Trading Day: live markets coverage; Westpac shares hit 4-week low; plus analysis and opinion
ASX bulls skid to a halt as seasonal weakness in major bank stocks and a $2.4bn Westpac hit weigh on sentiment.
And that’s the Trading Day blog for Monday, November 6.
Samantha Woodhill 4.28pm: Stocks stall run to 6000
The local share market ended the session lower after weaker-than-expected results from by Westpac and Orica weighed on sentiment.
The benchmark S&P/ASX200 was down 6.076 points, or 0.1 per cent, at 5953.80 points. The broader All Ordinaries index was down 3.124 points, or 0.05 per cent, to 6027.2 points at the close.
Macquarie Wealth Management division director Martin Lakos said the market surprised investors given strong overseas leads on Friday and strength in the oil price.
He said Westpac’s slightly disappointing financial result likely impacted the overall market.
“[Also] now that the bank results are out, there’s no real new news to come from an earnings perspective,” he said.
Westpac lost 2.16 per cent to $32.55 despite the bank announcing 3 per cent increase year-on-year in cash profit to $8.06 billion for the year through September.
NAB shed 0.69 per cent to $31.56. Commonwealth Bank edged down 0.5 per cent to $77.40 and ANZ also lowered 0.5 per cent to $29.75 — more to come.
Stephen Bartholomeusz 4.15pm: Ravaged banks eye modest growth
Given the punitive weight of the regulatory burdens imposed on them, and the financial costs flowing from their ravaged reputations, the major banks have completed a quite solid and relatively clean round of earnings results.
The last of the major to report for the year to September, Westpac, produced a result in line with the new norms for the majors, a three per cent increase in cash earnings to $8 billion.
The most obvious cost of the final tranches of the global regulatory response to the financial crisis showed up in Westpac’s balance sheet, in its capital adequacy ratio and its return on equity.
3.57pm: WATCH: Media M&A with Darren Davidson
Ben Butler 3.38pm: Tax leak may lead to probes
Australians named in a new gigantic leak of tax haven documents may face criminal investigation, the Taxation Office says.
The ATO said it had been “working closely” with Australian and international tax and law enforcement authorities in anticipation of the leak, dubbed the “Paradise Papers”.
Glencore, the Queen and members of the Trump administration are among companies and people so far named in reports published by members of the International Consortium of Investigative Journalists.
3.17pm: Westpac ‘fully valued’: Macquarie
Westpac shares were ”fully valued” ahead of the open and its result “doesn’t appear to provide additional incrementally positive news”, says Macquarie.
The broker notes that a “soft headline result was impacted by a material reduction in markets income and customer redress, partially offset by lower impairment charges.”
The underlying result was “supported by favourable margin trends (with) underlying margins up 6 basis points, providing positive momentum.”
The broker has a “neutral” rating and $34 target price.
WBC last down 2.3pc at $32.52.
2.52pm: JB’s snap $12.6m iPhone fix: Morgan Stanely
JB Hi-Fi may have booked $12.6m worth of iPhone X sales in close to just one minute, Morgan Stanley analyst Thomas Kierath observing the store he visited on Friday exhausted all stock soon after it opened — by 9.01am to be precise.
The retail price of the phone is $1,579-$1,829 and resellers are advertising on eBay for $2000-$12,000.
“Wait times are 5-6 weeks for outright purchase or 3-4 weeks on a plan,” Kierath adds.
“This leads us to think what impact might the iPhone X be on JBH sales.”
He calculates that if each JBH store received 40 phones that sold for $1,704 on average it equated to $12.6m of sale
For comparison he points out JBH Australia generated $4,149m of sales in FY17, or $11.4m per day.
Mr Keirath also notes that JBH indicated at its AGM that Sept/Oct. trade had moderated on the timing of product launches.
However the sales uplift from the iPhone X is “material, not to mention the associated traffic lift.”
JBH last $22.31
Damon Kitney 2.25pm: Laundry start-up’s All Black load
New Zealand rugby union great Dan Carter has emerged with a cornerstone shareholding in Laundromap, an on-demand dry cleaning pick-up and delivery service that is aiming to “uber-ise” the $2 billion dry cleaning and laundromat industry.
Carter’s investment business, 910 Limited, a venture with former Canterbury Crusaders rugby player Ben Hurst, has taken a 10 per cent stake in Laundromap as part of a $3 million capital raising by the company to fund its Australian and New Zealand expansion plans.
Laundromap chief executive Hayden Foster had previously flagged the company may pursue a listing on the Australian Securities Exchange next year.
Laundromap is an on-demand service that picks up, cleans and returns clothes to a house, apartment, or a workplace.
2.17pm: Orica update likely to hit forecasts: Citi
Orica faces a downgrade to the consensus FY18 earnings estimate after disappointing results and guidance, according to Citi.
The broker says EBITDA of $896m was a 4 per cent miss, EBIT of $635m a 3 per cent miss, and NPAT of $386m a 4 per cent miss of consensus forecasts.
“Guidance has headwinds of $110m from higher raw material costs and price resets,” the broker adds.
“Taxes and D & A will also be higher ... Australia/Indo and Latam performed well however US and Europe were disappointing.”
“Expect the stock to be weaker particularly given FY’18 consensus has 10 per cent growth baked in from the $386m new base.”
ORI last down 9.1pc at $19.42 after falling as much as 12 per cent in early trade.
1.56pm: WATCH: Westpac’s Harzter on FY results
1.14pm: Banks restrain ASX 6000 run
The ASX/S & P 200 has ground to a halt in its run up to 6000, the index currently down 0.1pc at 5952.9 with Westpac a key culprit, down as much as 2.4 per cent and leaving $2.4bn at the gates to trade at $32.48 after releasing its full-year results earlier this morning.
“On [Westpac’s] headline numbers alone there seems little to inspire and that will disappoint the index bulls,” says IG chief market strategist Chris Weston, “the ASX financial sector is failing to contribute to the ASX rally, falling 0.3pc last week.”
Westpac’s Big Four peers also trade lower, down between 0.4 per cent and 0.5 per cent each.
Meanwhile Rio Tinto continues to hit fresh 6-year highs and the energy sector outperforms the broader market as Brent Crude extends late Friday gains to as much as 3 per cent in Asia trade today.
SWING STOCKS
+ Syrah Resources (5.7pc), Orocobre (5pc), Genworth Mortgage Insurance (4.8pc), TPG Telecom (3.1pc), Magellan (2.8pc) and Santos (2.4pc)
— Orica (8.5pc), Myer (-2.4pc), Westpac (-2.4pc), Incitec Pivot (2.2pc) and Qantas (1.9pc)
52-WEEK HIGHS
Charter Hall ($6.01)
Altium ($12.55)
Orocobre ($5.76)
Mantra ($3.95)
Santos ($4.69)
Worley Parsons ($15.10)
Origin Energy ($8.36)
CIMIC ($51.22)
52-WEEK LOWS
Mayne Pharma ($0.62)
FlexiGroup ($1.45)
12.52pm: Court approves Fairfax-Domain spin-off
Fairfax’s planned spin-off of its real estate listings arm Domain has been approved by the Federal Court this afternoon.
Fairfax expects the new ASX-listed entity to first trade on November 16 under the ticker DHA.
Existing Fairfax shareholder voted overwhelmingly in favour of the separation an EGM last week, each to receive one Domain share for every ten held in Fairfax under the proposal — read more
FXJ last up 0.5pc at $1.11
Scott Murdoch 12.25pm: Wagners float to firm up $197m
Queensland-based building materials group Wagners will raise up to $196.8 million in its upcoming float with the stock priced between $2.63 and $2.71 a share.
A deal sheet obtained by DataRoom shows that the founding Wagner family will hold 55 per cent of the company, while the bookbuild will take place on November 17 through Credit Suisse and Morgans.
The Wagners pricing shows an enterprise value to EBITDA ratio of 9.75 to 9.95 times. The EBIT valuations are set at 12.22 to 12.47 times.
More to come from DataRoom
Ben Wilmot 12.01pm: Realtor McGrath’s shares in free-fall
McGrath shares are in free-fall, the Sydney-based real estate agency surprising the market with an earnings downgrade as the city’s residential market cools and volumes stall.
McGrath, in an update ahead of its annual meeting, admitted its financial performance had fallen short of expectations at both the revenue and earnings levels in the first four months of trading in this financial year.
McGrath shares plunged as much as 22.1 per cent in one of the biggest falls in its history as a listed company, with the shares crashing to 47.5c, a fraction of their $2.10 listing price — more to come
MCG last down 16.54pc at 51 cents.
11.38am: Bank bears rein in ASX 6000 run
Locals shares tread water in late morning trade, the S & P/ASX200 index last flat on 5959.9 as banks prove the biggest weight on the market — Westpac (-2.5pc) the worst performing major lender after its fiscal year profit result missed estimates.
SWING STOCKS
+ Genworth Mortgage Insurance (4.6pc), Aveo Group (3.9pc), Orocobre (3.7pc), Magellan (3pc) and Santos (2.7pc)
— Orica (10pc), Myer (-3pc), Westpac (-2.5pc) and Qantas (1.8pc)
11.26m: Orica shares tumble on results
With Matt Chambers:
Orica shares fell 9pc to $19.41 at the open, down from two-year highs on its result that missed expectations and provided a less upbeat outlook than many had hoped for in an increasingly buoyant mining sector.
The stock is bouncing off the 200-DMA at $19.44 which held in October.
City had been forecasting underlying net profit of $397m and earnings before interest and tax of $693m, each met with a $389m and $635m result respectively.
ORI last down 11pc at $19.03
Elizabeth Redman 11.25am: Vicinity, GIC in mall swap
Mall landlord Vicinity Centres and Singapore’s sovereign wealth fund GIC have agreed to swap assets worth a combined $1.1 billion in the biggest retail property deal of the year.
The groups will exchange a 49 per cent stake in Vicinity’s Chatswood Chase in Sydney, worth $562.3m, for a 50 per cent stake in GIC’s Queen Victoria Building, The Galeries and The Strand Arcade, worth $556m — read more
VCX last up 0.2pc at $2.68
11.15am: The Trading Day ahead
Join the conversation with our Trading Day experts for breaking news and analysis in financial markets here and on Sky News Business (Ch: 602)
NOW: Daniel Hynes — Senior Commodity Strategist, ANZ
11.45am: Martin Crabb — Chief Investment Officer, Shaw and Partners
12.00pm: Tony Davidson from Henderson Maxwell guest hosts
12.00pm: Joe Mayger — Lake house Capital
12.15pm: James King — AFEX Australia
12.45pm: Stephen Walters — Chief Ecnomist, AICD
1.00pm: Ben Le Brun — OptionsXpress
(All times in AEST)
10.50am: ASX 6000 run meets bank hurdle
S & P/ASX 200 is flat at 5959 in early trading.
The market’s run toward the 6000 points milestone in early trade has been thwartedby a sell-off in banks and Orica.
Westpac is down 2.1pc after a lack of quality in its FY17 result, pushing the other majors down 0.4pc.
Orica has fallen as much as 9pc after disappointing earnings and guidance.
Falls in financials, materials and telcos are offsetting gains elsewhere.
10.47am: Citi down on ‘in-line’ Westpac results
Citi echoes other analysts questioning the quality of results from Westpac today.
The broker says the FY17 result was “in-line” with expectations, albeit with a lack of revenue (growth), and very low bad debt provisions.
WBC down 2.5pc last $32.45
10.15am: Westpac shares tempt 4-week low
Westpac shares have fallen to 2.1pc at $32.57 in early trading.
The fall to an almost 4-week low is consistent with a sell-off in the other banks that have reported this month.
Analysts are reacting negatively to disappointing revenue growth and an excessively low provisions for bad & doubtful debts in the bank’s fiscal-year results released earlier this morning.
10.05am: The Trading Day ahead
Join the conversation with our Trading Day experts for breaking news and analysis in financial markets here and on Sky News Business (Ch: 602)
NOW: Guest hosts David Manchee from Belvedere Share Managers and Mathan Somasundaram from Blue Ocean Equities.
10.30pm: Tracy McNaughton — Head of Investment Strategy, UBS
11.00am: Ben Le Brun — OptionsXpress
11.15am: Daniel Hynes — Senior Commodity Strategist, ANZ
(All times in AEST)
9.55am: ASX hopes face bank ‘breather’ test
An expected rise in Australia’s S & P/ASX 200 today could be tempered by some disappointment with the quality of Westpac’s result.
CLSA Westpac’s results quality “doesn’t look great”, while Macquarie says Westpac shares are “fully valued” and the result “doesn’t appear to provide additional incrementally positive news.”
Citi says Westpac’s result was “in line” but bad & doubtful debts were “very low.”
Otherwise the market had been expected to rise after fresh record highs on Wall Street and a record low in the VIX.
Apple shares jumped 2.6pc while US unemployment hit a 17-year low and ISM’s Non-Manufacturing index hit the highest point since 2005.
Commodities were mixed, with Brent crude oil up 2.4 per cent to a two-year high of $US62.07-a-barrel, spot iron ore up 0.2 per cent to $US59.88-a-tonne, spot gold down 0.5 per cent to $US1269.9 an ounce and LME copper down 0.8 per cent to US311.7-a-pound.
The Australian dollar fell to US76.50c — its lowest daily close in four months — as the US dollar rose after the non-manufacturing data.
Still, BHP ADR’s equivalent close at $27.54 is equivalent to a 0.5pc fall in BHP’s Australian listed shares.
Shaw & Partners CIO Martin Crabb warns that low volatility was a “less compelling” reason for higher share market valuations.
The Australian share market is “expensive” relative to its history and “getting very close to a Sell trigger”, with the banks sector “due for a breather.”
“Without clear signs of improving profit momentum, it is likely that the market will struggle to go to much higher, leaving us with the dividend yield as our source of return,” Mr Crabb warned.
Index last 5959
9.50am: AGL sells $25m arm to Ausgrid
Robb M. Stewart writes:
Australian utility AGL Energy Ltd. said it expects an about 25 million Australian dollars profit on the planned sale of its digital electricity metering subsidiary.
The power generator and retailer said Monday it had agreed to sell its Active Stream subsidiary to Ausgrid, an electricity infrastructure company that supplies more than 1.7 million homes and business across Sydney and the surrounding region. Completion of the deal is expected in early December.
AGL started Active Stream in 2015 and has since then installed more than 230,000 digital meters across New South Wales, Queensland and South Australia states.
AGL said that following the sale, the Active Stream unit would continue to provide metering services to the company but on a non-exclusive basis — Dow Jones Newswires
AGL last $25.17
9.25am: Westpac’s levy cost lurks: CLSA
Westpac’s cash net profit of $8.062bn was 1pc below consensus according to CLSA, albeit one-off customer refunds of A$118m trimmed earnings by 1.5pc.
“Over and above that there are earnings quality considerations given a much lower loan loss charge of $853m vs. $1.041bn consensus, and net interest margins increased 3 bps but well below market expectations of 6 bps half on half,” CLSA’s Brian Johnson says.
He also notes that Westpac faces an additional $285m headwinds from the bank levy, non-Interest income was weaker mainly due to weaker trading income on lower volatility, and expenses were a little above expectations seeing some headwinds.
“Overall result looks disappointing with some headwinds in FY18,” Mr Johnson says.
WBC last $33.27
9.13am: Tax secrets of the super rich
A huge leak of 13.4 million documents show that Commerce Secretary Wilbur Ross, the Trump administration’s point man on trade and manufacturing policy, has a stake in a company that does business with a gas producer partly owned by the son-in-law of Russian President Vladimir Putin.
According to records obtained by the International Consortium of Journalists, Ross is an investor in Navigator Holdings, a shipping giant that counts Russian gas and petrochemical producer Sibur among its major customers. Putin’s son-in- law Kirill Shamalov once owned more than 20 per cent of the company, but now holds a much smaller stake.
9.03am: Analyst rating changes
Costa Group cut to Neutral — Goldman Sachs
Costa Group raised to Outperform — Macquarie
Z Energy raised to Outperform — Macquarie
8.45am: Orica lifts full-year profit
Explosives maker Orica’s full-year profit is up 13 per cent to $386.2 million but its underlying profit has fallen one per cent as the company continues to face headwinds in its markets.
Revenue for the year to September 30 also slipped one per cent, to $5.04 billion.
Orica will pay an unfranked final dividend of 28 cents a share, one cent lower than the previous year’s partially franked distribution — AAP
ORI last $21.37
Turf Condon 8.40am: Moss in $2bn battery plant push
Former Macquarie banker Bill Moss’s plans for a $US1.6 billion ($2bn) lithium-ion battery factory in the hard-hit north Queensland city of Townsville would deliver 746 technical and manufacturing jobs, according to the information memorandum for an early stage capital raising.
The Imperium 3 consortium — which includes US heavyweights Eastman Kodak, C4V and electronics manufacturer C & D Assembly along with Mr Moss’s Boston Energy and Innovation and Australian-listed miner Magnis Resources — plans factories in New York, the Middle East and Australia in a bid to tap into the energy storage market.
8.36am: Market poised to hit 6000
Australia’s sharemarket is poised in the next few days to hit 6000 points for the first time since the global financial crisis, buoyed by positive global equities momentum.
After closing at 5959.88 points on Friday, the benchmark S & P/ASX 200 index only needs to add 0.6 per cent to hit the key milestone with momentum coming from the US sharemarket hitting fresh record highs over the weekend. The broader All Ordinaries index of the top 500 companies broke above 6000 last week, but the benchmark S & P/ASX 200 has lagged behind this year amid a pullback in the major banks.
Paul Garvey 8.25am: Sunrise hopes as talks begin
Timor Leste will start negotiations today with Woodside Petroleum (WPL) and other members of the stalled Greater Sunrise liquefied natural gas project in an attempt to finally resolve the regulatory uncertainty that has long lingered over the development.
And Timor Leste has indicated that it may have thawed on its insistence that any development of Sunrise includes an onshore processing plant on Timor Leste soil, with Prime Minister Mari Alkatiri telling The Australian that “everything is on the table”.
Michael Roddan 8.15am: Westpac makes amends with $8.1bn profit
Australia’s second largest bank Westpac has spent more than 1 per cent of its earnings this year “putting it right” with the customer by uncovering instances where customers were disadvantaged.
The admission came as Westpac announced a cash profit of $8.06 billion for the year through September — a 3 per cent increase year-on-year.
Amid the increased scrutiny on the financial services sector, Westpac has spent $118 million on a provision for “putting it right”, where it has found historically issues where customers had been disadvantaged, such as through disclosure practices that had been overhauled or where they had been unaware of discounts they were entitled to. The provision is equal to around 1.5 per cent of the bank’s earnings.
“As part of our ‘get it right, put it right’ program we’ve been reviewing our products and services and the way we have engaged with our customers,” chief executive Brian Hartzer said. “Where we have found issues that we need to put right, we ensure that no customer has been disadvantaged from those past practices.”
It comes as the threat of a royal commission still hangs over the sector after the ousting of deputy prime minister Barnaby Joyce from parliament. Massive job cuts announced by the sector over the last week have also given new blood to anti-bank sentiment among members of parliament — read more
WBC last $33.27
7.48am: ASX tipped to lift at open
The Australian market looks set to open higher after another week of gains on Wall Street with US equities climbing to record highs.
At 7am (AEDT) on Monday, the share price futures index was up 16 points, or 0.27 per cent, at 5,955.
In the US, shares of Apple, the world’s most valuable publicly traded company, rose 2.6 per cent as shoppers bought its latest iPhone and gave a better-than- expected sales forecast for the US holiday shopping season.
Meanwhile, US job growth accelerated in October after hurricane-related disruptions in the prior month, the Labour Department said.
The Dow Jones Industrial Average rose 0.1 per cent, the S & P 500 gained 0.31 per cent and the Nasdaq Composite added 0.74 per cent.
Locally, in economic news on Monday, the ANZ job advertisements series for October is due to be released, as is the CoreLogic survey of capital city house prices for the week just ended.
In equities news, Westpac and Orica are both slated to release full-year results.
The Australian market on Friday closed at its highest level since April, 2015, with broad gains led by mining, energy and industrial stocks. The benchmark S & P/ASX200 index rose 28.2 points, or 0.48 per cent, to 5,959.9 points The broader All Ordinaries index was up 28.1 points, or 0.47 per cent, to 6,030.3 points.
AAP
7.25am: Dollar dips against greenback
The Australian dollar is has resumed its slide against its US counterpart which, after briefly dipping on US jobs data, has continued to strengthen. At 6.35am (AEDT), the Australian dollar was worth US76.57 cents, down from US76.86c on Friday.
Westpac’s Imre Speizer says the local currency has underperformed and retained the negative impact of Friday’s disappointing retail sales figures. Meanwhile, the US dollar felt only a fleeting impact of US non-farm payroll data on Friday missing market expectations.
“US non-farm payrolls rose 261k in October (vs. 313k expected, although there were +90k in revisions for the previous two months), but the unemployment rate fell from 4.2 per cent to 4.1 per cent due to a fall in the participation rate from 63.1 per cent to 62.7 per cent,” he said in a morning note. “The US dollar index only briefly dipped following the payrolls data, closing the day 0.3 per cent higher.
“Underperformer AUD was affected by earlier disappointing retail sales data, extending its decline to US76.39c.
Key local event risks for the local currency on Monday was the Australian Bureau of Statistics CPI reweight data.
“Westpac expects that it will reduce the outlook for inflation over the course of 2018 by 0.4ppts for headline inflation and 0.3ppts for underlying inflation.” The Australian dollar was unlikely to lift on Monday, Mr Speizer said. “Momentum remains negative, the next downside target at US76.25c probably requiring further US dollar gains.” The Aussie dollar is also lower against the yen but has hardly moved against the euro.
AAP
7.11am: Apple buoys US stocks
Technology shares led stocks higher Friday, boosted by a jump in Apple after the tech giant delivered its best quarterly growth in two years.
Friday’s rise helped all three major US indexes notch gains over a week in which investors faced a string of potentially market-moving announcements, from the House Republicans’ plans for tax overhaul, to a Federal Reserve meeting to the October jobs report.
The tech-heavy Nasdaq Composite gained 0.7 per cent, outpacing gains in the S & P 500 and Dow Jones Industrial Average, which were up 0.3 per cent and 0.1 per cent, respectively. Earlier this week, the Nasdaq closed at its 62nd record of the year, tying 1980 for the most closing highs in a calendar year.
Dow Jones
7.03am: German and British bourses tap record highs
European stocks finished with modest gains Friday, as German and British benchmarks logged record highs, but a clutch of corporate earnings reports and developments limited the advance for the region’s benchmark.
Share-price decliners included Société Générale after the French lender’s fall in profit.
The Stoxx Europe 600 index was up 0.3 per cent to end at 396.06.
Germany’s DAX 30 index rose 0.3 per cent to close at 13,478.86, nabbing a new all-time closing high. Also scoring a record was the UK’s FTSE 100 as it rose 0.1 per cent to end at 7,560.35.
France’s CAC 40 added 0.1 per cent to 5,517.97, while Spain’s IBEX 35 dropped 1 per cent to 10,357.80.
The Stoxx 600 earlier this week closed at its highest in more than two years. For the week, the index achieved a 0.7 per cent increase, marking its second straight weekly rise.
Dow Jones
6.53am: Saudi Arabia swoops on princes
Saudi authorities on Saturday carried out a new wave of arrests, targeting royals and cabinet ministers in a crackdown against alleged corruption that comes as the Saudi leadership is seeking to consolidate power during a period of political transition.
Dow Jones — read more
6.08am: Tax secrets of the super rich revealed
A huge leak of 13.4 million documents show that Commerce Secretary Wilbur Ross, the Trump administration’s point man on trade and manufacturing policy, has a stake in a company that does business with a gas producer partly owned by the son-in-law of Russian President Vladimir Putin.
According to records obtained by the International Consortium of Journalists, Ross is an investor in Navigator Holdings, a shipping giant that counts Russian gas and petrochemical producer Sibur among its major customers. Putin’s son-in- law Kirill Shamalov once owned more than 20 per cent of the company, but now holds a much smaller stake.
The documents, dubbed the Paradise Papers, were obtained by the German newspaper Sueddeutsche Zeitung and shared with the International Consortium of Investigative Journalists (ICIJ).
ASX 200 down 0.6pc after record high but CBA hits another record
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ASX 200 at all-time high; CBA hits record
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