09/02/10 - 13:00
Ben Potter - Research Analyst, IG Markets
Market Update from the Trading Room – 1.00pm
Australia 200 CFD Index: 4477.7 (-1%)
| Top 3 Sectors | Bottom 3 Sectors | |||
|---|---|---|---|---|
| Healthcare | 0.7% | Financials | -1.7% | |
| Telecommunications | 0.5% | Energy | -1.2% | |
| Property Trusts | 0.1% | Utilities | -1.2% |
| Advancers (Index Points) | Decliners (Index Points) | |||
|---|---|---|---|---|
| Wesfarmers | 1.2 | Westpac Banking Corporation | -8.0 | |
| Telstra | 0.9 | Commonwealth Bank of Australia | -6.0 | |
| Westfield Group | 0.6 | ANZ | -4.7 |
Woodside Petroleum – Woodside Petroleum’s JV partners have all agreed on the Government’s preferred development site in WA and will work towards a final investment decision by mid-2012. The cohesion on-site selection was seen as major hurdle to development, so this is a good sign for Woodside Petroleum. While the Browse Basin project has the potential to substantially benefit Woodside Petroleum’s revenue (at an estimated price of around $30 billion) it could pressure its balance sheet, perhaps causing some investors concern about the need for another share issue.
Ten Holdings – Ten’s target price has been increased by most analysts after the Government’s decision to rebate part of the TV network’s licence fee in FY10 and FY11. Deutsche Bank lifted Ten to ‘hold’ from ‘sell’, with its target price raised to $1.40 from $1.15, after upgrading earnings forecasts by around 20% in both FY10 and FY11. Deutsche also noted that the decision suggests free-to-air broadcasters have a "favoured status" within domestic media. Elsewhere, Goldman Sachs JBWere upped its price target by 13% to $2.25, with its ‘buy’ rating maintained, noting that Ten was its preferred exposure to the expected recovery in the ad market. UBS retained its ‘neutral’ rating, while Citi kept its ‘hold’ rating.
Macquarie Group – Macquarie’s shares are down more than 7% this morning after the group said 2H profit had the potential to rise 10% from the first half. However, it hedged the forecast by saying risk factors are in place and that there's still a chance 2H profit could be the same as 1H, as previously announced. Consensus expectations incorporated a 15% rise in 2H profit, so the market is disappointed by this forecast.
David Jones – The retailers shares are up more than 1% after it upgraded profit for FY10. It expects 1H net profit will be up 10% and forecast a 5-10% on-year growth in profit for both 2H10 and FY11. Gains are impressive as the market had built in expectations for an earnings upgrade. Like-for-like 2Q sales growth of 3.1% seems robust, but expansion in both gross profit and EBIT margins from last year seems remarkable given the heavy industry discounting necessary to ensure sales growth.
JB Hi-Fi – In a note from Macquarie Group, the retailer was upgraded to ‘outperform’ from ‘neutral’. The broker said JB Hi-Fi has just 21% of market share, yet market leaders in Australia generally have just over 30% market share. Macquarie believes JB Hi-Fi has the brand format, store rollout profile, product offering, and business model to be the strongest performer in the sector and expects they will capture the 'dominant' market position. Elsewhere, in a report from Citigroup they upped its ratings to ‘hold’ from ‘sell’ and said the recent decline in JB Hi-Fi's share price had re-based earnings expectations to more realistic levels.
Virgin Blue – In a broker report from Deutsche Bank, the airline was upgraded to ‘buy’ from ‘hold’, with its target price raised by 42% to 85c from 60c. This followed guidance from the company that FY10 profit before tax would be $80 to $110 million, driven by the recovery in domestic yields and the decrease in average fuel prices paid. Virgin is the broker’s preferred airline exposure given its greater coverage to the domestic aviation market, having said its "more robust than its international counterpart, with evidence indicating that international airfares remain subdued."
Overnight Market Report - 9.00am
In the US overnight, further concerns over the European debt situation weighed on stocks while commodity currencies and industrial metals gained. The Dow Jones Industrial Average closed below the crucial 10,000 point level for the first time since November 4 2009.
The Dow Jones was the worst performing index, down 1%, while the broad-based S&P 500 Index lost 0.9% and the NASDAQ 0.7%.
The market is worried about the possibility of further contagion. We’re already seeing problems spread to Spain and Portugal. All the so-called experts said the subprime crisis was under control before it rapidly declined into the GFC. These memories are still very fresh in people’s minds. They do not believe the calls that it’s under control.
Locally, SPI futures are calling the Australia 200 CFD Index to open 1% weaker at 4479 with financials set to lead the market lower.
The S&P Financials sector in the US was the biggest loser, down 2%, on worries there might be additional taxes on the big financial institutions to help recover TARP funds.
Materials will likely see selling as well today after the S&P Materials sector lost 1.6%, despite some decent gains for London Metals Exchange base metals. Rio Tinto fell 0.1% in London, while BHP Billiton managed a rise of 0.4%. Gold stocks will likely come under pressure after bullion dropped 0.4%.
Our big energy names will likely be dragged lower today, despite a flat night for Crude Oil futures. The S&P Energy sector fell 0.9%.
In terms of corporate action today, keep an eye out for David Jones’ second-quarter sales report as well as first-half results for Cochlear, Bradken, Macquarie Group and Alumina.
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