The Week Ahead: BHP Set To Kick Off Eventful Week

This story features BHP GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: BHP

By Andrew Nelson

Reporting season in Australia is set to tick up a few notches in the week ahead, with full year results from BHP Billiton ((BHP)) Monday getting us off to a flying start. There is little on the cards in terms of economic news to detract from the focus, although minutes from the RBA’s August 5 board meeting,  out Tuesday, will undoubtedly  draw comment.

While most are agreed that a rate cut is almost surely on the way, the question on everyone’s lips since the RBA board’s meeting on 5 August has been how much and when. Current market consensus is for a 25bp cut at the next meeting on September 2, but views are divided about what comes next.

Westpac chief economist Bill Evans is on the books for a 50bp reduction, pointing out the previous two easing cycles began with 0.5% moves. In fact, he is looking for comments saying a cut in August was warranted, but delayed because markets were not prepared.

The Westpac-MI Leading Index is out on Wednesday and with this economy-wide barometer already well below trend, it could also lend a bit of colour to discussions.

Either way, the wording from the Board Minutes will be the week’s most crucial factor in auguring the most likely size of the first cut and when it will occur, or will it?

CommSec economists are quick to point out that the RBA minutes will be unlikely to shed any new light on discussion, saying a comprehensive statement on the economy was released with its policy statement and it is unlikely that the minutes will provide any new clarity.

Back to corporate reporting, BHP Billiton is poised to deliver record annual profit after close today, tipping a 15% rise in 2007/08 profit, underpinned by a strong result from its petroleum division. The big question about the result will be what was the final impact of soaring production costs for the year, although few analysts seem to be expecting any real surprises. US$15.5bn – or thereabouts- it should be.

While strong demand and prices for commodities certainly helped boost BHP’s profits over the last year, the looming impact of falling oil and metals energy, and uncertainty about exchange rate movements, will make the the company’s outlook crucial.

Another keenly awaited announcement will come from investment bank Babcock and Brown ((BNB)). Just last week the company warned it expects 1H08 profit will come in 25-40% below the $250m reported in 1H07, leading many to predict there will be more bad news to come.  Brokers are sitting on the fence until the result, with the FNArena database at 0.3 and two out of seven keeping a Buy on the stock, while the other 5 are on Hold. Interim results are due on Thursday.

Amongst other household names reporting will be Caltex ((CTX)) (Monday), Boral ((BLD)) (Tuesday), Brambles ((BXB)), AGL Energy ((AGK)), James Hardie ((JHX)) and Coca-Cola Amatil ((CCL)) (Wednesday), Fairfax Media ((FXJ)), Qantas ((QAN)) and Wesfarmers ((WES)) (Thursday) and Insurance Australia Group ((IAG)) and Billabong ((BBG)) (Friday).

With so much talk on falling crude, let’s not forget the record run it’s had over the past half year. This makes Caltex an interesting company to watch, although recent concerns from a number of brokers about potential margin weakness may throw a spanner into the works. The FNArena sentiment indicator for the stock is sitting at 0.6, with 5 out of 7 brokers having a buy on it.

Brambles is another stock liked by local analysts, sitting at 0.8 on the The FNArena sentiment indicator. JP Morgan, for one, is hoping that recent exchange rate movements may have given earnings a bit of a boost. 6 out of 8 brokers on the FNArena database have a buy on the stock.

Not as positively rated, Qantas (only 0.2 on the FNArena sentiment indicator) may be looking a bit better now that oil prices are falling, while Fairfax is enjoying a 0.7 on the FNArena sentiment indicator, with 6 out of 8 brokers on the FNArena database placing a buy on the stock.

IAG is unlikely to impress, especially after a decidedly downbeat assessment from management’s strategic review a few weeks back. Maybe there will be some sort of explanation about the rejection of the QBE ((QBE)) offer. We can only hope. The stock rates a minus 0.2 on the FNArena sentiment indicator, with only 1 broker brave enough to have a buy on it.

Whether the moves are up, or down, the market will undoubtedly be hoping for measured reaction. So far, 2008 has been a year of volatility, with it being more common than not to see the share market rise or fall each day by more than 1%. When this volatility finally dries up it will be much easier to begin discussion about the end of the current bear market.

There is also a fair bit of economic data due out from the US and Europe this week, with key measures including the July producer price index (PPI) and July housing starts and permits from the US on Tuesday night. Analysts expect the PPI numbers to have eased with food and energy price easing somewhat. Housing data are expected to remain negative, with double digit falls in both starts and permits after a big rush to get in ahead of New York building code changes inflated the previous month’s numbers.

As commodities continue to fall, European markets are coming under more and more focus. European trade balance figures come out at the beginning of the week. Of more importance will be European manufacturing data on Wednesday, with analysts trying to gauge how fast economic growth is actually slowing.

Wednesday night also sees minutes from the Bank of England’s policy meeting, with many wondering, as the UK heads into recession, was there still talk of rate hikes? (Never underestimate the mind of a central banker).

In Asia, the Bank of Japan will be announcing its interest rate decision on Tuesday. Most are expecting current policy will be maintained, leaving  rates unchanged at 0.50%.

For more details: see the FNArena calendar on the website.

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