Morning Market Report, Oct 17, 2007

The market is up 19 – The SFE Futures suggest a 17 point fall in the market this morning.

The Dow Jones was down 71 overnight – It moved in a 115 point range and finished lower for the second consecutive session on the back of lower-than-expected earnings results and comments made by Ben Bernanke regarding the state of the economy. Speaking to the Economic Club of New York, Federal Reserve Chairman Ben Bernanke said the housing market will be a “significant drag” on the economy and that it will take time for Wall Street to fully recover from the credit crisis. Wells Fargo & Co. and KeyCorp both disappointed investors with their results, Wells Fargo reported net credit losses of $892m, up 35% from the last year. The financial sector, which makes up 20% of the S&P 500’s value closed down 1.9% and the National Association of Home Builders index showed builder sentiment fell to record low in October. The NASDAQ fell for the second day in a row, something that hasn’t happened in over a month. Yahoo Inc. shot up 9.7% in extended trading after announcing a better-than-expected $151.3m in 3Q, revenue was up 12% to $1.77bn.

Resources doing well today…BHP up 43c to 4685c and RIO up 20c to 11370c. Good result considering both were down in ADR form overnight. BHP say they will use half of their minerals exploration budget for diamonds – they expect stronger prices and stable earnings from the sector. Metals mostly down overnight, Copper down 1.2%, Zinc down 3.1% and Nickel 0.5%. Aluminium up 0.3%. Zinifex down 21c to 1773c. Oil price up $1.39 to $87.58 and hit an intra-day high of $88.20 for the sixth consecutive session concerns Turkey may attack Kurdish rebels in oil rich northern Iraq. Woodside up 99c to 5648c. Gold down 20c.

Santos (STO) no longer takeover proof – the South Australia government yesterday ditched the 28 year-old 15% shareholder cap but there will be a 12 months transition period before it takes effect. STO has agreed to maintain a corporate presence in South Australia and faces a $100m fine if they breach agreements. Managing Director John Ellice-Flint described the decision as the “removal of an artificial brake” on growth. Macquarie Bank doesn’t think anyone will have a crack at Santos despite the cap being lifted. They say the stock is looking expensive and that the recent gains in the share price have already reflected a possible takeover premium. They maintained their 1146c target price and Underperform recommendation. Citigroup say it is worth looking at the company’s share registry for the next 12 months as anyone looking to acquire Santos will begin to building a stake. They have a 1710c target price.
Publishing & Broadcasting (PBL) – up 3.2% to 2090c – It looks as if the proposed demerger is back on track. The Minister for Revenue and Assistant Treasurer Peter Dutton said yesterday the new tax consolidation rules won’t affect corporation actions already announced before October 13. PBL first announced the proposal back in May this year. Credit Suisse maintained their Outperform recommendation and expect the demerger to go ahead without any trouble.
Westpac (WBC) announced this morning that have completed due diligence on the RAMS Home Loans (RHG). WBC will acquire RHG’s franchise distribution business for $140m to help build its market share – many are describing it as a bargain but Westpac will have to provide up to $2bn of financing for fund new businesses. WBC up 7% in the past month, RHG down 56% in the same period. WBC down 26c today to 2880c and RHG up 2.5c to 36.5c.
The ANZ Banking Group (ANZ) are making some changes to the management structure of their Asia Pacific division. While the Commonwealth Bank (CBA) and Westpac (WBC) have been concentrating on building their domestic fund management business, ANZ are making their presence felt in Asia providing investors with indirect exposure to the Asia banking sector. The bank will create two new leadership roles in a hope of developing new revenue opportunities and growth avenues. ANZ 8% in the last month but down 14c today to 3076c.
WorleyParsons (WOR) has been won a 5 year $US300m contract to supply project management services to Kuwait Oil Co. They will try to help Kuwait Oil to increase efficiency and reach optimum capacity at its oilfields. WOR up 51c to 4483c.
Transfield Services (TSE) announced they have made two US acquisitions. They have bought Horizon National Contract Services and Whelan’s International Co for US$147.5. They are both leading providers of facilities maintenance services to around 120 retail and financial clients.
CSL Ltd (CSL) up 2.4% to 10169c after reiterating their FY08 earnings guidance of $670m-$700m. The stock has been doing it tough lately – down 11% in the last 10 days. Shareholders vote on 3 for 1 share split at their AGM today, if approved, it will become effective from the beginning of trade on Thursday 25^th Oct.
Dominos Pizza (DMP) announced they will open a least 35 stores in Europe each year until they reach 1,000 stores. DMP down 4% in the last month but is up 1c today to 317c.
Virgin (VBA) down 1c to 226c – There is talk that Richard Branson might team up with private equity to acquire TOL’s 62.5% stake in the company.
Companies going ex-dividend today include – AMM, CIY and SEV.