Tag Archives: Media

article 3 months old

Weekly Broker Wrap: Europeans Home In On Oz Infrastructure

-Europeans target Aust Infrastructure
-Yield versus growth in infrastructure stocks
-Pressure on retailer margins continues
-General insurers, transport outperforms
-Who gains with media reform proposals?
 

By Eva Brocklehurst

Offshore competitors are circling. Citi has observed that European companies seeking growth are increasingly targeting Australian infrastructure projects. The broker lists Impregilo, Salini, Acciona, Bouygues, Balfour Beatty, Ansaldo and Obrascon as targeting Australian rail, road, water and power projects. The most exposed, overall, to this increased competition are Leighton Holdings ((LEI)) and Lend Lease ((LLC)). Citi believes Acciona's winning bid on Brisbane's $1.7bn Northern Link road project could be a test case for the Europeans' ability to undercut Australians on price and make a profit.

In resources, competition from international companies is greatest in LNG. Europeans have not actively targeted resource infrastructure projects to date, limiting involvement to mostly maintenance services. That could change. Citi finds the most exposed stocks in this respect are Monadelphous ((MND)), Downer EDI ((DOW)) and UGL ((UGL)). Orica ((ORI)) and Incitec Pivot ((IPL)) have enjoyed the mining boom mostly free from international competition but this too is expected to change. Citi notes the construction of the nitrates plant in Western Australia's Pilbara marks the first major investment in domestic ammonium nitrate production from an international producer, Norway-based Yara International. Orica is partnering with Yara and Apache.

Aurizon ((AZJ)) is BA-Merrill Lynch's top pick in the infrastructure sector, given balance sheet leverage and cost cutting potential. Asciano ((AIO)) will benefit from new grain and coal contracts and Transurban ((TCL)) will be driven by steady traffic and toll increases. TCL, AZJ and Qube Logistics ((QUB)) are considered to have the strongest 5-year compound annual growth rate.

The broker divides infrastructure companies into two broad camps. Companies such as Asciano and Sydney Airport ((SYD)) will show growth over the next three years as economic conditions improve, but these more cyclical stocks tend to offer a lower yield as capital is reinvested. On the flip side is DUET ((DUE)), Spark Infrastructure ((SKI)) and SP AusNet ((SPN)) which, being regulated utilities, have more defensive cash flow and offer higher yields. For example, on the FNArena database consensus forecast FY13 dividend yields are 6.8% for SPN, 6.6% for SKI and 7.5% for DUE. In contrast there's AIO (1.9%) and AZJ (2.4%). SYD appears to be the exception to the rule, showing a 6.9% yield. 

Some of these stocks, such as AIO, SYD and Australian Infrastructure ((AIX)) are more leveraged to GDP and the general economy. In contrast, the steady utilities such as DUE, SKI and SPN have more subdued growth profiles and exposure to the improved economic conditions. On Merrills' 5-year measure, QUB (14%), AZJ (10.5%), AIX (10.6%), TCL (10.3%) and AIO (8.85%) offer the strongest distribution growth. Although the regulated utilities currently have the highest yields in the sector, there appears to be little growth in distributions. The 5-year measure shows 3.3% for SKI, 2.9% for DUE and 1.5% for SPN.

Overlapping infrastructure for some stocks is transport and here Aurizon shines again for the broker. It is one of two notable structural turnarounds in the transport sector. The other is Qantas ((QAN)). Transport stocks outperformed the market in February, up a weighted average of 8.1% versus the ASX 200 at 5.4%. Asciano and Toll Holdings ((TOL)) were the key stocks for Merrills, up 15.7% and 17.7% respectively in the month. The broker puts the outperformance of TOL and AIO, as far as the financial results are concerned, largely down to margin expansion rather than top line growth and notes organic growth remains muted for each of Brambles ((BXB)) AIO, TOL and Virgin Australia ((VAH)).

There's been much talk about retailer margins. Citi finds Australian retailers seem reliant on gross margins to protect earnings. For FY13, most retailers are approaching record margin levels but the broker believes it can't last. Myer ((MYR)) and David Jones ((DJS)) are perhaps best placed to protect gross margins through greater private label sales and use of clearance outlets. Price discounting swings from season to season and, in Citi's view, the rise in FY13 gross margins reflects fewer discounts.

The other factor at play is price harmonisation, which can actually raise margin percentages but comes at the expense of sales growth. There are downside risks as new entrants and online shopping break down that margin advantage. Overseas retailers have responded to gross margin pressure in a range of ways such as private labels, clearance channels and service income. This is the sustainable path and where David Jones and Myer seem well positioned to leverage these gains. Other retailers may pursue the same opportunities but, in Citi's opinion, will only manage to offset natural margin pressure.

Credit Suisse notes general insurers have continued to outperform the market in recent months. They are now trading at a price/earnings premium to their five-year historical average. A slight premium is justified with the positive outlook continuing, albeit at a slowing pace. Despite QBE's share price being up significantly in recent months, it remains the broker's preferred pick in the sector. The broker supports the actions taken by QBE management and expects a continuation of underlying earnings improvement in coming years.

Insurance Australia ((IAG)) has recently widened the gap to Suncorp ((SUN)) on a price/earnings basis, a premium the broker considers appropriate. This is because IAG has most upside leverage to the local general insurance market and less downside risk from unpredictable natural peril events. Credit Suisse expects a slowdown in premium rate increases, a reduction in investment income and adjustment to new APRA capital requirements to play out for these stocks over the next one to two years.

This week new media reforms were proposed by the Commonwealth Government and, understandably, received a lot of press. Legislation is expected to be presented to the parliament within the next two weeks. The easy bit, and that which the Coalition is likely to approve, is a reduction in licence fees and mandating Australian content quotas. The Coalition intends to oppose a media advocate appointment, public interest test in relation to media mergers and a statutory press standards body. A parliamentary committee will be established to discuss potential abolition of the 75% audience reach rule while the Australian Communications and Media Authority (ACMA) will consider program supply agreements in determining control of free-to-air television. The Australian Law Reform Commission will to be asked to look at the possible implementation of a tort for invasion of privacy.

If a quick resolution is reached regarding the abolition of the reach rule, this will be added to the current package. Summarising the potential implications for the media, Credit Suisse notes a positive for Southern Cross Media ((SXL)) and Prime Media ((PRT)), which would both benefit from reduction in licence fees and the opportunity of abandoning the reach rule. Abandoning the audience reach rule would enable Ten Network ((TEN)) or Nine Network to take over SXL and Seven West Media ((SWM)) to take over Prime.

On the neutral fence is TEN and SWM, as the potential abolition of reach rules would be countered by the introduction of a public interest test, statutory press standards body and increased regulation of supply agreements. In Credit Suisse's wholly negative camp is News Corp ((NWS)), if a public interest test, press standards body and increased regulation of supply come about. Fairfax ((FXJ)) and APN News & Media ((APN)) are also in the negative camp because of the possibility of a public interest test and statutory press standards body.
 

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article 3 months old

Implications Of Proposed Media Reforms

- Media reform proposal up for battle
-Two key proposals rejected by media, Opposition
- Likely most hostile for News Corp and print
 

By Eva Brocklehurst

The mulling over what to do with the fractious media has reached a pivot point in political circles with the Commonwealth Government's reform package to front parliament in the next two weeks. While there is a fair amount of water to go under the bridge beforehand, media analysts have scrutinised the proposals for the likely impact on key stocks, should the reforms get up. Citi finds that, if they go ahead, the reforms are only minor regarding the status quo but represent implication for the sustainability of traditional media companies in the medium term.

Some of the more contentious reforms are before a new parliamentary committee which has two weeks to consider before the bills are presented to parliament. The 75% TV reach rule is on hold, for now. The joint parliamentary committee is to review the merits of abolishing the rule. If agreement can be reached by interested parties, an amendment will be made to include this reform. In the end, the Opposition may approve some of the reforms but not all. Given the potential for a change in government after the election in September, of note is Opposition spokesman, Malcolm Turnbull's, remarks. He said a Coalition government would seek to repeal any legislation enacted in response to proposals for a public interest test and statutory press watchdog.

The basics, with which no one has much problem, include a permanent 50% reduction in television licence fees, setting the licence fee for the metro networks at 4.5% of revenue and 3.3% for the regionals, and Australian content quotas for multi-channels. Note that all three commercial free-to-air networks currently show more than the required amount of local content.

What is contentious? A public interest media advocate is proposed, tasked with overseeing statutory press standards and media mergers. A statutory press standards body is to be legislated, self-regulated and not funded or overseen directly by the government. These proposals have encountered much industry opposition. A public interest test is to be used in relation to media mergers. This will be opposed by the Opposition as well as the industry.

Credit Suisse suspects the argument will likely be made for existing cross-media ownership and competition rules being sufficient to ensure media diversity. Moreover, according to the broker, the move will likely be seen as an attempt to prevent any further acquisitions by News Corp ((NWS)) in Australia. Such a test could also, in Credit Suisse's view, have negative implications for the chances of a Lachlan Murdoch acquisition of Ten Network ((TEN)) succeeding, because of his links with News Corp.

For Citi, the adoption of a public interest test could potentially limit merger and acquisition in the media sector, by adding subjectivity to deals. The exclusion of reforming the 75% reach rule, at this stage, is against consensus expectations, as the TV broadcasters supported the reform. This could halt mergers of FTA broadcasters with affiliate stations. On the other hand, Credit Suisse notes Southern Cross Media ((SXL)) stands to gain if the reach rule is abolished as it would enable a merger with Nine Network or TEN. The same goes for Prime Media ((PRT)) and Seven West Media ((SWM)) as, if it's abolished, SWM could take over Prime.

The introduction of a public interest test would be negative for TEN. TEN has formally stated that it does not support the proposed public interest test. The broadcaster believes it would create uncertainty and confusion in relation to other regulatory regimes, citing public interest tests introduced overseas, which, TEN believes, have proved complicated and impractical.

Where most of the negative potential impact lies is with the traditional press. Credit Suisse notes most of the proposals are negative for NWS. A public interest test would likely prohibit NWS from acquiring broadcasting assets such as a free-to-air television network or radio in Australia. It may also prevent NWS from acquiring more newspaper assets in regional Australia. The creation of a statutory press standards body would also be negative for the company's Australian newspaper businesses. Credit Suisse maintains, as the largest newspaper proprietor in Australia, NWS would be adversely affected by any increase in press regulation and perceived political interference. The Australian Communications and Media Authority is to consider program supply agreements in determining control of free-to-air television. Again, a negative for NWS as it could limit the ability to provide content to the free-to-air television networks. The proposed corporate split of NWS may provide some offset, given the new Fox Group may be then able to provide content to Australian television.

Others in traditional media such as Fairfax ((FXJ)) and APN News ((APN)) would also find a public interest test a negative. Credit Suisse suggests it may limit the number of potential buyers for both companies' radio assets. The creation of a statutory press standards body could also adversely affect these two struggling print businesses by any increase in press regulation and perceived political interference.

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article 3 months old

My Seven West Rules

- Seven West result surprises
- TV is king
- Print remains a concern
- value compelling


By Greg Peel

It must irk Network Ten ((TEN)) that the once proud horse that was the Masterchef franchise now lies prostrate, apparently flogged past death, while rival Seven’s once hastily assembled spoiler My Kitchen Rules has become Australia’s top rating show. It must irk the Nine Network that once Australia’s swimmers began failing in the London pool, most Australians lost interest in the Olympics last year (sailing is not really a great spectator sport), allowing rival Seven to post spoiler ratings above 40% which were never previously dreamed conceivable during an Olympic fortnight.

It must irk both networks that only a decade ago, Nine was Still Number One and Ten, having decided to exclusively target a youth audience, boasted the highest profit margin, while Seven was most at risk of being new media’s first free-to-air television victim. Now it is Ten which remains in a tenuous financial state and Nine which had to be saved.

Successive Australian governments have for decades recognised the importance of having the FTATV networks on side for political purposes, and hence have obliged the industry by providing significant barriers to entry to new media such as pay TV and various internet alternatives/enhancements. Sport non-siphoning laws are one example, while the recent release of new spectra to carry a multitude of FTATV digital channels is another. The smugly complacent networks were slow to adapt to the new media landscape given legislative protection, but have begun to now hastily catch up. Yet at the end of the day, it appears rumours of the impending death of FTATV were misplaced.

Australian families still like to sit down after dinner and watch good old fashioned local dramedy (eg Packed to the Rafters), and, for reasons known only to themselves, whatever the popular reality shows are this season (eg MKR). Pay TV is expensive in this country and inflexible in its packages, and the internet audience is fragmented, hence to reach the masses advertising agents still hold prime time FTATV in high regard. Not that the advertising market in this country is in a particularly healthy state.

Media advertising income has been suffering and will continue to suffer in the near term based on two elements, one cyclical and one structural. The cyclical element is linked to the economy and with Australia’s broad non-mining economy in the doldrums, companies remain reluctant to overspend on advertising. The structural element is linked to the rise of new media which has seen the advertising dollar dispersed into different media forms and strategies. The most obvious example of the structural shift is the success of Australia’s listed online classifieds companies at the expense of old media newspaper companies.

Both elements have weighed on FTATV since the GFC and realistically two of three networks have been very close to death. The economy will one day cycle back up, albeit not tomorrow, to replenish the overall market’s advertising pie. Structurally, Seven West is showing we may have hit the valley floor in terms of audience and spending lost to new media.

Yesterday Seven West Media posted a first half result which exceeded both broker expectations and company guidance. Cost cutting was an important factor, but the real upside surprise came from better than expected Television revenues. If it were not for cost cutting across the board, a disappointing result for Publications (print/online), which saw a 27% fall in year-on-year earnings, would have been even worse. Growth in television revenues were still hampered by ongoing falls in FTATV advertising spend but through its superior ratings, Seven was able to pick up a greater share of the smaller pie.

Hence cyclically, advertising revenues market-wide are still falling. Two factors nevertheless support an argument that structurally, the advertising shift has plateaued. Firstly, Credit Suisse suggests the penetration of pay TV in Australia has now stalled at around 30%. Secondly, BA-Merrill Lynch notes the weak performance of Print was not due to lower circulation revenues, which have in fact held up, but simply due to an 18% fall in ad spend.

Thus we can conclude that, for the time being anyway, Seven’s TV and print offerings are not losing audience/readership. The issue lies squarely with the cyclical downturn in ad spend. On this point management remains realistic, suggesting the trends persist for now with second half percentage TV ad growth expected to be single digit to flat, and newspaper/print market to remain “short, soft and cautious”.

Not really inspiring stuff for the investor. Yet none of the FNArena database brokers changed their ratings following the SWM result and that means seven of eight still rate the stock a Buy. UBS, who is perhaps most concerned about the decline of Print, remains on Hold.

The catch is SWM’s valuation, which has been sufficiently beaten down in the Great Old Media Sell-Off to suggest the bad news on ad spend and new media shift is well priced in. This result included capitulation write-downs in value for magazines ($195m) and Yahoo!7 ($60m), so that pain is out of the way. Seven West is best placed among the old media offerings to leverage off a return to advertising growth, most brokers suggest, and hence discount-to-market mulitples make an investment in SWM “compelling” in more than one broker’s view. Phase One of cost cutting is now complete, with Phase Two underway.

Television now accounts for a solid 72% of Seven West earnings. Ratings, as Matt Preston and his cravat will surely tell you, are a fickle beast. Yesterday’s water cooler sensation can become tomorrow’s flop just as surely as you can say Marco Pierre White. Or say “I know, let’s bring back Big Brother!”

Thus the investor looking to SWM as a longer term play should keep this little point in mind. Or perhaps consider the SWM hybrid listing as an alternative. Traders on the other hand, or at least those with shorter term horizons and greater risk tolerance, might find SWM worth a contrarian look. Albeit the consensus twelve-month price target in the FNArena database of $2.39 is only suggesting around 7% upside.

One last point: Seven West Media ((SWM)) should not be confused with Seven Group Holdings ((SVW)). Seven Group owns the WesTrac resource sector equipment/services provider as well as a stake in Seven West Media.


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article 3 months old

Weekly Broker Wrap: The Strong Dollar, Sober Advertising And The Aldi Effect

-Higher $A with low cash rate
-Pharma tops popularity stakes
-Advertising spending just modest
-Aldi gives Woolies a headache
 

By Eva Brocklehurst

What's going on with the cash rate in connection with the Australian dollar? JP Morgan asks the question as the cash rate starts 2013 at a record low of 3% and the Australian dollar sits well above parity against the US dollar. Normally, the lowering of the cash rate in turn lowers the attractiveness of Australian investments and hence the Australian dollar weakens. Now JP Morgan believes the Australian dollar is set to remain high regardless, retarding domestic growth as it weighs on non-mining, trade-exposed sectors.

Historically speaking, a cash rate of 3% would imply that monetary conditions are very loose but, based on the JP Morgan monetary conditions index, conditions in the real economy appear restrictive. Why? There has been a breakdown in the transmission mechanism that has seen the currency remain elevated despite a lower cash rate. This is in large part because major central banks are implementing unconventional easing programs, flooding their economies with cash and low interest rates for a sustained period. JP Morgan contends that even if the RBA eases Australia's cash rate further, high foreign demand for Australian bonds, a still favourable interest rate differential, and higher relative growth prospects, are likely to keep the local dollar well supported.

The disconnect in the transmission of softer cash rates to the currency is highlighted by an analogy the analysts present regarding the Bank of Japan's policy predicament. Japan badly needs to fuel growth in its stagnant economy and has set a new inflation target. Although JP Morgan is not predicting this, if the BoJ is able to achieve its FY14 inflation target of 0.9% and 2% beyond 2014, over time USD/JPY could reach 105, which is equivalent to an Australian trade weighted index in the vicinity of 81, a new all-time high. The Australian dollar would stay elevated and the pressure on the local exporters would increase. Such a scenario would place the RBA in a difficult position, perhaps needing to offset tightening economic conditions with an even lower cash rate.

There is a potential alternative scenario. It all depends on whether Japan's new inflation target is achieved via an improvement in broader Asia-Pacific growth prospects. This would lift local exports and make the argument for a lower cash rate weaker. It would also mitigate, to some extent, the effect of the higher Australian dollar. Over the coming year, in JP Morgan's view, the key will be whether the pick up in Japan's economy spills over to the rest of the region, and whether achieving higher inflation is the result of simple currency effects or stronger real growth.

BA-Merrill Lynch has conducted a global fund manager survey and found investor sentiment is quite optimistic this month. Last month the majority thought the next big event was likely to be be a US debt downgrade or a Spanish bail-out. In February, it is more likely to be the breaking of the 100 level in the US dollar-yen exchange rate. Unchanged at a multi-year high of 48, BA-ML's Risk & Liquidity Index indicates clients are risk bullish, as does the fact that only 5% of those surveyed see lower long-term yields in 12 months time. Asset allocators are overweight equities, underweight bonds and cash. The emerging market overweight rating remains high. There was some small rotation from European to US equities and optimism edged up toward Japanese equities.

Many measures of market sentiment in BA-ML's new Bull & Bear Index are warning that risk assets are now vulnerable to bad news after a seven-month rally. Growth expectations rose to their highest level since February 2011. The index shows investors want companies to pursue growth, as 48% say companies should use cash to increase capital expenditure versus just 12% demanding debt repayments. While inflation expectations continue to rise, two thirds of clients still believe both the rate of global economic growth and inflation is likely to be below trend in 2013.

Pharmaceutical is now the world’s most popular sector, according to the survey. Investors are moving out of energy, materials and technology, which is down to its lowest overweight rating since Feb 2009. The positioning in both banks and consumer discretionary sectors rose to multi year highs but weightings in both telecom and utilities dropped close to their lowest levels since 2004. If you're a contrarian, BA-ML tips you should take profits in US real estate plays, reduce allocations to emerging markets, look for some upside to laggard commodity and resource plays, buy telcos and utilities and continue adding to Japanese equities on any dips.

JP Morgan has conducted an Australian media buyer interview and found out that advertising spending is expected to track GDP in 2013, growing 2-3% in real terms. Ratings performance in the next few months is expected to determine how much volume growth does materialise. Longer term, the TV market share is expected to remain steady. TV advertising spending is expected to average a similar level of growth in 2013 as the overall ad market. Sports are also likely to continue taking a large share of TV advertising dollars, although the buyer differentiated between the major sporting events, which should continue to sell at large premiums, versus secondary sports products. The buyer also thinks ratings declines are more likely to be from fragmentation of viewing onto other platforms.

For Deutsche Bank, 2012 was sobering for advertising. It's likely to stay that way. A flat-lining market is expected in the first half of 2013, with about 2.6% growth in the second half. This will benefit from a recovery in the economy and federal elections. Within the ad categories, Deutsche Bank expects online to grow at 17% in 2013, offset by weakness in traditional media, down 4.6%. It's the traditional media, especially publishers such as Fairfax ((FXJ)) and APN News ((APN)), that will continue to find the going hard. They are expected to report 24% and 27% earnings decline respectively. Within the broadcasting space, whilst Prime ((PRT)) is expected to report 10% earnings growth on strong market share gains, Seven West Media ((SWM)) and Southern Cross ((SXL)) are expected to report earnings decline of 18% and 23% respectively.

So, which media stocks does Deutsche Bank prefer? News Corp ((NWS)). The broker considers it has the fastest long term growth prospects among the majors, with a sizable buyback as well as valuation upside in the planned separating of publishing from broadcasting. Deutsche Bank is joined by three others on the FNArena database that consider News a Buy. The broker also maintains a Buy recommendation on Prime given its attractive market position and valuation relative to the rest of the sector. Again, there are three other Buys on the database.

Ten ((TEN)) and Southern Cross are suffering from poor ratings performance in a challenging ad market. Ten has four Sell ratings on the database, three Hold and one Buy. Back in December Credit Suisse raised it to a Buy, punting on the potential for a buy-out. Deutsche Bank believes Seven West Media is highly leveraged to the ad market and the macro environment. In an environment where interest rates are low and there is potential for the economy and the ad market to improve, the broker thinks risks remain to the upside. Interestingly, on the FNArena database SWM has a complete suite of Buy recommendations.

What has Aldi done? Given the supermarket chains a headache for one. Feedback obtained by UBS suggests Aldi had a very strong finish to 2012 and customer acceptance of the foreign brand is strong. UBS estimates Aldi grew sales by around 20% in 2012 and the newcomer is currently taking between 40 and 80 basis points of growth from the major chains per annum. This could escalate to 50-90 basis points once the South and Western Australian roll-out begins. ABS estimates put its share to around 6% down the east coast of Australia. UBS believes Woolworths ((WOW)) is most affected, noting industry surveys suggest one in two new shoppers to Aldi do a main shop at a Woolworths. The broker expects sales growth and customer take-up in SA/WA to accelerate at a faster rate than the initial launch in the eastern states, given the increased brand awareness.

For the sector as a whole, UBS finds consumer staples continue to look expensive and Wesfarmers ((WES)), the owner of Coles, is its preferred exposure. UBS believes the supermarkets are expensive. Earnings upgrades are needed to drive out-performance, which the broker thinks is unlikely near term.
 

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article 3 months old

Australian Stocks: What Happened Today?

By Max Ludowici, Equities & Derivatives Advisor, 708 Capital

The scoreboard:

-          The ASX200 finished up 22 points or 0.50% to 4617

-          The AUD is still holding above 1.05. Currently reading 1.0517 vs the USD

-          Strong volumes were felt again today with $4.7B of stock changing hands.

Shares on the ASX performed strongly despite profit in the first part of the session to close the day up 22 points or 0.5% to 4617. Fiscal cliff talks remained in focus as President Obama demonstrated his willingness to compromise on the level of annual income that may be subject to higher taxes. Stocks were unable to match the moves on Wall St however showing that momentum may be slowing coming into the final real week of trade before Christmas and NYE. 

Traders should treat the year end and early January period with extreme caution. We’ve had a great move for the last two weeks and we’re entering a period of very low liquidity as traders and fund managers put their feet up which is likely to increase the potential of more volatile trading, particularly as traders will have built up sufficient long positions to be able to short markets and exacerbate any weakness the light trading may cause. There is also a huge option expiry day tomorrow for both index and stock options and will be the last opportunity for institutions to square and rebalance positions prior to the end of the calendar year.

The gold price got hit overnight and the technical backdrop demonstrates that a further slump is likely. Strong data out of the US and a move toward a fiscal resolution is causing gold to lose its safe haven appeal. Spot gold is currently trading at A$1672, 1.5% lower than yesterday’s open. Though more a reflection of continual production downgrades, Newcrest Mining ((NCM)) has been performing woefully since its peak at $30 just 3 months ago. NCM closed today’s trade down 3% to $22.56

Despite a takeover bid actually crystalising for Billabong ((BBG)) at $1.10, the stock fell over 14% intraday after the company cut its earning guidance. BBG closed the day down 13% to close at $0.85.

Miners continued to rise with BHP Billiton ((BHP)) and Rio Tinto ((RIO)) up 1.1% and 1.5% respectively.

Macquarie Bank ((MQG)) followed the positive moves of US investment banks overnight to post a gain of 2.5% to close at $34.82

DOW futures are pointing to a flat opening inline with last night’s close at 13,276.
 

(For a more comprehensive summary of last night’s market action see FNArena’s Overnight Report.)

This article produced at the request of and is published by FNArena with the expressed permission of 708 Capital.

708 Capital is a full service stockbroking and investment advisory firm. 708 offers investment and market advice to high-net-worth Private and Institutional clients in Australia and across the globe. 708's extensive network of contacts gives its clients exclusive access to ground-level fundraising opportunities and new company listings in a variety of small and large cap ASX listed companies. 708 has a longstanding track record of generating exceptional returns for its clients. Click here 708capital.com.au/contact-us/ for a no costconsultation and portfolioreview or to learn more visit www.708capital.com.au. Note: 708 Capital offers wealth management services for Sophisticated and Wholesale Investors only. We can only assist investors who are classified as Sophisticated Investors or have verified assets over AUD$2.5m.

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article 3 months old

Australian Stocks: What Happened Today?

By Max Ludowici, Equities & Derivatives Advisor, 708 Capital

The scoreboard:

-          The ASX200 made small gains up 6 points or 0.13% to 4557

-          The AUD drifted lower over day after climbing on Friday’s trade.. Currently reading 1.0475 vs the USD

-          Total volume for the day was light at $3.1B. This was well below the $4B+ we were seeing for most of last week though largely in-line for a Monday session.

Shares on the ASX took a slight pause to close marginally higher after strong gains on Friday thanks to offshore portfolio buying. The market hit a seven-week high intraday as positive US jobs data on Friday kept sentiment elevated. The XJO has risen 5.4% since mid-November but will run into stiff headwinds at the key 4550 resistance level.

The Monday Report detailed the US employment news on Friday night, which appeared to largely be priced into offshore markets in overnight trade. The biggest driver of stocks appears to be the strength in China following their mid-year slowdown which has helped spark rebounds in the big miners. Weekend data showed China’s industrial output rose 10.1% y/y in November, above October’s 9.6% rise and the strongest move since March. An anomaly in the positive Chinese data of late slowed our market intraday where Chinese exports only rose 2.9% vs expectation of a 9% rise.

RIO Tinto ((RIO)) is up 25% since it’s one year low in September. RIO had another strong day, closing up 1.9% to $61.30.

Positive data flowing from China has pushed Spot Iron Ore prices back through $120/t as optimism over demand grows. This comes as more good news for Fortescue Metals ((FMG)) who announced they will sell 25% of a joint venture back to BC Iron ((BCI)) for $190m. The transaction means BCI will increase its interest in the project from 50% to 75% and fund the deal using debt and existing cash. FMG closed up 6.8% to $4.05.

The high-yield plays also performed well, Westpac ((WBC)) and National Bank ((NAB)) the standout performers closing up 0.6% and 0.3% respectively.

Japan’s GDP growth figures showed the economy contracted 0.9% in the July-September quarter or 3.5% on an annualised basis. Not a good news piece for the start of the Japanese election week where opposition leader Shinzo Abe is widely expected to defeat current Prime Minister Yoshihiko Noda. This could prove to be the kickstart Japan desperately needs as Abe has vowed to ramp up public expenditure and pressure the BoJ into aggressive monetary policy easing measures.

DOW futures are pointing to a flat opening, currently up 2 points 
 

(For a more comprehensive summary of last night’s market action see FNArena’s Overnight Report.)
 

This article produced at the request of and is published by FNArena with the expressed permission of 708 Capital.

708 Capital is a full service stockbroking and investment advisory firm. 708 offers investment and market advice to high-net-worth Private and Institutional clients in Australia and across the globe. 708's extensive network of contacts gives its clients exclusive access to ground-level fundraising opportunities and new company listings in a variety of small and large cap ASX listed companies. 708 has a longstanding track record of generating exceptional returns for its clients. Click here 708capital.com.au/contact-us/ for a no costconsultation and portfolioreview or to learn more visit www.708capital.com.au. Note: 708 Capital offers wealth management services for Sophisticated and Wholesale Investors only. We can only assist investors who are classified as Sophisticated Investors or have verified assets over AUD$2.5m.

708capital is a holder of AFSL. No. 386279

IMPORTANT DISCLAIMER - THIS MAY AFFECT YOUR LEGAL RIGHTS:

This document is intended to provide general securities advice only, and has been prepared without taking account of your objectives, financial situation or needs and therefore before acting on advice contained in this document you should consider its appropriateness having regard to your objectives, financial situation and needs. We recommend you obtain financial, legal and taxation advice before making any financial investment decision.

Disclosure of Interests: 708capital receives commission from dealing in securities and its authorised representatives, or introducers of business, may directly share in this commission. 708capital and its associates may hold shares in the companies recommended.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided.

article 3 months old

Australian Stocks: What Happened Today?

By Max Ludowici, Equities & Derivatives Advisor, 708 Capital

 

The scoreboard:

-          The ASX200 closed up 42 points or nearly 1% to 4552

-          The AUD is lingering around the $1.048 level and looking toppy as it struggles to push through $1.05

-          Total volume for the day was just $3.5B below the current short term average and helped explain today’s unusual rise.

Shares on the ASX traded with surprising strength thanks to several large offshore buy orders with solid gains seen across all sectors after a neutral night offshore. Poor domestic economic data did little to slow the run higher with the market hitting a six-week high to climb over 1% intraday. Another raft of woeful growth forecasts for the broader Eurozone failed to push European markets lower overnight and kept the US market moving sideways. The poor growth outlook dragged oil prices lower by over 1%.

Several large offshore portfolio buy orders led the market higher as well as expectations of strong employment data for the month of November from the US due out tonight. Traders seemed convinced that this was a certainty and didn’t want to miss out on any rally that may develop tonight.  Continued strength from the Shanghai index also appeared to inject life into Asian indexes.

On the domestic data front, Australia’s trade deficit widened by over $0.66B to $2.1 billion in October. The deficit was the biggest since 2008 and wider than analyst expectations of $2B. The cumulative trade deficit over the calendar year to October was $11.9B. The deficit underscores our dependence on raw materials exports, the prices of which have declined markedly since the start of the year only increasing the deficit gap.

The strength of the banks was reportedly the result of overseas fund purchases. Commonwealth ((CBA)), ANZ ((ANZ)), National  Bank ((NAB)) and Westpac ((WBC)) were all up around 1%.

CSL ((CSL)) rallied strongly all day following an upgrade from Credit Suisse to outperform from Neutral and increasing the price target by 12%. CSL closed the day up 2.5% to close at $54.77

Other standout movers for the day included Westfield ((WDC)), Goodman Group ((GMG)) which jumped between 1.5-3%                                                                                                                                            

DOW futures are are flat at present, currently up 5 points 
 

(For a more comprehensive summary of last night’s market action see FNArena’s Overnight Report.)

 

This article produced at the request of and is published by FNArena with the expressed permission of 708 Capital.

708 Capital is a full service stockbroking and investment advisory firm. 708 offers investment and market advice to high-net-worth Private and Institutional clients in Australia and across the globe. 708's extensive network of contacts gives its clients exclusive access to ground-level fundraising opportunities and new company listings in a variety of small and large cap ASX listed companies. 708 has a longstanding track record of generating exceptional returns for its clients. Click here 708capital.com.au/contact-us/ for a no costconsultation and portfolioreview or to learn more visit www.708capital.com.au. Note: 708 Capital offers wealth management services for Sophisticated and Wholesale Investors only. We can only assist investors who are classified as Sophisticated Investors or have verified assets over AUD$2.5m.

708capital is a holder of AFSL. No. 386279

IMPORTANT DISCLAIMER - THIS MAY AFFECT YOUR LEGAL RIGHTS:

This document is intended to provide general securities advice only, and has been prepared without taking account of your objectives, financial situation or needs and therefore before acting on advice contained in this document you should consider its appropriateness having regard to your objectives, financial situation and needs. We recommend you obtain financial, legal and taxation advice before making any financial investment decision.

Disclosure of Interests: 708capital receives commission from dealing in securities and its authorised representatives, or introducers of business, may directly share in this commission. 708capital and its associates may hold shares in the companies recommended.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided.

article 3 months old

Australian Stocks: What Happened Today?

By Max Ludowici, Equities & Derivatives Advisor, 708 Capital

 

The scoreboard:

-          The ASX200 closed down 11 points or 0.25% to 4509

-          The AUD drifted lower during the afternoon session after jumping on the employment data.. Currently reading 1.0462 vs the USD

-          Total volume for the day was $4B. This is slightly below the average at the same time last year and well above November’s average.

The Aussie share market was pushed lower by gentle profit taking over the day as investors were happy to watch progress surrounding the unfolding China story and Fiscal cliff from the sidelines. Gains in our market centred around the big miners follow strong gains on the ADRs thanks to encouraging comments from the new Chinese politburo. The defensives and high-yielders led declines after steering our market the past fortnight. A surprise fall in the jobless rate did little to the change Mr Market’s mind and investors were happy lock in profits and await developments overnight.

All eyes were on China overnight after incredibly bullish comments late yesterday from China’s new leadership pledged to promote domestic demand and urbanisation with greater policy support for the economic recovery. US coal heavyweights went ballistic on the news. Alpha Natural Resources jumped 10% on the news and other coal miners moved between 3-7%.

This comes as rumours swirl around the market that BHP Billiton ((BHP)) may be gearing  up for a takeover of another US coking coal goliath, Walter Energy at $55. Walter closed up 6.5% to $31.66 on the news. The US coal market had been in the doldrums for the past 12 months facing increasing pressure from Democrat led environmentalists and competition from falling domestic gas prices. This has seen the likes of coal miners like ANR falling from highs of around $60 2 years ago and $25 just 1 year ago to trade at current levels of $7.35 as of yesterday’s close. The industry is desperate and miners have resorted to scaling back production in order to avoid growing inventories as exports to Europe and Asia rapidly slowed in such a short period of time. The Chinese rhetoric that they will continue to support growth as well as whispers that BHP is interested in metallurgical coal (coking coal as we call it in Australia) is BIG news for cyclicals and the global growth story.

A shock fall in the unemployment rate to 5.2% against expectations that the rate would hold steady at 5.5%. Not that the market was paying attention as it barely awoke on the news. The dollar jumped from US$1.0445 to US$1.048 on the news as traders anticipated a slowdown in monetary policy intervention. The rise in employment numbers was mostly in the part time sector so likely to be seasonal and largely unimportant to the real economic picture.

Ten Network ((TEN)) confirmed a $230m capital raising at a massive discount to market as they try to pay down debt and battle declining ratings. The raising at 20c represents a 60% discount to their last traded price at 32c.

QBE ((QBE)) regained some ground today after being demolished in yesterday’s trade to finish up 1.8% to $10.

RIO Tinto ((RIO)) climbed through $60 intraday for the first time in 7 months to close the day up 0.96% to $59.92

The Shanghai Composite is off around 0.4% currently after gaining over 3% yesterday.

DOW futures are pointing to a weaker opening, currently down 20 points 
 

(For a more comprehensive summary of last night’s market action see FNArena’s Overnight Report.)

This article produced at the request of and is published by FNArena with the expressed permission of 708 Capital.

708 Capital is a full service stockbroking and investment advisory firm. 708 offers investment and market advice to high-net-worth Private and Institutional clients in Australia and across the globe. 708's extensive network of contacts gives its clients exclusive access to ground-level fundraising opportunities and new company listings in a variety of small and large cap ASX listed companies. 708 has a longstanding track record of generating exceptional returns for its clients. Click here 708capital.com.au/contact-us/ for a no costconsultation and portfolioreview or to learn more visit www.708capital.com.au. Note: 708 Capital offers wealth management services for Sophisticated and Wholesale Investors only. We can only assist investors who are classified as Sophisticated Investors or have verified assets over AUD$2.5m.

708capital is a holder of AFSL. No. 386279

IMPORTANT DISCLAIMER - THIS MAY AFFECT YOUR LEGAL RIGHTS:

This document is intended to provide general securities advice only, and has been prepared without taking account of your objectives, financial situation or needs and therefore before acting on advice contained in this document you should consider its appropriateness having regard to your objectives, financial situation and needs. We recommend you obtain financial, legal and taxation advice before making any financial investment decision.

Disclosure of Interests: 708capital receives commission from dealing in securities and its authorised representatives, or introducers of business, may directly share in this commission. 708capital and its associates may hold shares in the companies recommended.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided.

article 3 months old

Weekly Broker Wrap: RBA Rate Cut Tipped

-December cash rate cut tipped
-Media helped by advertising turn
-Deposit rates lift with ageing population
-Telco revenue to hold up


By Eva Brocklehurst

On Tuesday the Reserve Bank board will conduct it final meeting for the year and the countdown to the end of 2012 will begin. Will there be an official rate cut to add to the Christmas cheer? Well, the cash rate easing that many thought would materialise last month, and didn't, hasn't gone away. After more economic data showing a slowdown in mining investment is not being met by a concerted rebound in non-mining business plans, the major bank economists are still of the view that another 25 basis points reduction should be forthcoming, taking the cash rate to 3.00%.

Westpac economists certainly think another cut is necessary, noting the September quarter ABS survey on capital expenditure intentions was conducted after the iron ore price had recovered from its lows in August and September. Westpac said it would, therefore, be risky to dismiss this slowing in mining investment intentions as an over-reaction to the August/September panic in the resources sector. For ANZ economists there is little to suggest that non-mining capital spending will pick up from weak levels in the next few quarters. The RBA's business credit data for October has revealed that borrowing has been broadly unchanged over the past four months. As a result, the overall investment outlook now appears weaker than previously thought and ANZ continues to expect the RBA to lower the cash rate by 25bps on Tuesday and to maintain an easing bias next year.

National Australia Bank economists have plumbed for a cut in the cash rate too, although consider it still line ball. What's tipped the bank's call is the data released over the past month, which has all but confirmed a weak GDP outcome for the September quarter and provided little evidence of any improvement into the December quarter. The September quarter GDP figures will be published on Wednesday. Not helping the economy is a still high Australian dollar, despite the recent softening in commodity prices, which is keeping pressure on industries outside of mining. Softer commodity prices are also raising concern about the near-term outlook for mining. The inflation outlook remains consistent with the RBA’s 2-3% target, and should provide no barrier to near-term cuts. NAB economists still see potential for another cut next year, taking the cash rate to 2.75%. At this stage the bank's call is May 2013 but if the local data continues to deteriorate it could come as early as February 2013, after the RBA board's first meeting of the year.

CIMB goes out on a limb, saying this downgrade to mining capex should be in line with RBA projections and won't provide the trigger to ease monetary policy this week. Nevertheless, an easing is still expected down the track, just more likely after another CPI reading. The December quarter CPI will be published on January 23. JP Morgan's tip? It's Tuesday. The RBA has forecast an average growth pace of 0.7% quarter on quarter in the second half of 2012 and, JP Morgan believes, on the current trajectory, this will be proven ambitious.

CIMB, along the theme of an improving economy, has looked at media stocks this week and made Seven West ((SWM))  its top pick for any recovery. TV is the media segment that is most leveraged to any rebound  in advertising conditions and SWM (Buy, $1.90 target) is the pick for investors looking to play a recovery theme, given its strong ratings performance. Contrasting this is Ten Network ((TEN)) where the broker has a Sell rating and target of 27c due to dwindling market share and balance sheet risk, which offsets any potential cyclical upside. On the publishing side, Fairfax ((FXJ)) and APN News & Media ((APN)) are expected to benefit from a broader sector re-rating with an improvement in advertising conditions, although revenue gains will be muted by continued structural headwinds. For these two there is a Buy rating and a 90c and 85c target price respectively. CIMB notes TV advertising spending grew 18% in 2010 following the global financial crisis, versus the total ad market's spending of 11.8%. Southern Cross Media ((SXL)) with a $1.35 target is also considered a Buy on valuation grounds. It has a more variable costs base in regional TV and this makes it less leveraged than the metros to the TV ad cycle, CIMB said.

However, a firmer economy doesn't necessarily deliver a return to booming mortgage growth. CIMB has done some analysis showing that, as Australian households continue to age and a large part of the population enters retirement, mortgage penetration will be unlikely to increase as a share of GDP. The broker concludes that the slump in mortgage credit growth and the spike in the savings rate are structural trends, symptomatic of the ageing population, not cyclical fluctuations. That won't be turned around that soon.

Households where the prime earner is 45-54 have the highest total housing asset holdings and highest incomes. This group's housing share of total population peaked in 2005 and will keep falling until the early 2020s as these people increasingly buy financial assets (deposits and superannuation) and reduce debt. CIMB analysis suggests household demand for deposits peaks after 55 years of age. Selecting the 55-64 age group as representing peak deposit demand and the 20s as the lowest, and netting each share of the population off against each other, indicates deposit demand is strong until 2025, at least from a demographic standpoint. CIMB characterises the current loan growth environment as one in which mortgage lending remains structurally weak but somewhat offset by a soft cyclical recovery in business lending growth. This favours National Australia Bank ((NAB)) and, hence, is CIMB's preferred sector exposure.

Meanwhile, one area of the economy not dependent on the disposable income of age is telecommunications. Morgan Stanley has looked at whether the Australian mobile telco industry can continue to grow. Yes, is the answer but a disproportionate share of this growth may fall to the one with network superiority …Telstra ((TLS)). At any rate, growth at all is in stark contrast to European telecoms, Morgan Stanley maintains. The broker does not expect a significant increase in Australian telecom revenue as a percentage of GDP, rather that the blend will change and revenue will continue to hold up well. Mobile will increase its share as the old copper wire revenue decreases to zero and the National Broadband Network grows. Australian telecoms are attractive, according to the broker, as they currently offer investors a 5.8% average dividend yield, a 3% spread over 10-year Australian Government bonds. Telstra's spread at 4% (dividend yield at 6.8%) is considered sustainable over the medium term.

In the construction of portfolios, Morgan Stanley continues to recommend investors maintain a Hold position in Australian telecoms, particularly given sustainability of dividends. Furthermore, Australia's telecom sector is one of only six sectors in the Australian market to experience positive earnings revisions in the last three months. Telstra's positive earnings revision over the past three months was being driven by confirmation of NBN payments rather than mobile upgrades. Positive earnings revisions for the smaller telecom names have been driven by consolidation of the sector and the synergies that come from this. 
 

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided.

article 3 months old

Australian Stocks: What Happened Today?

By Max Ludowici, Equities & Derivatives Advisor, 708 Capital

The XJO put in a solid day of trade following positive leads from the Street overnight as Cliff talks once again stole the show. Both Obama and House of Reps. speaker Boehner said they were optimistic that a deal could be struck over the budgetary issue. The XJO finished the day on its highs up 30 points or 0.7% to points on better than recent volume of $3.5B despite trailing the futures by 10 points for most of the day.

You must now have observed that this is a nightly saga where equity markets around the around the world are totally dictated to by mere words from individual US politicians. This type of weak headline-driven price action makes trading markets incredibly difficult so for those traders out there trying to make sense of things, don’t be too hard on yourself because this is as tough as it gets.

Take some solace from the fact Goldman Sachs chief Lloyd Blankfein described Obama’s fiscal cliff plan as “very credible”, we all know brokers have a vested interest in injecting confidence into markets but this is actually a pretty important development. Both because it means Obama actually has a plan and also because it shows Republican support for the Democrat’s plan. Obama taking the stage to confirm they were actively working on a ‘plan’ may be the next step to putting the issue to bed. Don’t expect the volatility to end before there a signatures on paper though.

On the data front, Aussie Q3 Capital Investment data showed capex had risen by 2.8% q/q (in real terms) in Q3 ahead of expectations of a 2% rise. More importantly total nominal capex in 12/13 was revised 3% lower from the previous estimate. The peak of the mining capex cycle is beginning to bite, BHP Billiton ((BHP)) chief said it was even behind us at the BHP AGM today, so don’t be surprised to see this number decline going forward. Anyone care to bet on an interest rate cut next Tuesday?

Mining services took a beating today following NRW Holdings’ ((NWH)) profit downgrade and sell off yesterday which has now fallen 28.9% in two days. Mining consumables (far more resilient than pure services and capital equipment suppliers) company Bradken ((BKN)) got sold down 7.1% to due to worsening sentiment in the sector. Other players in the space: Cardno ((CDD)), Macmahon Holdings ((MAH)), Ausdrill ((ASL)) all ended the day lower.

Otherwise it was a strong day for across the board with stocks in the defensive and cyclical sectors both ending the day well.

US futures closed the overnight session up 80 odd points then reopened intraday down 5 or so points. They are now tracking up nicely and are currently reading in the green up 18 points
 
(For a more comprehensive summary of last night’s market action see FNArena’s Overnight Report.)

This article produced at the request of and is published by FNArena with the expressed permission of 708 Capital.

708 Capital is a full service stockbroking and investment advisory firm. 708 offers investment and market advice to high-net-worth Private and Institutional clients in Australia and across the globe. 708's extensive network of contacts gives its clients exclusive access to ground-level fundraising opportunities and new company listings in a variety of small and large cap ASX listed companies. 708 has a longstanding track record of generating exceptional returns for its clients. Click here 708capital.com.au/contact-us/ for a no costconsultation and portfolioreview or to learn more visit www.708capital.com.au. Note: 708 Capital offers wealth management services for Sophisticated and Wholesale Investors only. We can only assist investors who are classified as Sophisticated Investors or have verified assets over AUD$2.5m.

708capital is a holder of AFSL. No. 386279

IMPORTANT DISCLAIMER - THIS MAY AFFECT YOUR LEGAL RIGHTS:

This document is intended to provide general securities advice only, and has been prepared without taking account of your objectives, financial situation or needs and therefore before acting on advice contained in this document you should consider its appropriateness having regard to your objectives, financial situation and needs. We recommend you obtain financial, legal and taxation advice before making any financial investment decision.

Disclosure of Interests: 708capital receives commission from dealing in securities and its authorised representatives, or introducers of business, may directly share in this commission. 708capital and its associates may hold shares in the companies recommended.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided.