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Markets Live: Global mood lifts as earnings rain down

by August 23, 2017 General

Coca-Cola Amatil is sticking to its aspirational target for mid-single-digit earnings per share growth despite a 4 per cent fall in underlying net profit to $190.1 million in the six months ending June and a flat outlook for the year.

The result, which was dragged down by CCA’s Australian beverage business, fell slightly short of consensus forecasts around $194 million.

CCA also booked $50 million in one-off restructuring costs in Australian beverages, taking bottom line net profit down 29.3 per cent to $140.1 million.

Earnings from Australian beverages fell 13.2 per cent as sales and volumes in carbonated soft drinks and bottled water went backwards, offsetting strong profit growth in Indonesia and Papua New Guinea and in alcoholic beverages and coffee.

CCA will pay an interim dividend of 21¢ a share, in line with that in the first half of 2016.

CCA shares have fallen 16 per cent this year to $8.47 amid concerns about the impact of container deposit schemes due to come into effect in 2017 and 2018 in NSW, Western Australia and Queensland.

Analysts have estimated that CCA’s Australian beverage volumes could fall as much as 4 per cent and annual earnings before interest and tax could decline as much as 7 per cent as price rises to cover the cost of the scheme dent demand.

Confidence in CCA’s prospects has also taken a hit from Woolworths’ decision to refuse to stock the bottler’s new Coca-Cola No Sugar variant and to delete several lines of Mt Franklin bottled water.

And then there’s this:


The bulls are back in charge, writes IG strategist Chris Weston:

A break above 2475 for the S&P 500 (the 17 August high) and we start talking new all-time highs again in the worlds institutional equity benchmark and it seems the bulls have latched on to an article in Politico around tax reform in the US. 

The cynics among us would still suggest the details of the article are too optimistic, but the headline “Trump’s team is said to make strides on tax reform plan” have seemingly thrown some lift back into the market and with the main players apparently holding a consensus on a plan, then perhaps, just perhaps, the Trump administration could deliver on one of its objectives. ‘Buy the dip’ is apparently not dead.

Mining stocks are having their time in the sun and while BHP closed up 2.1% in London, we can see a strong performance from mining sector in US trade. Again, we can look at ETFs here and see the XME ETF (SPDR S&P metals and mining) gaining a sizeable 2% and this bodes well for the Aussie equity open.

USD/JPY has built on the gains we saw yesterday and clearly the market has defended the ¥108.82 low I spoke about yesterday and that seems important. AUD/USD traded as high as $0.7951 through Asia trade yesterday but has found sellers easier to come by and is testing Friday’s low of $0.7910. A close through here and the pair prints a bearish key day reversal and opens up a possibility of a move lower. Naturally in this environment, we have seen implied volatility crushed and we are staring at the US Volatility Index (“VIX”) trading down to 11.5%.

Read more.

Beleaguered telecommunications provider Vocus Group’s $228 million Perth to SIngapore submarine cable will be live by July 2018 as it looks to get ahead of a rival consortium led by Bevan Slattery of Telstra, Google and Singtel.

On Wednesday, Vocus booked a $1.5 billion loss for the 12 months to June 30, compared with a $64 million profit in the previous period. The loss is largely related to a more than $1.5 billion writedown of assets across its Australia and New Zealand businesses announced last week.

Underlying profits were up 50 per cent to $152.3 million – Vocus completed the acquisition of Nextgen in October 2016 – missing the company’s guidance following a downgrade in May, as flagged last week, of between $160 million and $165 million.

Earnings before interest, tax, depreciation and amortisation came in at $366.4 million, hitting guidance of between $365 million and $375 million.

Much of Vocus’ financial results were released last week after it announced the writedowns and the telco provided its 2017-18 guidance on Monday after private equity giants Kohlberg Kravis Roberts & Co and Affinity Equity Partners walked away from making a bid for the company.

In announcing its result on Wednesday, Vocus said it planned to have the Australia Singapore Cable ready to go live by July 2018. The company had originally penciled in a September 2018 launch date but last December it brought that forward to next August. 

“We’ve been able to achieve the earlier date through condensing the program of works to deliver ahead of schedule, in July 2018,” Vocus Group chief executive Geoff Horth said.

BHP has appointed outgoing Wesfarmers finance director Terry Bowen and former BP executive John Mogford as directors and revealed Grant King would leave the board, due to concerns raised by some investors.

In a statement to the ASX, outgoing BHP chairman Jac Nasser said owing to concerns expressed by some investors Mr King decided not to stand for election at the miner’s annual meeting and would retire on August 31.

There were reports up to 40 per cent of BHP’s Australian shareholder base were contemplating a vote against Mr King at the November meeting.

Mr Nasser said Mr King, who was appointed in March, would be missed.

“His experience managing through challenging industry dynamics and a complex regulatory environment, as well as his deep understanding of oil and gas, were beneficial in board discussions, and will be missed,” Mr Nasser said.

He said the appointments of Mr Bowen and Mr Mogford, effective on October 1, were “excellent additions” to the board.

“The appointments are the outcome of our structured and robust approach to board succession, and are based on a five-year planning outlook, consideration of the skills, experience and attributes required to effectively govern the business, and exhaustive global searches for suitable candidates.”

Gold weakened a touch overnight, with spot gold declining 0.5% to $1285.52 an ounce, as the US dollar edged higher and investors showed more appetite for risk.

Still, Bank of America Merrill Lynch sees gold on track to climb to a four-year high of $1400 an ounce by early next year, buoyed by lower long-term US interest rates and lack of progress by President Donald Trump in delivering economic reform.

Prices will also rise in dollar terms as a shift in economic cycles between the US and Europe strengthens the euro, the bank’s global head of commodities research Francisco Blanch said.

The Federal Reserve is not tightening as fast as people expected, and the European Central Bank is set to start tapering, “so some of that leads to a higher euro eventually, combined with more stagnant long-term rates in the US, and that’s a tailwind for gold,” Blanch said.

Bullion has jumped 12 percent this year as the dollar weakened, turmoil in the Trump administration cooled optimism over reforms and tensions with North Korea sparked fears of conflict

Meanwhile, iron ore’s recent stellar run stalled overnight as the US dollar ticked higher, with the metal down 0.4% to $US79.65 a tonne overnight.

“Caution and position squaring ahead of Jackson Hole were the dominant themes overnight. The US dollar benefitted, the euro did not,” noted ANZ strategists.

“A risk on tone across markets saw precious metals suffer. However, the subsequent rise in the US dollar did dent investor appetite for industrial metals,” they noted.

Donald Trump has assailed plenty of chief executives on Twitter, but now it appears the US President may be on the receiving end from Wall Street, writes AFR’s Washington correspondent, John Kehoe:

Goldman Sachs chief executive Lloyd Blankfein, who joined Twitter in June, appears be making a habit of subtlely chiding President Trump on social media.

Blankfein, who has 48,000 followers compared to the President’s 36 million, is not explicit and never mentions Trump by name.

As the solar eclipse occurred yesterday in the US, Blankfein mused on social media, “Wish the moon wasn’t the only thing casting a shadow across the country. We got through one, we’ll get through the other. #SolarEclipse2017”.

The tweet is open to interpretation, but in the context of Blankfein’s other recent tweets it seems likely that he was ribbing President Trump.

Last week, Blankfein, who is Jewish, joined other business executives in deploring the racist riots by Ku Klux Klan members, neo-Nazis and white supremacists in Charlottesville, Virginia.

President Trump was widely condemned by business and political leaders for his equivocal response, in which he blamed “both sides” for the violence and said there was some “very fine people” protesting the removal of Civil War statues.

Amid the furore, Blankfein channelled a famous phrase coined by president Abraham Lincoln, one of America’s most revered leaders.

“Lincoln: ‘A house divided against itself cannot stand.’ Isolate those who try to separate us. No equivalence w/ those who bring us together,” Blankfein tweeted.

Blankfein is taking a risk in being seen to take subtle digs at the controversial President.

President Trump has threatened to hit Amazon founder and Washington Post owner Jeff Bezos with anti-trust laws and accused the e-commerce giant of not paying enough tax, in the wake of the newspaper’s critical reporting of him.

Trump lashed the chief executive of pharmaceutical giant Merck last week for “ripoff drug prices”, after Kenneth Frazier quit his manufacturing council and criticised the President’s response to Charlottesville. Trump blasted other deserting CEOS as “grandstanders”.

Read more at the AFR.

The A2 Milk Company’s net profit surged nearly 200 per cent to $NZ90.6 million in the 2017 fiscal year with profits and revenue up strongly due to booming demand for its a2 Platinum baby formula both in Australia and China.

The New Zealand company also announced the intension of up to a $40 million on-market buyback over the next 12 months. In addition, the board said it remains open to considering a special dividend in light of progress on the buyback and future market conditions. No dividend was declared today

Managing Director Geoffrey Babidge said the company’s continued growth reflects increasing consumer acceptance of the a2 brand and the benefits of dairy-based products free from the A1 beta casein protein type.

“We are the fastest growing brand by value in Australia,” he said to analysts. “This was clearly an exceptional performance for FY17.

“China is a key focus on how we are taking this business forward. Our direct sales continue to grow.”

Group revenue for infant formula was up more than 55 per cent to $NZ549.5 million with group a2 Platinum infant formula revenue up 84 per cent and sales to China more than doubling.

Citi analyst Sam Teeger was tipping full year revenue of $NZ555 million, 2 per cent above guidance. He was expecting EBITDA of $NZ125 million, or 5 per cent below consensus.

Mr Babidge said he is very focused on continuing to grow the company.

Since the start of the year, shares in the infant formula and milk group have risen 114 per cent and it’s the fourth best performer in the S&P/ASX 200 over the past 12 months.

Markets cheered up a bit overnight. Here are some of the highlights:

  • SPI futures up 32 points or 0.6% to 5745
  • AUD -0.4% to 79.11 US cents (Overnight range: 0.7898 – 0.7951)
  • On Wall St, Dow 0.9%, S&P 500 +1%, Nasdaq +1.4%
  • In New York, BHP +1.2%, Rio +2.1%
  • In Europe, Stoxx 50 +0.9%, FTSE +0.9%, CAC +0.9%, DAX +1.4%
  • Spot gold -0.5% to $US1285.52 an ounce
  • Brent crude +0.4% to $US51.87 a barrel
  • Iron ore -0.4% to $US79.65 a tonne
  • Dalian iron ore -4.3% to 576 yuan
  • Steam coal +0.1% to $98.40, Met coal +0.8% to $195.25
  • LME aluminium -0.3% to $US2075 a tonne
  • LME copper -0.1% to $US6580 a tonne
  • 10-year bond yields: US 2.21%, Germany 0.40%, Australia 2.64

On the economic agenda:

  • Skilled vacancies data for July at 11am AEST
  • This evening there is a clutch of European flash PMIs
  • Tonight US crude oil inventories

Stocks to watch: 

  • Trading ex-dividend: AGL Energy, AMP, Pact Group
  • Beach Energy raised to overweight at Morgan Stanley
  • Cedar Woods Properties cut to hold at Morgans Financial
  • Corporate Travel cut to hold at Morgans Financial
  • Northern Star raised to neutral at UBS
  • REA Group cut to hold at Morgans Financial
  • SmartGroup cut to neutral at Credit Suisse
  • Sydney Airport raised to sector perform at RBC, upped to buy at UBS
  • Technology One cut to hold at Wilsons

It’s another massive day for corporate earnings. The  ASX companies reporting today include: 

  • APA Group
  • Coca-Cola Amatil
  • Healthscope
  • Insurance Australia Group
  • Ausdrill 
  • Saracen Mineral
  • sentia Group
  • Qube Holdings
  • Star Entertainment
  • Tassal Group
  • Vocus Communications
  • WorleyParsons
  • Woolworths
  • Wisetech

Insurance Australia Group’s annual profit climbed almost 50 per cent to hit $929 million, but underlying margins felt the sting of higher motor claims and an increase to natural peril allowance.

On Wednesday IAG said that full-year profit attributable to shareholders for the period ended June 30, 2017, soared 48.6 per cent to $925 million.

But the $16 billion insurer’s underlying insurance margin fell short of expectations, dropping 2.1 per cent to 11.9 per cent, which included the impact of higher claim costs in its short tail motor businesses in Australia and New Zealand, and elevated large losses in its commercial classes.

An increase of $80 million to the general insurer’s full year 2017 natural peril allowance had an adverse impact of around 70 basis points.

Revenue from ordinary activities was down 1.6 per cent to $16.50 billion, while insurance profit was $1.3 billion, up from $1.2 billion in 2016.

For the full year 2017 gross written premium was up $11.81 billion versus $11.37 billion the year before.

“This improvement was driven by higher than expected prior period reserve releases, partially offset by a natural peril claim cost increase which resulted in an allowance overrun of over $140 million.,” IAG said in a statement.

The insurer produced a headline insurance margin of 14.9 per cent in the current financial year, towards the upper end of the revised guidance of 13.5-15.5 per cent provided on 28 June 2017.

IAG declared a full year fully franked dividend 33 cents per share

Woolworths reported that its underlying net profit from continuing operations slipped 3.6 per cent to $1.42 billion in 2017 as a rebound in Australian food earnings in the June-half failed to offset massive losses in BIG W discount department stores.

The underlying result, before one-off costs and writedowns, fell short of consensus forecasts of $1.47 billion.

Earnings before interest and tax from continuing operations fell 4.9 per cent to $2.32 billion – compared with market forecasts around $2.39 billion – as Australian food profits fell 2.4 per cent and losses at BIG W blew out to $150.5 million, offsetting modest growth in liquor.

Woolworths’ bottom line net profit rebounded to $1.53 billion compared to a loss of $1.23 billion in 2016, when the retailer booked $3.2 billion in asset impairments and restructuring costs on BIG W and its now defunct home improvement business.

Woolworths has invested more than $1 billion over the last 18 months reducing grocery prices and improving service in stores to regain market share lost to Coles and Aldi in 2015 and 2016.

The investment is paying off. Same-store sales grew for the fourth consecutive quarter, soaring 6.4 per cent in the three months ending June after growing 4.3 per cent in the third quarter, adjusted for Easter.

Woolworths outperformed Coles, where same-store sales rose 0.7 per cent in the June quarter.

Earnings from Australian food fell 2.4 per cent in 2017 after plunging 41 per cent in 2016. EBIT rose 13 per cent in the June-half and full-year profits would have been up 8.3 per cent if not for the resumption of staff incentives.

BIG W lost $150.5 million, taking the red ink spilled over the last two years to more tha $165 million, after losses in the June-half blew out to more than $120 million as the discount department store chain embarked on its third turnaround plan in four years.

Chief executive Brad Banducci says Woolworths needs to turn around BIG W to give the retailer more options about its future.

Woolworths increased its final dividend to 50¢ a share, compared with 33¢ a share previously and 72¢ in 2015, taking the full year payout to 84¢.

US stocks ended the overnight session higher, with each of the three major indices posting their best one-day percentage gains in over a week, as politicians’ comments on tax reform and the debt ceiling boosted investor optimism.

The overnight comes a day after US House Speaker Paul Ryan told a CNN town hall that tax reform would be easier to pass than the failed healthcare overhaul because Republicans have built a consensus.

Separately, Senate Majority Leader Mitch McConnell said there was “zero chance” that the United States will fail to raise the debt ceiling in September, allaying concerns that the United States is poised to default on its debt, according to media reports.

“Definitely part of today’s movement is rumblings of the potential for tax reform or tax repatriation,” said Eric Freedman, chief investment officer at US Bank Wealth Management in Minneapolis.

“No one has a lot of interest in being very negative in the market right here, knowing that there’s this whatever-it-takes backdrop where central bankers globally just have zero interest in seeing financial conditions tighten too much,” Dennis DeBusschere, head of portfolio strategy at Evercore ISI, said.

The Dow Jones rose 0.9 per cent, the S&P 500 gained 1 per cent, and the Nasdaq Composite added 1.4 per cent. The S&P 500 materials index jumped more than one per cent, enjoying its best day since mid-June.

Metals prices, including copper, zinc and nickel, were mixed against a backdrop of strong results for mining firms and talk of shortages in some metals.

“There’s nothing really fundamental to drive things onwards from here, so I think it’s a bit of misplaced euphoria and trend-following buyers jumping on the bandwagon,” said Robin Bhar, head of metals research at Societe Generale in London.

Europe’s basic resources sector enjoyed a second session of gains and was the top-gaining sector, supported by a rally in iron ore prices.

Good morning and welcome to the Markets Live blog for Wednesday.

Your editors today are Patrick Commins and Sarah Turner.

This blog is not intended as investment advice.

Fairfax Media with wires.