Trading Day: live markets coverage, plus analysis and opinion
AWE shares have surged 16 per cent on a takeover bid, while CBA is slightly higher after Matt Comyn was named CEO.
That’s a wrap for the Trading Day blog for Monday, January 29.
Samantha Bailey 4.55pm: Stocks shoot higher
The local share market rose strongly on higher-than-usual trading volumes after solid gains on Wall Street on Friday, the S & P 500 booking its biggest one-day rise in over 12 months.
At the close of trade, the benchmark S & P/ASX200 was up 25.4 points or 0.42 per cent at 6075.4 points. The broader All Ordinaries index was up 22.9 points or 0.37 per cent, at 6187.6 points.
Citibank equities sales director Karen Jorritsma said the mood in the market is generally bullish.
“I think there’s a lot of people back on deck today so there’s much more activity than we’ve seen in a little while,” she said.
Supratim Adhikari 3.56pm: Seek shakes up corporate structure
Seek chief executive Andrew Bassat is set to play a more hands-on role in picking the next big investment target for the online jobs heavyweight through its new investment arm.
The company on Monday announced an organisational restructure which will see Seek consolidate its existing business units under one umbrella and set up the Seek Investments unit which will look after Seek’s lucrative Chinese subsidiary Zhaopin.
The investment arm will be led by Seek’s (SEK) corporate development director Ronnie Fink and the managing director of Seek’s international operations Isar Mazer. Mr Mazer is also the lead executive of Seek’s Australian education joint venture, Online Education Services.
Mr Bassat said that he will also be actively involved in the investment unit and the restructure should allow the company to better manage its operational and investment activity.
Andrew White 3.35pm: Shareholders take sophisticated approach
Higher protest votes against sitting directors and improved pay practices aimed at avoiding strikes were the result of a more sophisticated approach by both companies and their share holders, according to a report by the Australian Securities and Investmnet Commission.
ASIC Commissioner John Price said first “strikes” against pay resolutions fell in the 2017 annual meeting season at the same time as votes against individual directors rose, showing shareholders were taking a more sophisticated approach to their stewardship of companies.
“In the past where there was concern about the company or a director’s performance that was presented in the remuneration report,” Mr Price said.
“But what we are seeing now is that the people are willing to vote against an individual director where they have concerns about them or their performance.”
3.20pm: Market rally puts investors on edge
Stocks around the world have staged one of the best-ever starts to a year, a synchronised rally that has only gained momentum following 2017’s sharp gains.
In the US, the S & P 500’s 7.5 per cent rise so far in January is its biggest since 1987. In Asia, the Shanghai Composite has already surged 7.6 per cent, surpassing last year’s gain. Hong Kong’s Hang Seng index is up 11 per cent, rising on all but two days this month. And in Europe, the German DAX and France’s CAC 40 are up 3.3 per cent and 4.1 per cent, respectively.
Strong corporate earnings and improving economic growth worldwide have fuelled the gains, with the new US tax law, which cuts corporate rates to 21 per cent from 35 per cent, bolstering optimism. The weaker US dollar has been a boon to emerging markets and the recent pick-up in Treasury yields has prompted a rotation out of bonds and into stocks, further propelling equity markets, investors say.
The gains have also put some investors on edge, intensifying analysts’ concerns about the rising price of buying into a bull market almost nine years old. The rallies have also drawn comparisons to the 2000 Nasdaq peak, when a mania for technology stocks drove the index to a level that it wouldn’t recapture for more than a dozen years.
Dow Jones
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Samantha Bailey 3.00pm: Catriona Burns to head WAM Global
Investment manager Wilson Asset Management has appointed Catriona Burns lead portfolio manager of WAM Global, as it prepares to launch an initial public offering for the new fund.
“We are delighted that [Catriona] will lead WAM Global and provide investors with an outstanding opportunity to gain access to a diversified portfolio of undervalued international growth companies,” said chairman Geoff Wilson.
“I have known Catriona for more than 14 years and she is a brilliant fund manager who knows our investment process intimately.”
Michael Roddan 2.20pm: Livingstone defends Comyn appointment
Commonwealth Bank chairman Catherine Livingstone has said the board wants to “preserve aspects of the bank” that have served customers and investors “extraordinarily well”, as she attempts to deflect criticism newly announced chief executive Matt Comyn has been tarnished by the money laundering scandal engulfing the nation’s largest lender.
After announcing the bank’s current head of retail operations would be taking over from Ian Narev as chief executive, Ms Livingstone told a press conference all the bank’s board directors were involved in the search for a replacement boss. Mr Narev had his retirement announced just days after the anti-money laundering agency Austrac filed a legal suit in the Federal Court alleging more than 50,000 breaches of legislation. Initially, Ms Livingstone had stood by the under siege Mr Narev, before shortly reversing the position and announcing a global search for a new chief executive.
Ms Livingstone said the bank was “seeking was someone who could restore the bank’s reputation where trust has been damaged … maintain the current operating momentum ... and renew and cultivate the right culture” at the company.
“One of the key questions for the board was whether this could be best achieved by an internal or external candidate. Having regard to the reputational and cultural issues facing the bank on the one hand, and the strong progress and operating performance on the other,” Ms Livingstone said.
1.55pm: Iluka posts production jump
Iluka Resources has reported a jump in production in 2017, boosted largely by the acquisition of Sierra Rutile in December 2016.
The Australian miner (ILU) said its output of zircon, rutile and synthetic rutile was up 22 per cent last year at 825,200 tonnes. The result was ahead of guidance for the company for production of 795,000 tonnes given as recently as late October, which Iluka said was due mainly to operational efficiencies achieved at Sierra Rutile, a supplier of rutile from Sierra Leone.
That was despite a 17 per cent drop in fourth-quarter production to 168,600 tonnes over the prior three months after the company stopped processing heavy mineral concentrate in the Murray Basin in eastern Australia.
Dow Jones
12.45pm: Energy boost for stocks
The Australian share market is trading higher with all sectors gaining ground following a strong lead from Wall Street.
The benchmark S & P/ASX200 index was up 0.36 per cent at 6,071.9 points at 1200 AEDT on Monday.
US markets were up again on Friday, with Dow Jones, S & P 500 and Nasdaq gaining more than two per cent over the week, driven by strong profit results from pharmaceutical and technology companies including Intel.
The local share market, which was closed on Friday for the Australia Day public holiday, has taken its cues from US markets.
The energy sector is enjoying strong gains with AWE shares soaring after Japan’s Mitsui & Co made a $481 million offer to buy the Australian oil and gas company. Shares in AWE were up 15.9 per cent to 98.5 cents.
Elsewhere in the energy sector, Santos and Woodside Petroleum both gained 0.9 per cent, Origin Energy jumped 1.5 per cent and Oil Search was up 0.8 per cent. The major miners were mixed with Rio Tinto up 0.2 per cent, while BHP Billiton dropped 0.3 per cent and Fortescue Metals shed 1.3 per cent. Gold miners Newcrest Mining was down 1.2 per cent to $23.07, while Evolution Mining shed 1.8 per cent to $2.75 after gold prices declined as investors turned to away from safe haven assets.
In the banking sector, the Commonwealth Bank has promoted retail banking chief Matt Comyn to replace Ian Narev as chief executive and “rebuild trust” in Australia’s largest lender.
Shares in CBA were up 0.5 per cent to $79.05, while National Australia Bank gained 0.7 per cent to $29.26 and Westpac rose 0.7 per cent to $31.15. However, ANZ bucked the trend and was down 0.3 per cent to $28.57. In other company news, casinos operator Crown Resorts has completed the sale of its interest in land in Las Vegas on which the company had once intended to build a casino.
Shares in Crown Resorts were down 0.3 per cent at $13.035.
Meanwhile, the Australian dollar hit 81.36 US cents on Friday night — its highest level in two-and-a-half years.
Samantha Bailey 12.01pm: Incitec Pivot to restructure exec team
Fertiliser and explosives maker Incitec Pivot will restructure its executive team, separating the leadership of the explosives and fertiliser divisions following the departure of Simon Atkinson from the company. Mr Atkinson had served as president of Dyno Nobel Asia Pacific and also president of Incitec Pivot Fertilisers and for a time was seen as a potential candidate to replace outgoing CEO James Fazzino, who left the company late last year.
Greg Hayne, who is currently Dyno Nobel senior vice-president of retail sales and operations, has been appointed Dyno Nobel Asia Pacific president, while Incitec Pivot CFO James Crough will take on the role of President for Incitec Pivot Fertilisers in an interim capacity as the company searches for a replacement.
In addition, the company has created two new executive roles, appointing Robert Rounsley as chief technology development officer and Seth Hobby has been appointed executive commercial officer. Both new executives will report directly to managing director and CEO Jeanne Johns.
“These changes will enable each business to continue effectively serve their customer base, focus on technology and innovation, and improve our agility in responding to market changes,” Ms Johns said.
It comes after the company warned that its profits would be hit by around $81 million after a contract to supply explosives to Roy Hill iron ore mine ends on 9 February.
Incitec said it expects the contract loss will result in one-off hits of about $5m in the 2018 fiscal year, $16m for the following year, $22m in the 2020 financial year, $18m in for 2021 and $20m in the 2022 fiscal year.
It said the contract’s end would have a minimal impact beyond the 2022 fiscal year and that some losses may be mitigated by new commercial arrangements.
Bridget Carter 11.30am: Battle for AWE not over: CS
Analysts at Credit Suisse are betting that the Chinese rival bidder to AWE may try to trump Mitsui’s $602 million cash offer.
But the local Australian suitor Mineral Resources will bow out of the three-way contest, the analysts say.
AWE announced today that it received a non-binding and conditional proposal from Mitsui to buy AWE for 95c per share, in what is now a three-way contest.
In December AWE’s board backed a cash and scrip takeover offer from Mineral Resources that valued AWE at about 83¢ a share
Mitsui is a $40 billion Japanese company that has a history investing in Australia’s resources sector.
In a research note, the Credit Suisse analysts say they would not be surprised if Chinese bidder China Energy Reserve & Chemicals Group (CERCG) decided it did not want to lose to Mitsui amid a background of strong rivalry between China and Japan.
But it would be unrealistic for Mineral Resources to think it could compete with a $40bn Japanese company, the analysts said in a note
As reported online by The Australianearlier, Mitsui’s offer of 95 cents a share is a premium of nearly 15 per cent to a deal agreed upon between AWE and Mineral Resources in December and about 74 per cent above where the shares were trading ahead of an approach the month before from state-owned CERCG.
Mitsui said its offer will remain non-binding until AWE scraps its agreement with Mineral Resources and its directors unanimously recommend the bid to shareholders.
It said the deal wouldn’t be subject to due diligence and it already has approval from Australia’s Foreign Investment Review Board, though it would be conditional on it securing a stake of at least 50.1 per cent in AWE
Rothschild is advising Mitsui while UBS and Highbury Partnership are working for AWE.
Interestingly, Rothschild was appointed defence adviser to Santos only about two months ago after the Highbury-advised Harbour Energy was bidding for the oil and gas producer.
Rothschild also advised Shell on its $3.5 billion Woodside Petroleum stake sell down last year in what was described as one of the largest and well executed block trades last year relating to a company in the resources space.
11.20am: AWE rockets on takeover bid
AWE shares have jumped 16 per cent to a 2.5-year high of $0.9825 after Mitsui’s $0.95-a-share cash takeover bid today.
RBC Capital Markets analyst Ben Wilson says the Mitsui cash bid is “relatively clean”.
“While there is a break fee of $5.2m potentially payable by AWE to MinRes, our reading of the scheme deed suggests this may not be payable in the event of a superior proposal and in any case it is minor in the context of the quantum of the bid,” he says. Mr Wilson has an Outperform rating and a $0.90 target price.
He has a DCF valuation of $0.88/share and an unrisked valuation of $1.10 a share.
AWE last up 15pc at $0.975.
Michael Roddan 11.05am: Get ready for more RBA jawboning
The strength of the dollar, which surged to a three-year high over the weekend, threatens to reignite central bank currency jawboning when the Reserve Bank meets in a little over a week.
After surging more than 8 per cent since December, the dollar touched a US81.36c at the weekend, its highest level since May 2015.
It was a wild week last week for the Aussie, which was caught in the slipstream of a volatile US dollar amid continued weakness in the currency with President Donald Trump signalling a pro-trade policy and urging the greenback higher after US Treasury secretary Steven Mnuchin had said he preferred a weaker dollar.
10.32am: CBA appointment ‘surprising’: Regal
CBA’s appointment of an internal candidate as CEO is “surprising”, says Regal Funds analyst Omkar Joshi.
“I think it’s a good appointment but surprising that they made an internal appointment given the Austrac issues,” he says.
CBA says its head of retail banking services, Matt Comyn, will replace outgoing CEO Ian Narev when he leaves in April.
But Mr Joshi argues CBA’s decision to go with an internal candidate leaves the board open to criticism from investors and the public.
It comes ahead of next month’s submissions to the Royal Commission into the banking sector.
CBA shares were almost flat at $78.70 in early trading after initially rising 0.7pc.
Sarah-Jane Tasker 10.27am: Crown finalises Las Vegas sale
The James Packer-backed Crown Resorts has finalised the $US300 million sale of its Las Vegas asset to Wynn Resorts.
The company told the market today that the sale of its interest in a 34.6 acre vacant site on Las Vegas Boulevard to a subsidiary of Wynn Resorts, which was announced last year, had now been finalised.
Crown Resorts said in its announcement to the Australian Stock Exchange that Crown’s share of the proceeds, after taking into account minority interests, was approximately $US264m.
10.23am: Citi lifts ASX 200 target to 6,600
Citi has lifted its ASX 200 target from 6,400 to 6,600 by December 2018.
Driven by higher resources earnings estimates, the new forecast is the highest of sell-side peers and 8.8 per cent above the current level of the index.
It also implies an 8.8 per cent rise — plus dividends — for the year, after 7 per cent gains in each of the past two years.
“Commodity prices have continued to rise, and with the extra gains just this year to date and earnings forecasts for resources companies yet to fully incorporate them, we estimate a further 5-10 per cent upside to the market’s earnings over FY18,” Citi equity strategist Tony Brennan says. “Improved conditions for other sectors are also reducing the risk of downgrades in other areas, which could allow for further overall upgrades to market earnings in FY18 and subsequently FY19, potentially up to another 5-10 per cent growth.
His market strategy, which favours being overweight resource stocks and underweight banks and bond proxies — REITS, Infra, Utilities, Healthcare — is largely unchanged.
Mr Brennan has turned more positive on the Top 20, pointing out that the profit expectations and share prices have adjusted to more sustainable levels for names like WOW, TLS, QBE and LLC.
He has added OZL and TLS to his model portfolio, while removing: BSL and MYO.
The current portfolio then is STO, WPL, BHP, RIO, S32, OZL, IPL, BXB, SEK, SGR, WOW, RMD, ANZ, NAB, QBE, Sun, AMP, LLC, MQG, TLS.
10.10am: CBA shares jump after CEO announcement
CBA shares have jumped 0.6pc to $79.13 after its CEO appointment today.
CBA is outperforming its Aussie peers which are mixed in early trading.
10.09am: Focus on ‘financial wellbeing’: Comyn
CBA’s incoming CEO Matt Comyn says he will have a ‘huge focus’ on customers when he steps into the role in April. Says he will focus on delivering enhanced financial wellbeing, technology improvements, working through the issues the bank ‘needs to address’ and maintaining business momentum.
Comyn has been CBA’s retail banking boss since 2012.
10.05am: ‘Collective responsibility’ for issues: Comyn
New CBA CEO Matt Comyn says he believes there is a collective responsibility in the bank for its issues.
10.03am: Stocks to open 0.4pc higher
Australia’s S & P/ASX 200 share index is expected up 0.4pc at a 20-week high of 6075 after strong gains on Wall Street.
Record highs on Wall Street followed strong corporate earnings, with Intel up 10pc after its results on Friday.
This is now the strongest start to a year for US equity markets since 1987, with the S & P 500 up 7.5pc.
The S & P/ASX 200 has again been left behind, with the banks and bond proxies weighing on the market while the materials have outperformed.
Bonds have continued their weaker start to the year, with the US 10 year hitting a new 3.5-year closing high of 2.66pc vs. 2.40pc at the start of the year.
Commodities were mixed on Friday with oil at new 4-year highs, iron down and base metals mixed.
BHP ADR’s equivalent close at $30.84 was level with BHP’s Sydney close as AUD/USD hit a 2.5 year high of 0.8136.
Index last 6050.
9.54am: ’I only found out this morning’: Comyn
CBA chairman Catherine Livingstone says Matt Comyn emerged as the best candidate for the chief executive role after a global and local search. She says in pushing cultural change the key areas are culture of operational risk management and compliance risk management. Significantly Livingstone says the appointment of Comyn means “no momentum will be lost in various remediation actions”. Comyn tells the press conference “I only found out this morning” about being named next CBA chief executive.
9.48am: Mitsui launches takeover bid for AWE
AWE has told shareholders to take no action on a takeover bid from Japanese giant Mitsui today.
The unsolicited, no-binding and conditional bid to buy the oil & gas E & P company for $0.95 a share cash is worth $594m.
While it’s not conditional on due diligence, financing, regulatory approval or further internal approvals, the deal is conditional on termination by AWE of the MinRes scheme implementation deed by close of business on Friday 2 February.
It’s also conditional on agreement of a bid implementation deed through which AWE’s directors unanimously recommend acceptance of a takeover bid to implement the Mitsui Proposal, in the absence of a superior proposal.
The relative lack of conditions will make this deal more appealing for shareholders, particularly since the share price has already surged 89 per cent since October.
The Mitsui offer has trumped an existing $0.83/share bid from Mineral Resources by 14 per cent.
9.40am: Comyn decision ‘unanimous’: Livingstone
CBA chairman Catherine Livingstone tells a press conference the appointment of Matt Comyn as new chief executive was a “unanimous” board decision. She describes the appointment as a period of “renewal and change” and says Comyn is the “best positioned and qualified” of a range of internal and external candidates. Insists he can lead change through the bank. Current CEO Ian Narev to step down on April 8.
9.38am: Japanese cryptocurrency exchange to refund $US430m
Japanese exchange Coincheck says it will spend up to 46.3 billion yen ($US426m) to pay back customers after it was hacked and lost cryptocurrency worth some $530m.
In a release on its website, Coincheck said customers holding the cryptocurrency NEM would be paid back in Japanese yen at a rate of 88.549 yen per NEM. The company said it lost 523 million NEM after the cyberattack, meaning the payments would amount to 46.3 billion yen. It said about 260,000 customers hold NEM.
Coincheck didn’t say when customers would get the yen. It said it would use its own funds for the payments, but didn’t say whether it had that much yen cash on hand.
The rate being used by Coincheck reflects the fall in NEM’s price in yen after Coincheck’s problems became known on Friday. Some Twitter users criticised Coincheck’s rate, saying it should compensate customers at the earlier, higher rate or pay them back in NEM rather than in yen.
Dow Jones
9.25am: Analyst rating changes
JB Hi-Fi raised to Overweight — JPMorgan
Fortescue cut to Neutral — JPMorgan
Lindsay Australia initiated at Add; $0.51 target — Morgans
Bingo initiated at Buy; $3.10 target — UBS
Whitehaven raised to Equalweight; target raised to 35pc to $5.05 — Morgan Stanley
WorleyParsons target raised 16pc to $16.44; Overweight rating kept — Morgan Stanley
IOOF Holdings raised to Buy — Citi
ASX raised to Neutral — Citi
Metals X cut to Hold — Bell Potter
Northern Star cut to Underperform — Credit Suisse
APA Group raised to Add — Morgans
Western Areas raised to Buy — Hartleys
John Durie 8.40am: Comyn to be paid less than Narev
New CBA CEO Matt Comyn will take a 17 per cent pay cut from his predecessor’s pay cheque, with his fixed pay at $2.2 million, down from Ian Narev’s $2.65m.
His short-term bonus will also be limited to $2.2m, with long-term pay up to $3.9m. It brings his total potential pay to $8.7m compared with Narev’s $10.5m.
John Durie 8.31am: Matt Comyn new CBA CEO
CBA has unveiled an insider in Matt Comyn as its new chief executive to replace Ian Narev in what will be considered a surprise for the market.
Comyn is highly regarded in the market but it was felt he may be tainted by the fact he was in charge of the retail operations, which were involved in the Austrac snafu.
Still analysts say he is a good executive and will do a good job at the bank.
8.10am: Oil rises
Oil prices rose on Friday after hitting fresh three-year highs in the previous session, as weakness in the dollar continued to underpin prices with crude on track for a weekly gain.
Brent crude futures were trading 28 cents higher at $US70.70 per barrel, while US West Texas Intermediate (WTI) crude futures were 66 cents, or nearly one per cent higher, at $US66.16 a barrel.
“One has to question if this rally is sustainable. Downside protection is going to be warranted,” said Brian LaRose, technical analyst at United-ICAP. Both contracts were set for weekly gains after support from a weakening dollar, which on Friday hit new three-year lows against a basket of other leading currencies.
Reuters
7.00am: Dollar retreats
The Australian dollar is back to US81.05 cents after surging to a three-year high over the weekend.
Over the weekend the dollar touched US81.36c, its highest level since May 2015.
At 6.40am (AEDT) today it was back at $81.05c.
It was a wild week last week for the Aussie, which was caught in the slipstream of a volatile US dollar amid continued weakness in the greenback, with President Donald Trump signalling a pro-trade policy and urging the greenback higher after US Treasury secretary Steven Mnuchin had said he preferred a weaker dollar.
AAP
6.40am: ASX tipped to open higher
The Australian sharemarket is expected to open higher following strong gains in North America and Europe on Friday.
At 6.55am (AEDT) the SPI futures index was pointing to a rise of 30 points, or 0.5 per cent.
US markets were up again on Friday and the three major indices, the Dow Jones, S & P 500 and Nasdaq were all up more than two per cent for the week, driven by strong profit results from pharmaceutical and technology companies including Intel.
“The big picture environment is positive,” CommSec chief economist Craig James said.
“European and US companies are making money and the profit reporting season has been good, economic data hasn’t been so bad either and the US economy grew 2.6 per cent at an annual pace in the December quarter.”
However Australian shares could be weighed down by the fact that commodity prices were not as positive last week, with iron ore and gold down, and a strong Australian dollar above US81 cents hurting exporters, he said.
Volatility is also higher, with the US greenback falling to a three-year low in a confusing scenario last week in which President Donald Trump supported a strong currency, contradicting Treasury Secretary Steven Mnuchin endorsing a weak dollar.
Australian inflation data for the December quarter will be released on Wednesday, with underlying inflation tipped to be below target and subdued at 0.5 per cent.
The S & P/ASX200 was up 0.7 per cent over last week but closed on Thursday 0.8 per cent lower at 6,050 points.
AAP
ASX down; Insignia lifts on higher bids; CBA dives
Bain, CC Capital neck and neck in Insignia race. PolyNovo confirms Margin Call report on internal turmoil. Orica's mixed interim earnings update. King Island Dairy saved, but no detail on buying businessmen. 'Erratic' Cyclone Alfred's growing risk. Star update awaited.
ASX 200 slumps; Star close to Queen’s Wharf deal
Casino operator's deal with Hong Kong partners to help avoid administration. Ex-dividend trading, oil price slide weigh on bourse. Insurers face $2bn-plus hit from Cyclone Alfred. APRA moves to tighten financial board rules.