Jun 19, 2014

Morning Market Report

Mixed results for local firms as the end of the financial year approaches, with a couple of big surprises.

The Market is down 19 points. The Dow Jones was up 98 points at 16,907 -- The market range-traded most of the day prior to the release of the FOMC statement, then rose strongly after upbeat comments.  Consumer Staples and Materials were the strongest sectors while Consumer Discretionary, Financials and Industrials lagged. Volume was again below average in a 156 point range. US Federal Reserve Meeting -- The Fed tapered another US$10 billion per month from its asset purchase program. The Fed said rates are likely to remain low for a considerable time after quantitative easing ends and economic projections release were slightly better than earlier forecasts. US economic data was largely overlooked -- The MBA mortgage index fell 9.2% and current account deficit rose more than expected to US$111.2 billion from an upwardly revised US$87.3 billion. US bonds markets were stronger, with the yield on the 10 year bond falling seven basis points to 2.586%. European shares were mixed -- The French CAC was down 0.13% and the UK FTSE was down 0.97% but other markets were stronger. The Aussie dollar was stronger and is currently trading at US93.98c. Oil was down US$0.39 or 0.37% to US$105.97 a barrel. Base metals were mostly stronger -- Aluminium rose 1.13% and zinc rose 0.56% but nickel has reversed a strong 2 day rally, falling 1.99%. (These are three month prices) Iron ore rose US$1.00 to US$90.30 a tonne. US economic data -- MBA Mortgage Index: Actual -9.2%, prior 10.3%, Current Account Balance: Actual -$111.2B, consensus -$97.8B, prior -$81.1B (revised -$87.3B) US Earnings -- FedEx - up 6.16% Australian economic data today -- RBA Quarterly Bulletin No company events today -- Asciano (AIO) Investor Day. Dividends today -- Newhaven Hotels (NHH) 4c STORIES
  • Asciano (AIO) -- Will cut 500 jobs in order to reduce costs by $90 million during the 2014/15 financial year. 100 jobs will be first cut in their Pacific National Coal division after merging the division with its PN Rail business. AIO estimates they will have 3600 full time employees by June 30. The cost of reducing its workforce is expected to be between $25-30 million. AIO also maintained financial year guidance of low single digit growth for its underlying net profit in 2013/14.
  • JB Hi-Fi (JBH) -- Bucks the trend -- Expects a sales increase for the 2013/14 financial year, despite a fall in consumer confidence. It expects a 5.3% rise in sales and have reaffirmed guidance of a $126-129 million profit for the year which is a rise of between 8.3%-10.8%. Surprisingly, its upbeat announcement is in stark contrast to JBH's rival retailers who have mostly posted profit downgrades and cut earnings. JBH also said its CEO Terry Smart would retire on June 30 and will be replaced by Richard Murray.
  • TEN -- Profit downgrade. Has warned of lower earnings after a fall in advertising revenues and higher costs has hit the bottom line. It expects TV revenue to be 3.5%-4.5% lower. It has confirmed previous guidance of about 8% increase in its TV costs. Savings from its recent cost-cutting campaign will not benefit its earnings until the 2014/15  financial year.
  • Woodside Petroleum (WPL 4090c) -- Shares closed down 4.6% after Royal Dutch Shell sold 78.3 million shares to institutional investors for $2.90 billion, reducing its stake in to 13.6% from 23.1%. Shell will see another 78.3 million shares back to WPL to bring its stake down to 4.5%. Shares closed at 4090c below the 4145c institutional shareholders paid as part of Shell’s sell down. The sell down removes the overhang that has capped their share price some time.
  • David Jones (DJS 390c) -- Spanner in the works -- Shares closed up 0.5% yesterday after Woolworths' shareholders in South Africa approved the $2.2 billion takeover. But Solomon Lew confirmed his stake at 9.89%, which puts a question mark over the takeover deal. Solomon Lew needs around 17.5% stake to block the takeover offer according to broker analysis which assumed 70% of shares would be voted at the meeting. Lew has until June 24 to buy shares and still vote at the meeting on June 30. For the bid (at 400c) to be successful, they scheme must be approved by 75% of shareholders and 50% of shareholders at the meeting. One thing to note - if Lew successfully blocks the takeover, the resulting share price will fall may leave him holding shares that are worth less than what he bought them for.

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