, chief market analyst at the IG trading group.
“That both equities and the supreme risk-off asset (gold) are moving higher just shows how conflicted investors are — they can’t avoid being tempted by equities, but they can also read the unending stories of bankruptcies,” he added.
Among upbeat news in Europe were strong rebounds for the UK services sector and sales of new cars after both plummeted during the country’s lockdown. The IHS Markit/CIPS Services purchasing managers’ index (PMI) for Britain rose to 56.5 in July from 47.1 in June.
A reading above 50 indicates an expansion, and July’s rebound indicated “the very early stages of recovery … from an exceptionally low base”, said Tim Moore, economics director at IHS Markit.
Ongoing China-US tensions prevented traders from getting too invested in equities.
“Rising trade tensions between the US and China could open up an unwelcome can of worms,” said Stephen Innes at AxiCorp. “The market’s primary thesis on what ultimately matters for growth assets is whether a US-China geopolitical escalation morphs into an economic dust-up.”
London closed up 1.1 per cent, Frankfurt ended up 0.5 per cent and Paris gained 0.9 per cent.
AFP
5.30am: Swedish GDP drops 8.6pc
Sweden’s economy shrank 8.6 per cent in the second quarter, the nation’s statistics service said, even though the country never imposed strict coronavirus lockdowns seen elsewhere in Europe.
The fall in gross domestic product (GDP) when compared to the second quarter of 2019 came in at 8.2 per cent.
According to Statistics Sweden, the downturn represented the largest drop since at least 1980, which is as far back as comparable statistics are available.
Sweden’s government is expecting a six per cent fall in GDP for the year as a whole — the largest since 1940.
The GDP figures presented are preliminary, with an update expected on August 28, and though the drop was significant, analysts had been expecting something in the ballpark.
“The sharp contraction in the Swedish economy … confirms that it has not been immune to COVID, despite the government’s well-documented light-touch lockdown,” David Oxley, senior economist at Capital Economics, said in a note.
“Nonetheless, the economic crunch over the first half of the year is in a different league entirely to the horror shows elsewhere in Europe,” Oxley added.
The eurozone’s GDP tumbled 12.1 per cent in the second quarter, dragged down by even steeper falls in Spain, Italy and France where lockdowns hit the tourism sectors particularly hard.
Unlike most countries in Europe, Sweden never imposed a so-called lockdown during the coronavirus pandemic, largely keeping businesses operating. But as the country’s economy is dependent on exports, the fallout from the global downturn was nonetheless swift.
AFP
5.28am: US trade gap narrows
The US trade deficit dropped slightly in June to $50.7 billion on a record increase in exports, the government announced.
The $US4.1 billion decline in the trade gap from May came from a 9.4 per cent jump in exports of goods and services, the largest on record, while imports rose just 4.7 per cent, the Commerce Department reported.
In the first half of the year, the trade gap narrowed sharply from the same period of 2019 amid the global shutdowns in transportation and trade due to the COVID-19 pandemic, dropping to $US274.3 billion from $US297.4 billion, according to the data.
At the same time the deficit with China in goods trade has narrowed sharply, falling to $US142.2 billion through June, more than $US40 billion lower than in the first half of 2019.
AFP
5.25am: US private hiring slumps
The United States added just 167,000 private sector jobs in July, nowhere near analysts’ expectations of a 1.6 million rise as the coronavirus crisis continues to disrupt business, payroll services firm ADP said.
“The labour market recovery slowed in the month of July,” said Ahu Yildirmaz, vice president of the ADP Research Institute. “We have seen the slowdown impact businesses across all sizes and sectors.”
AFP
5.22am: Gold Fields expects earnings to double
South African miner Gold Fields Ltd. said Wednesday it expected earnings to roughly double in the first half of 2020 on the back of a surge in the price of gold during the second quarter.
Basic earnings per share “are expected to be between 17.1-18.9 US cents per share, an increase of 90-110 per cent” over the 9 cents per share a year earlier, it said in a statement.
Production in January-June was almost unchanged at 1,087 thousand ounces compared with 1,083 in the first half of 2019, it said in a statement.
The Johannesburg-listed company has nine operational mines in Australia, Peru, South Africa and West Africa, as well as a project underway in Chile.
AFP
5.20am: Commerzbank beats expectations
Commerzbank posted a smaller-than-expected drop in its second quarter net profit, despite booking charges related to the coronavirus pandemic and losses over a “large single case” — reportedly the disgraced payment provider Wirecard.
Germany’s second-largest lender said it set aside provisions of 131 million euros ($155 million) during the three months ending June over the impact of the coronavirus pandemic.
It also booked a 175 million-euro loss over the “single case”, which according to the Financial Times were loans made to Wirecard, which collapsed in June in what Germany’s finance minister had described as an unparalleled scandal.
Despite the charges, the bank posted a net profit of 220 million euros in the three months to the end of June, compared with a 279 million euro profit in the same period a year earlier, beating expectations of analysts compiled by FactSet.
Revenue for the quarter rose slightly to 2.3 billion euros from 2.1 billion euros the previous year.
The Frankfurt-based bank, more than 15 per cent owned by the German state, said, however, that it expected to post a loss for the full year on the back of “expected risk result and potential restructuring charges”.
AFP
5.15am: Allianz profits slump
German insurer Allianz on Wednesday reported a slump in profit for the second quarter, hammered by higher claims over natural disasters and the coronavirus pandemic.
Net income fell to 1.53 billion euros during April to June — a drop of 28.6 per cent compared with the same period last year.
Operating profit, at 2.57 billion euros, was down 18.8 per cent year-on-year because of “COVID-19-related losses, as well as a lower operating investment result”.
The group said it was unable to give an operating profit outlook for 2020 due to “the continuing uncertainties”.
AFP
ASX 200 lifts as CBA, Macquarie test new peaks
CBA hits all-time intraday high. Macquarie up 2.3pc on the day. First Super's CFMEU-linked co-chair steps down after APRA action. Pacific Smiles CEO Andrew Vidler resigns.
ASX ends higher on tech, property, banks as energy stocks hit
RBA governor says higher rates not off the table. Data centre operator NextDC's top gainer after AirTrunk sale. Coronado dives on guidance. Downgrades add to oil price woes for ex-div Woodside and Santos. Apollo selldown hit for Challenger.