Trading Day: Tech stocks lead ASX gains after Wall Street records
Stocks buoyant after jump to 11-month high, with Zip Co and Afterpay among tech winners, after new US records. Australia’s jobless rate fell.
- Woodside oil, gas output hits record
- Santos output at top of guidance
- Vicinity reports values drop
- Cleanaway CEO Bansal to step down
That’s all from the Trading Day blog for Thursday, January 21. Australian stocks closed higher after gains on Wall Street fuelled by earnings results and optimism surrounding Joe Biden’s inauguration. The Dow rose 0.8 per cent, the S&P 500 rose 1.4 per cent to a new record and the Nasdaq gained 2 per cent. Australia’s unemployment rate fell to 6.6 per cent.
Richard Gluyas 6.19pm: Investors storm into Zip Co after update
Buy now, pay later group Zip Co has said it will prosper from a decade of continuing disruption to the ailing credit card market after its share price surged 23 per cent in response to a buoyant December quarter.
Sidelined in recent years by the extraordinary growth of rival Afterpay, Zip regained some of its mojo on Wednesday, reporting an 88 per cent spike in quarterly revenue to $102m on the back of record quarterly transactions of $1.6bn, up 103 per cent.
The company boasted it had now cemented itself as a “true global BNPL leader”, and was closing in on Afterpay in Australia.
“We’re the fastest growing industry player in Australia – we were the most downloaded BNPL app in December,” Mr Gray told The Australian.
“Credit cards have dominated for so long but we can evolve and disrupt the market for the next 10 years, and the size of the prize means it’s not a winner-take-all market.
“The writing is really on the wall for the card industry – 40 per cent of our customers don’t have a credit card because newer generations are not adopting the broken (industry) model.”
Shares in Zip rocketed $1.38, or 23.1 per cent, to $7.36 on Thursday, as investors absorbed the trading update.
Over the past 12 months, the stock has climbed 87 per cent from $3.94 to $7.36 at the close of business on Thursday.
Afterpay, however, has clearly outperformed, surging 327 per cent from $34.39 to close at $149.
David Ross, Melissa Yeo 6.00pm: Ding Tai Fung, Lotus Group, collapse
Two of Sydney’s most popular up-market restaurant chains Lotus Dining and Din Tai Fung have collapsed.
Greengate Advisory liquidator Patrick Loi has been appointed on Thursday after the collapse of the Lotus restaurant chain after a year where Covid lockdowns have smashed the hospitality and dining industry.
The seven restaurants in the Lotus Dining Group include its latest site at Sydney’s Barangaroo, as well as its 270-seat designer restaurant at The Galeries.
Lotus temporarily closed all its restaurants in March at the height of the pandemic as the state government shuttered businesses across Sydney.
Greengate Advisory has been contacted for comment. Calls to the Lotus were not answered on Thursday.
While Covid-linked lockdowns hit the restaurant industry earlier this year, border closures following the NSW Covid outbreak are crunching the sector. Figures compiled by the Tourism & Transport forum show border closures over summer have cost tourism businesses nearly $7bn in just five weeks during what is usually the industry’s busiest trading period.
5.55pm: $A edges higher: CBA
Commonwealth Bank’s Global Markets Research team notes AUD/USD edged higher towards 0.7780.
“Australian employment rose by 50,000 in December and is now sitting ‘just’ 93,000 below the peak level of February 2020.
“The unemployment rate fell to 6.6% and the participation rate lifted to 66.2%.
“The figures demonstrate the remarkable recovery of the Australian labour market since the depths of the pandemic in April.
“The outlook for employment looks to be in good shape in early 2021 as the number of CBA bank accounts receiving JobSeeker continues to fall.”
Bridget Carter 4.44pm: McGrathNicol tapped for struggling Airtrain
Insolvency, advisory and restructuring firm McGrathNicol is understood to have been called in to provide advice on Airtrain – the Queensland rail service that transports passengers between the Gold Coast and Brisbane Airport – in a further sign of the pressure facing tourism-related companies linked to the global pandemic.
It is understood that Airtrain, which is owned by the pension fund based in the United Kingdom – Universities Superannuation Scheme – has a significant sum of debt owing to its lenders.
The business was said to be struggling last year with the majority of domestic and international flights were cancelled in and out of the state due to COVID-19.
Working on the Airtrain asset is McGrathNicol partner Jamie Harris, say sources.
The privately-owned and operated railway started operations in May 2001 and is integrated into the Queensland Rail suburban network, with trains running from Brisbane Airport directly to Brisbane City and on to the Gold Coast.
It has an alliance with Broadspectrum services, which provides operations and maintenance on the Airtrain rail link.
4.35pm: ASX up +0.8%, hits 11-month high
Australia’s sharemarket rose for a third day as Wall Street surged amid the smooth inauguration of President Joe Biden and expectations of economic recovery amid COVID vaccinations and sustained fiscal and monetary policy stimulus.
The S&P/ASX 200 index ended up 0.8pc at a 11-month high close of 6823.7 after hitting 6829.3 in early trading.
S&P 500 futures added 0.3 per cent after the US benchmark surged 1.4pc overnight.
Outperforming sectors included Tech, Consumer Discretionary, Financials, Materials, Consumer Staples and Communications.
Among standouts in those sectors, Zip Co rose 23pc on a strong 2Q trading update and Afterpay followed with a 5.7pc rise, Wesfarmers rose 1.5pc, NAB gained 1.6pc after Morgan Stanley upgraded, BHP rose 1.6pc amid price target upgrades,Woolworths rose 2pc and Seek surged 3.8pc on strong jobs growth.
December employment growth met expectations with a 50,000 rise in jobs and a record high participation rate of 62.2 per cent though the unemployment rate was a fraction lower than expected at 6.6pc.
Underperforming sectors included Energy, Health Care, Industrials, Utilities and Real Estate.
Ben Wilmot 4.30pm: Corrs signs at AMP’s Quay Quarter Tower
City leasing is showing steady signs at the top end with funds manager AMP Capital snaring law firm Corrs Chambers Westgarth as major tenant at its Quay Quarter Tower project at Sydney’s Circular Quay.
The law firm will lease nearly 10,000sq m over a 15-year term from when the $3bn tower is completed next year. It will come out of a nearby Mirvac building.
Real estate agency CBRE advised both Corrs and AMP on the transaction that was one of the largest new leases agreed in Sydney in the wake of the coronavirus crisis.
Quay Quarter Tower, at 50 Bridge Street, is part of the overall Quay Quarter Sydney development, and is owned by investors in the AMP Capital Diversified Property Fund, AMP Capital Wholesale Office Fund and super fund Rest, which will take a one-third interest in the tower when it is finished.
Corrs will join other major tenants, Deloitte and AMP. Deloitte took a ten year lease over 32,000sq m and AMP will take 35,000sq m.
Investment house EQT has also signed up for a part floor of prime high-rise office space in the tower.
Together, the deals bring the total pre-commitment of Quay Quarter Tower to more than 85 per cent, with the building due for completion in the second quarter of 2022.
AMP Capital head of real estate Kylie O’Connor said the pre-leasing success demonstrated the quality and appeal of the Quay Quarter Sydney precinct.
4.05pm: Zip Co shares up +21pc
Buy now, pay later platform Zip Co on fire, with shares up more 21 per cent after earlier on Thursday announcing a number of record metrics in its December quarter update.
Figures released earlier on Thursday showed group quarterly revenue was up 88 per cent year on year to $102.0m on the back of record quarterly transactions of $1.6bn, up 103 per cent year on year.
Shortly before the close, shares in Zip Co were trading at $7.26, up 21.4 per cent.
Transaction volume in the month of December alone was $628.4m, up 104 per cent year-on-year, with BNPL specific revenue during the month up 94 per cent year-on-year to $40.2m.
Customer numbers increased to 5.7m, up 97 per cent year-on-year, while merchants using the platform jumped 73 per cent to 38,500.
3.25pm: United Airlines offers grim outlook
United Airlines Holdings said it expects the coronavirus pandemic will continue to weigh on travel demand this year as the airline turns its focus to rebuilding itself.
United reported a net loss of $US1.9 billion for the fourth quarter, compared with a profit of $641 million in the same period a year earlier. Altogether, United lost $7.1 billion in 2020.
While the outlook for the next few months remains dim for airlines, United said it has gotten a handle on how to survive its immediate challenges and outlined the broad strokes of its plan to exceed its 2019 profit margins by 2023, through a combination of returning travel revenue and cost-cutting.
The Wall Street Journal
2.28pm: MS upgrades ASX 200 price target
Morgan Stanley has upgraded its ASX 200 price target to 7100 from 6700.
“The earnings upgrade cycle has started at a faster pace, thanks to Materials. Interim results offer upside to consensus and a return of outlooks bode well for revision momentum,” MS said in a note.
It moved Banks to overweight, added Boral (BLD), and maintained its Resources conviction.
“Our bear case remains unchanged at 5300, while our bull case is lifted by 5% to 7700, reflecting earnings momentum and faster recovery paths. Dividend yields are also expected to recover from current 3.4% trough to ~4% in FY22e.”
12.15pm: Milton wades into market in December half
WH Soul Pattinson-backed listed investment vehicle Milton Corp said its $3.1bn portfolio performed strongly over the December half, as markets recovered from the COVID-19 driven lows of March 2020.
Milton, which has exposure to 70 companies, made additional investments in Johns Lyng Group, Magellan Financial Group, Amcor, Cleanaway, Equity Trustees and IOOF and a new investment was made in IPH Limited.
Disposals of $12.1m included the complete exit of Milton’s shareholdings in insurer QBE and Sims Group. Investments “were timed to take advantage of market volatility and available liquidity,” Milton said in its investor update.
Milton’s December half underlying profit - which excludes the impact of special dividends - declined by 45 per cent to $37.3m.
“Dividends received on Milton’s diversified investment portfolio declined sharply as companies reduced or eliminated dividends to conserve cash due to the impact of COVID-19,” Milton said in its update.
Milton declared a fully franked interim dividend of 5.75 cents per share, representing a payout ratio of 104 per cent of underlying earnings. Milton has cash on hand of $59.7m, no debt and total assets before provision for tax on unrealised capital gains of $3.2 billion, or $4.82 per share. Milton’s shares last traded Wednesday at a premium of $4.94. Milton’s total portfolio return for the 6 months to 31 December 2020 was 15.4 per cent, which is net of all operational expenses and tax.
John Durie 12.10pm: Cleanaway’s Bansal tipped for Gupta’s Infrabuild
Former Cleanaway boss Vik Bansal is tipped as the new boss for Sunjeev Gupta’s InfraBuild, which explains his decision to leave Cleanaway.
Bansal is expected to be named shortly as the person who will take InfraBuild public later this year.
12.01pm: ASX up 0.6pc after 11-month high
Australia’s share market remained buoyant after surging to a fresh 11-month high after the US market jumped amid a smooth inauguration of President Biden.
The S&P/ASX 200 index was up 0.6pc at 6812 at midday after rising as much as 0.9pc to 6829.3 in early trading.
The Tech sector was sharply outperforming with Zip up 11pc on a strong 2Q trading update and Afterpay following with a 5.4pc rise.
Other outperforming sectors included Consumer Staples, Financials and Consumer Discretionary, with Woolworths up 2pc, NAB up 1.8pc after Morgan Stanley upgraded and Wesfarmers up 1.3pc.
Miners were mostly still positive, with BHP up 0.6pc and Newcrest up 1.1pc, but the miners were well off their early highs after strong gains of late.
Cleanaway was down 8pc after diving 13pc following the departure of former CEO Vik Bansal.
Alumina dived 3.7pc as AWAC JV partner Alcoa dived 2.8pc in after-hours trading.
Super Retail Group dived 3.7pc after surging since March.
11.32am: Jobless rate down to 6.6pc
December employment data have mostly met market expectations.
Employment rose by 50,000, matching Bloomberg’s consensus estimate.
The unemployment rate slipped to 6.6pc, slightly better than expected. The consensus was for a jobless rate of 6.7pc.
The participation rate hit a record high of 66.2pc as expected.
Full-time jobs rose 35,700 and part-time jobs rose 14,300.
11.29am: Less need for QE extension: UBS
UBS chief economist George Tharenou sees less need for the RBA to extend its quantitative easing and yield curve control programs after upgrading his economic outlook.
He now sees a housing “up-crash”, with commencements to boom by 23,000 versus 185,000 previously forecast, leading him to boost his year-on-year GDP forecast to 4.3pc versus an already-above-consensus 4.2pc previously forecast.
After HIA’s new home sales survey spiked 91.8pc month on month in December, Mr Tharenou notes that news reports said there were more than 75,000 applications for the $25,000 HomeBuilder grant versus Treasury’s initial forecast of 27,000, with a rush of 35,000 in December alone.
“We expect more applications for the tapered $15,000 grant, which expires in March,” he says.
“Given commencement must occur within six months of contract signing, this will lead to a surge in mainly detached construction.
Hence, we materially upgrade dwelling commencements to 181,000, around the level during the ‘boom years’ of 2015-18; which lifts dwelling investment to 19 per cent year on year.”
He says the materially stronger than expected economy raises the risk that the RBA does not announce the extension of its QE and YCC programs as he still expects, especially if the surge in activity is accompanied by a sharper decline in unemployment.”
11.15am: December jobs data due
December employment data are due for release at 11.30am (AEDT).
Bloomberg’s consensus estimates are for a 50,000 rise in jobs and a 6.7pc jobless rate.
The participation rate is expected to hit a record high of 66.2pc from 66.1pc last.
10.57am: Cleanaway cut to Neutral: CS
Credit Suisse analyst Paul Butler has cut Cleanaway to Neutral from Outperform.
This follows Clearnaway’s announcement that controversial CEO Vik Bansal will step down.
Mr Butler has kept his price target at $2.45, implying a 3.5pc rise from the current price of $2.365.
10.38am: Big banks ‘should outperform ASX 200 in 2021’
Australian bank stocks will outperform the S&P/ASX 200 this year thanks to domestic economic trends, a cyclical earnings recovery, healthy balance sheets and lower overall risk profiles, Morgan Stanley says.
Sector rotation will also play a part as the average FY return of ANZ, Commonwealth, NAB and Westpac beats the benchmark index for the first time in seven years, the investment bank says.
It sees supporting factors including an improved outlook for the Australian housing market and fewer points of vulnerability after lenders slimmed down operations and reduced risk. MS is overweight on Westpac and ANZ, upgrades NAB to equal-weight, and is underweight on Commonwealth.
Dow Jones
10.26am: ASX jumps 0.9pc to 11-month high
Australia’s share market surged after offshore gains following the smooth inauguration of President Biden.
The S&P/ASX 200 index rose 0.9 pc to an 11-month high of 6829.3.
The index rose a bit more than expected as S&P 500 futures gained 0.2pc after the US benchmark surged 1.4pc overnight.
Technology led gains with Zip Co up 9pc on a glowing 2Q update and Afterpay following with a 5pc rise.
Netwealth jumped 9.3pc after upgrading its funds under administration forecast.
But unlike the US market, where mega-cap tech and growth completely dominated, the local Financials and Materials sectors also outperformed.
NAB jumped 1.9pc after Morgan Stanley upgraded to Neutral and Westpac and ANZ followed with gains of over 1pc.
BHP rose 0.8pc after price target upgrades from brokers and a strong jump in its ADRs equivalent price overnight.
On the downside, Cleanaway dived 13pc after controversial CEO Vic Bansal departed.
9.59am: S&P 500 to rise 11pc in 2021: RBC
RBC’s US Head of Strategy, Lori Calvasina, expects FY21 to be a year of resilience, recovery and realignment for the US share market.
She targets 4100 points on the S&P 500, implying a 9pc rise for the year and a 6.5pc rise from the current level.
But while that’s less than a 16pc rise in 2020, she sees upside risk to 4600. RBC forecast S&P EPS growth of +23pc and 9pc respectively, underpinned by EPS growth of 23pc in 2021 and 9pc in 2022.
RBC expects the recent market preference for value/cyclicals over growth/tech to continue.
And US equities are expected to lag non-US equities, Value to outperform Growth, and Small Cap to outperform Large Cap.
Overweight rated sectors are Financials, Materials, and Energy.
Market weights are Industrials, Consumer Discretionary, Technology, Health Care and Utilities.
REITs, Consumer Staples, and Communication Services are rated Underweight.
But RBC also sees a period of consolidation through the first half of 2021.
“While we expect 2021 will be a solid year, it comes with risk,” Ms Calvasina says.
“t could be as mild as a mid-single digit decline from the recent highs taking the S&P 500 to about 3,600 or as deep as a drop in the mid teens (percentage fall) to about 3,200.
“Our positioning/sentiment analysis suggests a pullback could start any time, but could also take a few more weeks/months to materialise.
“Ultimately, 2021 price action will reflect 2022’s fundamentals.
Longer-term risks to the market and our bullish full-year view include higher corporate taxes, Tech/Internet regulation, a less accommodative Fed, and the virus/vaccine backdrop.”
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9.40am: ASX poised for 11-month high, jobs data ahead
Australia’s share market should rise for a third day running after Wall Street rose strongly amid a smooth presidential inauguration and a 17pc rise in Netflix, which topped 200m subscribers.
Overnight futures relative to fair value suggest the S&P/ASX 200 index will open up 0.7pc at a fresh 11-month high of 6817.
At that point the index will be less than 6pc below its record high of 7197.2.
BHP ADR’s equivalent close at $46.95 suggests the market heavyweight will rise about 1.5pc.
Outperforming S&P 500 sectors included Communications, Consumer Discretionary, Technology and Real Estate.
Financials, Consumer Staples, Materials, Energy, Health Care, Utilities and Industrials underperformed.
A bullish report from Citi on the February reporting season will be in focus along with upgraded target prices on BHP, Morgan Stanley’s upgrade of NAB, Macquarie’s rating changes on property trusts and a number of production, sales and valuation updates today
Domestic employment data for December are due at 11.30am with the market expecting a 50,000 rise in jobs and 6.7pc unemployment rate.
BoJ and ECB meetings are due later today along with US housing starts and initial jobless claims data, along with reports from IBM and Intel.
Nick Evans 9.20am: South32 to drop coking coal project
South32 chief executive Graham Kerr has confirmed the company is set to walk away from the development of the Eagle Downs coking coal mine in Queensland, saying the time is not right to build the high grade metallurgical coal mine.
The $1.5bn development would have extended South32’s business in the steelmaking commodity, as it struggles to get an extension to its Illawarra coking coal mine in NSW approved in the face of stiff opposition from environmental groups and even the state’s water authority.
South32 released its December quarter production report on Thursday, and Mr Kerr said the company was “assessing its options” for its half of the project, which it owns with Chinese steel giant Baowu, including a possible divestment.
“Following completion of the Eagle Downs Metallurgical Coal feasibility study in the December 2020 quarter, we have determined not to proceed with the project at this time,” South32 said.
“While the study indicated the potential for a long-life operation, the expected returns do not currently support the allocation of capital in accordance with our capital management framework. The project has been placed on hold while the partners assess options that may include the divestment of our 50 per cent interest.”
The comments come as South32 reported record alumina production at both its Worsley operations in WA, and from Brazil, along with record year-to-date manganese production from its Australian operations.
South32’s share of alumina production rose 3 per cent in the first half of the financial year, to 2.7 million tonnes, a 7 per cent rise on the September quarter at 1.4 million tonnes.
Production from its Illawarra coking coal operations fell sharply in the December quarter, down 25 per cent to 1.4 million tonnes, although sales grew 16 per cent to $1.7 million tonnes.
While Mr Kerr said South32 had booked a strong operating performance in the first half of the financial year, and remained in a strong financial position, he warned shareholders South32 faces cost pressures across its operations as demand and pricing for key commodities returns.
South32 shares closed Wednesday at $2.67.
Nick Evans 9.20am: Woodside says oil, gas output hits record high
Woodside Petroleum says it booked record annual production in 2020 as it finished on a high after the year’s wild swings, with sales revenue up 32 per cent to $920m in the December quarter.
Woodside released its December quarter production report on Thursday, and chief executive Peter Coleman issued a bullish outlook for 2021 after January’s gas price surge.
“Oil and gas prices have strengthened considerably heading into the first quarter of 2021. We agreed to our highest ever spot LNG price for delivery in the coming quarter, surpassing our previous record set in 2012,” he said.
“Similarly, Vincent crude and Wheatstone condensate are also being priced at all-time record premiums to Brent, compounding the impact of the sharp increases in crude pricing and reflecting continued improving economic conditions in much of Asia.”
Woodside delivered record annual production of 100.3 million barrels of oil equivalent (mmboe) in 2020, with December quarter output of 24.9mmboe, down slightly from the previous period.
Rising prices in the December quarter delivered revenue of $920m, up 32 per cent from the September period - although still well down on the $1.4bn it booked in the same quarter in 2019.
Woodside said it received an average $47 per barrel of oil equivalent in the three months to the end of December, up from $23/boe, with domestic gas yielding an average $14/boe.
Received oil prices lifted $20/boe to $65.
Lachlan Moffet Gray 9.11am: Zip revenue jumps
Buy now, pay later platform Zip has announced a number of record metrics in its December quarter update, while claiming it has cemented itself “as a true global BNPL leader.”
Group quarterly revenue was up 88 per cent year on year to $102.0m on the back of record quarterly transactions of $1.6bn, up 103 per cent year on year.
Transaction volume in the month of December alone was $628.4m, up 104 per cent year-on-year, with BNPL specific revenue during the month up 94 per cent year-on-year to $40.2m.
Customer numbers increased to 5.7m, up 97 per cent year-on-year, while merchants using the platform jumped 73 per cent to 38,500.
The company’s US-facing platform Quadpay delivered $47.6m in revenue, up 208 per cent, and 915,000 customers, bringing the US total to 3.2m.
The company said its new Zip UK division, launched in December, would feature in company results from next quarter.
Eli Greenblat 9.10am: Mosaic ‘to beat consensus’
Mosaic Brands, one of the biggest fashion store owners in Australia with around 1300 stores trading under brands such as Katie’s, Rivers, W. Lane and Rockmans, says first half earnings will materially exceed market consensus.
The company has maintained its return to profitability, says online Black Friday sales were a record for the company after rising by more than 100 per cent and that it should also benefit in 2021 from a vaccine rollout in Australia.
In a trading update on Thursday Mosaic Brands said first half EBITDA expected to be between $40m - $45m, materially exceeding market consensus, and up between 22 per cent and 38 per cent compared to the previous corresponding period.
Strong online performance continues with year-on-year sales growth of 31 per cent and online product offering growing to 350,000 SKU’s spanning 30 categories.
Mosaic Brands said the first half of fiscal 2021 ending December 27, 2020 saw the retailer return to profitability in line with the update of October and, although it is continuing to finalise accounts, it is likely EBITDA will materially exceed market consensus.
The lift in EBITDA on the previous corresponding period was inclusive of JobKeeper payments, the ongoing focus on margin improvement and the group rapidly expanding its online offering, the retailer said.
9.06am: Santos output at top end of guidance
Santos said its oil and natural gas production rose by 18pc in 2020, achieving the top end of guidance that the energy company upgraded only last month.
Santos reported annual output of 89 million barrels of oil equivalent, supported by production of 25.4 million barrels in the final quarter of the year. In December, Santos had guided the market to annual output of 87 million-89 million BOE.
Fourth-quarter sales revenue of $US922 million was 16pc higher than the previous three months, mainly due to a 23pc uplift in sales volumes of liquefied natural gas and a 25pc increase in prices. For the year, sales revenue totalled $US3.4 billion after the company’s sales volumes reached 107.1 million BOE.
“2020 saw us ride through the bottom of the cycle while still generating free cash flow and deliver a record 4.3 million tons of Santos-equity LNG sales,” said Chief Executive Kevin Gallagher.
Mr. Gallagher said the company’s LNG projects currently have 10 spot cargoes scheduled to move in the first quarter of 2021.
Spot cargoes are being closely watched by investors and analysts after February futures for Asian LNG hit nearly $US20 per million British thermal units. As recently as mid-December, they were only trading around $US8 per MMBtu.
Dow Jones Newswires
9.03am: Link expects to beat first half forecasts
Link Administration Holdings said it would beat its first-half earnings and profit guidance, citing strong December revenues and record transaction volumes by its part-owned digital property services unit.
The Australian pension fund administrator on Thursday posted unaudited operating earnings before interest and tax of $79 million. That compared with company guidance for the six months through December of $77 million.
It recorded unaudited operating net profit after tax and amortisation of $65 million, compared with guidance of $57 million.
Link cited positive revenue momentum across the business during December, when the PEXA unit in which it has a 44 per cent interest delivered a record month of transaction volumes.
Link is scheduled to announce its audited first-half results on February 25.
Dow Jones Newswires
8.38am: Brace for earnings beats: Citi
The February reporting period will show that domestic-focused companies have performed well with many reporting strong earnings growth, according to Citi.
The US investment bank’s analysts see the potential for upside surprises to outweigh downside ones by two-to-one.
The retail and mining sectors are expected to have the most positive surprises while the downside surprises are more idiosyncratic.
Retailers are likely to have stellar earnings growth, benefiting from the structural pivot towards at-home spending, temporary wage-subsidies and rent-reductions, and the redirection in spending due to travel restrictions, says Citi equity strategist, Liz Dinh.
“Focus will be on how much is sustainable versus temporary. Housing-related companies are also expected to benefit from the upturn in the housing cycle, with calendar 2021 outlook a key driver of performance.”
For miners, she notes that the resilience in the Chinese economic recovery through COVID-19 has resulted in persistently elevated iron ore prices.
“Mining companies should report strong dividend yields from strong cash flow generation and low levels of debt this reporting season,” she says. “We may see some pay special dividends.”
Corporate balance sheets overall “remain healthy”, with retailers, miners, and healthcare companies seen as having strong cash flow and better balance sheets.
“Free cash flow yields may entice companies to undertake greater acquisition activity over the next six months,” says Citi’s Ms Dinh.
“In contrast, free-cash-flow generation and gearing levels will be key to watch for oil and gas companies as they enter a capex-heavy phase.”
Citi analysts see the strongest upside risk to buy-rated companies including Woolworths, Sonic Healthcare, Harvey Norman, Charter Hall Group, Mount Gibson and Australian Finance Group
Sell-rated companies with downside risk to earnings include ASX, Domino’s Pizza, Blackmores and Nanosonics.
8.40am: Alcoa expects aluminium consumption to rise
Alcoa Corp said that it expects aluminium consumption both in China and elsewhere to rise this year amid a broader economic recovery from last year’s downturn caused by the Covid-19 pandemic.
“As supply growth is projected to be lower than demand growth, the global primary aluminium market is anticipated to be closer to balance in 2021,” the Pittsburgh-based company said.
This year, Alcoa anticipates shipping between 2.7 million and 2.8 million metric tons of aluminium this year. That would be down compared with 2020 due to changes in the company’s portfolio, but Alcoa believes it is “well positioned to benefit from the recovery in value-add products.”
The company also forecast shipping 49 million and 50 million dry metric tons of bauxite and between 13.9 million and 14 million metric tons of alumina this year.
“The Covid-19 pandemic is ongoing, and its magnitude and duration continue to be unknown,” Alcoa added.
Dow Jones Newswires
Ben Wilmot 8.36am: Vicinity takes hit in retail values
Shopping centre owner Vicinity Centres has taken a $570m hit on the value of its mall portfolio, with most of the pain coming at its CBD complexes.
The company was hit by a net valuation decline of 4 per cent over the last half on its 60 directly-owned retail properties.
Vicinity CEO Grant Kelley blamed the pandemic and warned that its effects were ongoing for shopping centres, given the risk of more outbreaks.
“COVID-19 impacted the global economy materially in 2020, the effects of which continue to be felt into 2021,” he said.
“Our CBD centres in Brisbane, Sydney and Melbourne, however, continued to be impacted by the current low levels of tourism and office occupancy,” Mr Kelley said.
But the more non-discretionary retail focused neighbourhood and sub regional centres have had more resilient valuations generally, while providing a higher income yield.
The company said across the portfolio, outside of CBD locations, customer activity was returning to near pre-COVID levels. In December 2020, centre visitation across Vicinity’s portfolio averaged 88.4 per cent of the prior year.
8.18am: What’s impressing analysts today?
Cluey started at Buy: $1.80 target price: Canaccord
Crown Resorts cut to Neutral: Credit Suisse
GUD Holdings cut to Sell: Morningstar
IGO cut to Hold: Canaccord
Incitec cut to Hold: Morningstar
Megaport raised to Buy: GS
NAB raised to Equalweight: MS
Service Stream raised to Hold: Bell Potter
Sydney Airport cut to Hold: Jefferies
Vocus started at Buy: $5 target price New Street Research
Western Areas cut to Hold: Canaccord
Ansell raised to Neutral; target price raised 9pc to $36.35: Macquarie
BHP target price raised 8pc to $48; Buy rating kept: UBS
BHP target price raised 11pc to $51: Outperform rating kept: Macquarie
Dexus raised to Outperform: Macquarie
Goodman Group cut to Neutral; target price raised 13pc to $19.86: Macquarie
Lendlease cut to Neutral: Macquarie
Peet Group raised to Outperform; target price raised 10pc to $1.04: Macquarie
Insurance Australia cut to Neutral: Macquarie
Lachlan Moffet Gray 8.17am: Bansal to step down as Cleanaway CEO
Embattled Cleanaway CEO and managing director Vik Bansal has announced he will resign his position after five and a half years at the company.
In a release to the ASX, Cleanaway said the company had been discussing “succession planning for some time.”
Mr Bansal made headlines last year when it was revealed that employees had complained about his management style, which the Cleanaway board later admitted was “overly-assertive” with a review finding it led to a “culture of bullying and harassment.”
But despite the board condemning his behaviour, it remained resolute that Mr Bansal was an effective executive, overseeing total shareholder returns of 300 per cent during his tenure.
Cleanaway said while a CEO search is underway executive chairman Mark Chellew will assume extra executive duties. CFO Brendan Gill will delay his retirement to support incoming CEO Paul Binfield in the transition period.
8.08am: Wall Street hits records after earnings
Rising shares of Netflix and other streaming companies led the S&P 500 to a new record, reviving Wall Street’s appetite for growth stocks.
Shares of the streaming giant jumped 17 per cent, its biggest single-day gain in more than four years. The rally came after Netflix reported better-than-expected results for the most recent quarter, showing that it had more than 200 million subscribers at the end of last year, enough cash to fund further growth without having to assume more debt and said it is considering buying back some of its stock.
Investors took the results as a sign that streaming companies have been clear winners throughout the Covid-19 pandemic. With millions of Americans spending large chunks of time at home, many have passed the time by streaming movies and television shows.
Shares of other streaming companies also rose, including Disney and Amazon.com.
That pushed the S&P 500 up 1.4 per cent at the close to a new record closing level, 3851.85. The Nasdaq Composite gained 2 per cent to its own closing record. The Dow Jones Industrial Average also rose, adding 0.8 per cent to 31188, also a new high.
Earnings results so far have been better than expected, with 88 per cent of reporting companies beating estimates, according to FactSet. That, along with expectations of further profit growth this year and a rebound in economic activity, should act as a foundation for further stock market gains, analysts said.
“Restrained inflation, low interest rates and rising earnings provide valuation support and the basis for stocks to trend higher,” Terry Sandven, chief equity strategist at U.S. Bank Wealth Management, wrote to clients in a recent note, adding that favourable growth trends for communications stocks such as Netflix, along with companies in the tech, consumer discretionary and health-care sectors, remain intact.
The advance has so far solidified the stock market’s upbeat week as President Joe Biden was inaugurated Wednesday. Investors remain optimistic that fiscal stimulus is supporting businesses through the damage wrought by the Covid-19 pandemic, with expectations of further spending by Democrats to keep the economy on track.
Overseas, the Stoxx Europe 600 index rose 0.7 per cent.
Dow Jones
Jessica Malcolm 7.40am: Tourism tipped to take $7bn hit
The Australian tourism industry says it is on track to lose nearly $7 billion in domestic visitor spending in what is usually the busiest trading period because of COVID-19 related border closures.
The Tourism and Transport Forum is calling on the federal government to provide more financial support when JobKeeper ends in March.
New modelling published in The Australian today predicts there will be 318,000 job losses across the tourism, transport and hospitality sectors in April to September if JobKeeper ends.
TTF chief executive Margy Osmond said pandemic related border closures was the number one cause of the industry’s suffering.
“It’s the uncertainty around the border closures and the actuality of the border closures, combined with the manifest loss of confidence reflected in Australian travellers,” Ms Osmond told The Australian.
“Maybe four to five months ago there was enormous pent-up demand. People wanted to travel, they were desperate to see friends and family, but the borders have made that virtually impossible. I’m not sure that demand exists (anymore) — their confidence is significantly rattled.
7.35am: China bids good riddance to Trump
China said moments after Joe Biden assumed the US presidency that it would sanction 28 senior American officials who served in the Trump administration as part of a testy send-off that included bidding former President Donald Trump “good riddance” via Twitter.
The parting shots from Beijing punctuated a tumultuous turn in bilateral relations under Mr. Trump, who over the past four years moved between friendly overtures toward Chinese leader Xi Jinping and aggressive rhetoric and punitive measures designed to punish China for trade imbalances, alleged technology theft and alleged culpability for the Covid-19 pandemic.
Leading the list of sanctioned officials was former Secretary of State Mike Pompeo, followed by trade-policy hawk Peter Navarro and Robert O’Brien, who led Mr Trump’s national-security team.
The list didn’t include Mr. Trump himself or his family members. Nor did it include his trade representative, Robert Lighthizer, who forged a trade deal with Beijing.
By releasing the statement moments after the swearing in of President Biden, China appeared to signal a clear break between the former and incoming leadership in the US. While the Biden administration is expected to rally allies to sustain a tough tone with Beijing, officials in China hope for more engagement with Washington, including through international institutions.
Dow Jones
7.20am: Downer exits underground mining services
Downer EDI says it will transition underground mining services at OZ Minerals’ Carrapateena mine to Byrnecut Australia.
Downer CEO Grant Fenn says the move is another step in its strategy to exit its capital-intensive mining businesses and focus on urban services.
“Downer’s exit from underground mining follows the sale of Open Cut Mining West, Downer Blasting Services, the Snowden consulting business and our share in the RTL Mining and Earthworks joint venture,” Mr Fenn said. “We remain in active discussions with a number of interested parties in relation to Open Cut Mining East and the Otraco tyre management business.”
7.08am: ASX to open higher after Wall St gains
Australian stocks are poised to open higher after Wall Street surged on earnings results and optimism surrounding Joe Biden’s inauguration.
At about 7am (AEDT) the SPI futures index was up 34 points, or about half a per cent.
Yesterday, stocks closed firmly higher, hitting 11-month highs amid positive leads from Wall Street before Joe Biden’s inauguration.
The Australian dollar is higher at US77.38c.
Brent oil rose 0.3 per cent to $US56.08 a barrel. Spot iron ore lost 0.8 per cent to $US168.90 tonne and gold futures rose 1.4 per cent to $US1866.50 an ounce.
7.02am: Morgan Stanley profit climbs 51pc
Morgan Stanley said fourth-quarter profit rose 51pc from a year earlier, another big US bank to emerge from a turbulent year in better shape than was expected at the onset of the coronavirus pandemic.
The New York-based firm reported a profit of $US3.39 billion, or $US1.81 a share, on revenue of $US13.64 billion. That beat the consensus estimates of analysts polled by FactSet, who predicted per-share earnings of $US1.30 on revenue of $US11.58 billion.
Morgan Stanley rounded out fourth-quarter earnings reports from the nation’s big banks, which continued to benefit from a recovery on Wall Street and federal pandemic-response measures that forestalled the worst-case economic scenario. On Tuesday, rival Goldman Sachs Group Inc. reported a fourth-quarter profit that was more than twice as large as year-earlier results and annual revenue that was at an 11-year high.
With its focus on wealthy Americans and big corporations and money managers, Morgan Stanley is less exposed to mass unemployment and small-business closures than more Main Street banks.
Stock- and bond-trading revenue at Morgan Stanley rose 32pc to $US4.22 billion. Fees from advising on deals and underwriting stock and bond offerings increased 46pc to $US2.30 billion.
Dow Jones
6.50am: Oil futures end higher
Oil futures finished higher, with prospects for further economic stimulus under President Joe Biden boosting the outlook for energy demand.
“The oil market seems unfazed with all the new virus variants and lockdown headlines” and instead focused on “Biden’s agenda that should help defeat COVID a lot sooner and support large parts of the economy until crude demand recovers,” said Edward Moya, senior market analyst at Oanda, in a market update.
February West Texas Intermediate crude, which expired at the end of day’s session, rose 26 cents, or 0.5pc, to settle at $US53.24 a barrel on the New York Mercantile Exchange. March WTI crude, the new front-month contract, settled at $US53.31 a barrel, up 33 cents, or 0.6pc.
Brent oil rose 0.3 per cent to $US56.08 a barrel.
Dow Jones
5.57am: US stocks extend climb amid earnings
Rising shares of Netflix and other streaming companies led the S&P 500 higher, reviving Wall Street’s appetite for growth stocks.
Shares of the streaming giant jumped 16pc, putting Netflix stock on pace for its biggest single-day gain in more than four years. The rally came after Netflix reported better-than-expected results for the most recent quarter, showing that it had more than 200 million subscribers at the end of last year, enough cash to fund further growth without having to assume more debt and said it is considering buying back some of its stock.
Investors took the results as a sign that streaming companies have been clear winners throughout the COVID-19 pandemic. With millions of Americans spending large chunks of time at home, many have passed the time by streaming movies and television shows.
Shares of other streaming companies also rose, including Disney and Amazon.com.
That pushed the S&P 500 up 1.4pc in recent trading, while the Nasdaq Composite gained 1.9pc. The Dow Jones Industrial Average also rose, adding 0.8pc.
Earnings results so far have been better than expected, with 88pc of reporting companies beating estimates, according to FactSet. That, along with expectations of further profit growth this year and a rebound in economic activity, should act as a foundation for further stock market gains, analysts said.
The advance has so far solidified the stock market’s upbeat week as President Joe Biden was inaugurated Wednesday. Investors remain optimistic that fiscal stimulus is supporting businesses through the damage wrought by the COVID-19 pandemic, with expectations of further spending by Democrats to keep the economy on track.
Still, investors are showing they are selective by punishing companies that fail to meet the market’s expectations, said Brian O’Reilly, head of market strategy at Mediolanum Investment Funds.
Overseas, the Stoxx Europe 600 index rose 0.7pc. In Asia, stocks indexes were mixed. The Nikkei 225 ended the day down 0.4pc, while the Shanghai Composite Index rose 0.5pc. Chinese internet giant Alibaba jumped 8.5pc in Hong Kong after the company’s embattled owner, Jack Ma, made his first public appearance in three months, ending concerns about his whereabouts.
Dow Jones Newswires
5.50am: Bank of England tweaks stress tests
The Bank of England said it is tweaking stress tests on the UK banking sector this year to include fallout from the coronavirus pandemic.
The BoE, which tests the ability of lenders’ balance sheets to withstand shocks, said its worst-case COVID-19 scenario would see the economy collapse by 37 per cent from its pre-pandemic level in 2019 to the end of 2022.
“The aim of the 2021 solvency stress test differs from a standard stress test, which is to ensure that banks have built up buffers of capital, ready to be drawn on to support the economy in a stress,” a BoE statement said.
It did not specify when results would be published.
AFP
5.45am: Markets gain ground as Biden is inaugurated
World stock markets rose as Joe Biden took the oath of office, in part owing to the new US president’s coronavirus stimulus proposal.
Wall Street stocks pushed higher in midday trading, with the Dow gaining 0.6 per cent.
As closing bells rang in Europe, Frankfurt was up by almost 0.8 per cent and Paris was 0.5 per cent higher, while London added 0.4 per cent as the pound hit a new 2.5-year peak against the dollar.
Asia had enjoyed a broadly positive session earlier in the day. The euro sagged against the dollar meanwhile, as dealers mulled Italian political turmoil on the eve of an interest rate decision from the European Central Bank.
Biden’s inauguration as the 46th US president drew a curtain on the most tumultuous administration of modern times and set a new course to deal with COVID-19 and unite a splintered nation.
“European markets... (are) looking forward with optimism, with Joe Biden’s inauguration marking the end of a four-year period that married up both Brexit and global trade uncertainty,” commented IG analyst Joshua Mahony.
Yesterday, US treasury secretary nominee Janet Yellen faced senators during her confirmation hearing and urged them to pass the new administration’s $US1.9 trillion spending package.
AFP
5.37am: P&G sees strong sales trends extending beyond pandemic
Procter & Gamble reported another quarter of strong sales growth and expressed confidence it would keep up the good run after the coronavirus pandemic has waned.
P&G, which makes Mr. Clean, Tide, Pampers and other household goods, lifted its full-year profit and sales targets after scoring an eight per cent sales jump in the second quarter.
The consumer products giant has garnered higher sales of cleaning products and other home care items during the pandemic, but some categories have suffered, such as deodorant and adult incontinence products, executives said.
Those countervailing trends have given P&G confidence as it eyes a post-pandemic market once COVID-19 vaccines have been widely distributed, said Chief Financial Officer Jon Moeller.
Net income for the quarter ending December 31 was $US3.9 billion, up four per cent on an eight per cent rise in sales to $US19.7 billion. P&G raised its outlook for fiscal 2021 sales growth to a range of five-six from four-five per cent previously. And the company now expects eight to 10 per cent growth in earnings per share.
AFP
5.35am: Airline giant IAG gets Air Europa on cheap
British Airways owner IAG said it would pay only half the agreed purchase price of Spain’s Air Europa, and not for more than six years, as the sector is ravaged by the coronavirus.
IAG will pay 500 million euros ($US606 million) to Air Europa-owner Globalia, down on the initial 1.0-billion-euros price tag agreed in November 2019.
“IAG and Globalia today announce that they have amended the original agreement,” the pair said in the statement. “The parties have agreed that the amount to be paid... will be reduced from an equity value of 1.0 billion euros to 500 million euros with payment deferred until the sixth anniversary of the acquisition’s completion.”
The deadly COVID-19 health crisis has decimated demand for international air travel, grounding planes worldwide and sparking thousands of job losses under drastic restructuring.
And the Spanish government has granted Air Europa a lifeline of 475-million-euros in loans to help see the carrier through the pandemic.
IAG, which also operates Ireland’s Aer Lingus and low-cost European carrier Level, hopes the Air Europa transaction will generate significant savings across the group.
AFP
5.30am: Germany to be ‘first country’ to end shredding of male chicks
Germany is set to be the first country to ban mass shredding of male chicks in the poultry industry, the government said after approving a draft law on the controversial practice.
The measure passed by the cabinet envisages a ban on chick shredding from 2022 in “a significant step forward for animal welfare,” Agriculture Minister Julia Kloeckner said in a statement.
In many poultry businesses, male chicks are separated from females soon after hatching and killed as they do not produce eggs and generate less meat.
Tens of millions of males are shredded in Germany every year. Animal welfare activists have long campaigned to end the practice but farmers have complained there is no practical, affordable and cruelty-free alternative.
But technologies to determine the sex of chicks before they hatch are expected to be widely available by the time the ban comes into force, according to Kloeckner.
AFP
5.25am: Alibaba’s shares surge as Jack Ma reappears
Shares in internet giant Alibaba soared more than eight per cent after billionaire founder Jack Ma made his first public appearance since November, ending weeks of speculation about his whereabouts after the company took a kicking from Chinese regulators.
Ma -- one of Asia’s richest people with a fortune estimated at around $US58 billion -- disappeared from the public eye after he was hauled in front of regulators for an October speech critical of China’s financial system.
Shortly afterwards, the record-breaking $US37 billion IPO of his financial group Ant was spiked at the last minute by mainland officials in a shock move that some saw as retaliation for Ma’s outspokenness.
China’s finance authorities have since ordered Ant to change its business model and hack back its lending, insurance and wealth management services, while Alibaba is also the subject of an anti-monopoly probe.
The disappearance of Ma from the public eye set tongues wagging on his whereabouts.
But a video clip released by Chinese financial news outlets showed him in a recording giving a speech to rural teachers as part of an awards ceremony organised by his charity.
AFP
ASX sets record close despite pullback; HMC confirms Healthscope talks
David Di Pilla-led HMC eyes Brookfield-owned hospitals operator. Cochlear falls on trimmed guidance. Dividend disappointment weighs on AMP. GFG Alliance puts NSW coal mine on the block in debt plan. Mirvac soars on return to profit.
ASX steady as miners gain; CBA rises, IAG down
Sigma gains as $300m worth of shares change hands. Alliance Aviation's labour costs growing after first industrial action in two decades. IAG top loser as investors miss buyback. Temple & Webster top gainer. 'Cleaner result' sees ASX Ltd soar.