May 19, 2014

Morning Market Report

Mixed results on the the markets off the back of new US housing data.

The market is down 37 points. The Dow Jones was up 45 points at 16,491 -- the market fell on the open and range traded on mixed economic data before a late afternoon rally. The late rally was said to be due to a combination of monthly options expiration, short covering and technical factors. The energy sector was weaker while telecom and technology stocks outperformed. Volume was higher than average in an 84 point range. US economic data was mixed -- Housing data was positive with both building permits and housing starts above expectations but consumer sentiment fell to 81.8 from 84.1 previously, compared to an expectations of a rise to 84.5. US Earnings -- JC Penney released results after the market closed on Thursday and was up 16.25% in Friday trade, lifting consumer stocks. European share markets were mixed -- The UK FTSE fell 0.25% and the German DAX fell 0.28% but the French CAC rose 0.26 and the Italian MIB recovered 1.12%. Indian stocks rose after its general election was won by Narendra Modi’s BJP (Baratiya Janata Party) alliance. The SENSEX index rose as much as 6.15% to a record before falling back to close up 0.90%. Mr Modi intends to revive economic growth in India by boosting investment. Foreign investors are enthusiastic about the proposed reforms to address price pressure and limit bureaucracy and corruption. The Aussie dollar was stronger and is currently trading at US93.71c. Oil rose US$0.52 or 0.51% to US$102.02 a barrel. Gold was down $0.20 or 0.02% to US$1293.40 an ounce. Base metals were mixed -- Aluminium fell 0.25% and copper fell 0.25% but nickel rose 1.46% and zinc was 0.27% higher. Iron ore fell US$2.10 to US$100.70 a tonne. Fed Speak -- St. Louis Fed Reserve President James Bullard said inflation and employment goals are within sight and he expects interest rates will need to be increased by the end of the first quarter of 2015. He also considers the neutral Fed funds rate to be 4%, assuming inflation of 2%. STORIES
  • Goodman Fielder (GFF 66.5c) -- Shares closed down 1.12% last Friday. The company has accepted a revised $1.37 billion takeover bid which was upped from 65c to 70c plus a 1c dividend. This represents a 33% premium to the pre-bid price. The company had an 8pm Friday deadline to decide whether to support the bid and open their books. The GFF’s board released a statement recommending that shareholders vote in favour of the revised offer. Major shareholders Perpetual and Ellerston have already backed the bid. Ord Minnett have a Sell recommendation on the stock today.
  • DuluxGroup (DLX 573c) -- first half net profit $60 million up 88% on year with the company saying they expect further growth for the rest of the year. NPAT was up 33.6% to $56.1 million. The result was driven by contributions from Alesco earnings and stringent cost management. Sales up 16.5% to $804.5 million. Interim dividend of 10c. DLX expects financial year profit to be higher than the previous year's $94 million.
  • UGL – Down 12% in early trade. The sale of their DTZ property business is looking shaky after the company was only able to find one interested buyer who submitted a funded bid. UGL CEO Richard Leupen, has already hinted that he will not sell DTZ cheap. But the fall in the mining services sector may force UGL to do just that. UGL is losing cash and needs to repay a $650m loan. The only other option is to demerge the business, but that too is time consuming and costly.
  • Bradken (BKN) -- Market update -- A company reorganisation will reduce operating costs by $27 million pa and will improve longer term revenue growth. But the implementation of this plan will cost the company $51.4 million in one off charges relating to retrenchment costs, plant and equipment write offs. BKN also plans to close their high cost manufacturing facilities to improve cost efficiency. They also plan to reduce their workforce by 500 to 4700.
  • IOOF (IFL – 825c) -- Shares closed up 1.48% last Friday after the fund manager announced a merger with SFG Australia (SFW). SFW closed +18.49%. The $624m deal will create Australia’s third largest fund manager. The SFG board has unanimously recommended the deal to shareholders. Under the terms of the merger proposal, IFL will offer 0.104 of their shares for each SFW share. IFL have also offered a cash alternative for SFA shareholders, capped at $100 million.

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