The market is getting thumped – concerns for financial and property trusts have been brought into focus by a significant profit warning from Centro Property Group and for all financials by a significant lift in short term interest rates which puts a lot of financial institutions in a position that requires them to consider asset sales, refinancing or restructure. Overnight Citigroup had to put $50bn of assets on its balance sheet to prevent fire sales out of related structured investment vehicles. We are down 152 – a lot worse than the 56 point fall the SFE Futures predicted this morning. Everything tanking today. Financials, property trusts and resources.
The Dow Jones struggled on Friday closing down 178 – Wall St. moved in a 183 point range and finished the week on a negative note after disappointing economic figures increased concerns of a US recession. Inflation continues to be a worry; the Labor Department said its consumer price index increased by 0.8% in November – higher than the 0.6% economists had predicted – and questioning the Fed’s move to stimulate the economy by lowering interest rates earlier in the week. Core inflation (which excludes food and energy prices) also increased by 0.3% – its biggest increase in 10 months and higher than the 0.2% expected. Financials fell for the fourth straight session – Citigroup fell after announcing plans to transfer close to $50bn worth of assets from its 7 complex “structured investment vehicles” onto its books to prevent fire sales of long tern assets because of increases in short term borrowing costs. All three major indexes down on the week, the Dow Jones fell 2.1%, the S&P 500 finished 2.4% lower and the NASDAQ closed down 2.6%. Amazon.com Inc. down 5.5% and eBay Inc. fell 4.5% after a research company said online holiday sales increased at the slowest pace ever.
Resources not pretty on concerns about growth in the US – BHP down 126c to 4080c and RIO down 550c to 13174c. The UK Takeovers panel is likely to announce tonight or tomorrow that they are imposing a “put up or shut up” deadline of 6-8 weeks for BHP to put a bid to RIO or to shut up for 6 months at least. The fear for RIO is that BHP may just decide to delay their bid if the markets are going to fall over and resources struggle in the face of a US recession. Metals mixed on Friday – Copper up 0.5% and Nickel up 3.2%, Zinc down 2.2% and Aluminium was unchanged.
Looks as if Zinifex (ZFX) don’t want to be taken over – they have launched a $775m all cash bid for Allegiance Mining (AGM) this morning. The offer consists of 90c a share (27% premium to AGM’s last closing price) and will be increased to $1 (41% premium) if ZFX acquires more than 30% of the company or if AGM’s board recommends its offer to shareholders. The announcement has given Nickel stocks a bit or a lift today, despite the market being down 2.3%. New ZFX CEO Andrew Michelmore said he believes the offer is fair and this is only the beginning of Zinifex’s new aggressive growth strategy. ZFX is unchanged at 1405c. Oil price down $1.04 to $91.31 on concerns that demand will fall if the US economy falls in recession. Woodside down 61c to 4700c. Gold down $6 as the US dollar strengthened on expectations rising inflation will keep the Fed from lowering interest rates. Newcrest down 118c to 3207c.
We are looking for action this week (and getting it) because there isn’t much on the Diary – AGMs from ANZ, St George and Orica take the limelight on the company front this week. No reason for any of those not to delight. We have the first ever minutes of the last RBA Meeting this week. In the words of Glenn Stevens the RBA Governor “For professionals this will hopefully make a modest further contribution to their understanding of the boards decisions. And for any of the rest of you who are having trouble getting to sleep”. We have the RBA monthly bulletin out on Thursday but with the RBA decisions becoming more transparent it is hard to know how much value these monthly releases will now hold.
- PROPERTY TRUST SECTOR – SERIOUS CONCERNS – There are concerns for the Property Trust sector and an expected profit warning has been released by Centro Properties Group this morning after it went into a trading halt on Thursday saying they needed to revise earnings forecasts because they need to refinance loans in the credit markets – they are 60% geared. They have cut their forecast distribution for 2008 to 40.6c per security from 47c. CNP has been a struggler this year, down 34% before today and down 67% this morning. WDC down 4.4%, GPT down 5.8%, DRT down 5.1%.
- Another property trust doing it tough today is Goodman Group (GMG) – down 13.7% to 505c despite announcing its European Logistics Fund has acquired 8 logistics facilities for EUD171m and reiterating earnings guidance for the year. “We have a number of avenues at our disposal and remain comfortable with our financial flexibility and reiterate our 8% growth forecast for FY2008.” Said CEO Gregory Goodman.
- AGL Energy has confirmed their FY08 guidance this morning but did lower its FY09 outlook. FY08 NPAT is unchanged at $330m-$340m; the market was expecting something around $343m. They said Project Phoenix remains on budget and schedule bit the practice of providing medium term guidance will be discontinued. AGK up 39c to 1353c.
- News Corp have finally achieved the takeover of the Wall St journal after a shareholders vote allowed the deal through despite some resistance from parts of the Bancroft family. 54% of the super voting shares (mostly held by the Bancroft family) voted in favour of the deal and 74% of the ordinary shares. NWS up 19c to 2447c.
- Biota Holdings (BTA) announced this morning they have been referred to mediation by Justice Whelan of the Supreme Court over their ongoing litigation again GlaxoSmithKline. The mediation will be conducted in early May, BTA say Glaxo failed to property market its Relenza anti-influzena drugs, resulting in lower earnings. BTA up 1.5c to 129c.
- Talk that Fortescue chief Andrew Forrest has been to China to talk about financing a $1.14bn development of the Chicester Ranges project. FMG outperforming today, down 1c to 6249c.
- ABN AMRO upped their recommendation on Ausenco (AAX) to BUY from HOLD and target price to 1523c from 1229c saying “Market speculation regarding various AAX projects appears unfounded and has, in our view, created a buying opportunity”. Expect a strong full year result they say. AAX up 10c to 1310c.
- UBS Warburg cut their recommendation on WorleyParsons (WOR) to NEUTRAL from BUY despite upping their target price to 5400c from 5200c. The downgrade comes after a 20% rise in the share price over the past 4 weeks. WOR down 113c to 4978c.
- According to Access Economics, the Australian government is likely to report a bigger-than-expected budget surplus in 2007-08 thanks to demand for resources, mainly from China. Chris Richardson, an Access director, said the pressure will come off interest rates if Labor “succeeds in trimming waste” from spending.
- In total the banks are paying out $6.221bn of Christmas dividends this week – The National Bank dividend worth $1.547bn is payable tomorrow (equates to about 1.5 weeks of stockmarket trade by value). St George Bank also pays out $477m worth of dividend cheques tomorrow (equates to about 2 weeks of stockmarket trade). The Westpac Bank also pays outs $1.268bn worth of dividend cheques tomorrow (equates to about 1.5 weeks of stockmarket trade) ANZ pays out $1.382bn of dividend cheques on Friday (equates to about 3 weeks of stockmarket trade). All that customer pain funnelled into shareholders pockets. It makes that waft of Jingle Bells just that little bit more Jingly for shareholders as they sit down to Christmas lunch.
The winner of the MARCUS TODAY 2007 Stockpicking competition this year was Jeff Kimm with a total return of 255.2%. He picked Industrea (IDL) up 155.2% as his best pick and Chemeq (CMQ) which went bust as his worst pick. Congratulations to Jeff who will be even more popular this Christmas with his 6 bottles of Veuve Cliquot currently winging their way to his Christmas Table and with his Life Membership of Marcus Today. Not sure whose lifetime he has that for, mine or his!
For a list of all this year’s stock picks and the reasons they were picked please go to the newsletter. The 2008 stock picking competition is open to subscribers and starts shortly.
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