Morning Market Report, Dec 13, 2007

The market is basically unchanged today – down 9. The exact opposite to what the SFE Futures predicted this morning.

The Dow Jones closed 41 points higher – Wall St. moved in a large 383 point range and finished what was a volatile session slightly higher after the Federal Reserve announced an agreement with the European Central bank and the central banks of England, Canada and Switzerland to create a temporary auction facility to make funds available to banks in an attempt to minimize the damage of elevated pressures in the credit markets. It is the biggest liquidity injection since the aftermath of the 2001 terrorist attacks. Financials were down despite the Fed’s announcement – Bank of America closed down 2.7% after warning of tougher times ahead, including larger write-downs on collaterized debt obligations and a 4Q that is likely to disappoint investors. Wachovia fell 8.3% on the back of doubling its estimate of loan loss provisions to around $1bn for the 4Q, and SLM Corp (known as Sallie Mae) finished lower after cutting its 2008 earnings due to costs associated with replacing an interim funding facility.

In other news, energy stocks had a great session after a 4.5% rise in the oil price and the Commerce Department said the US trade deficit expanded in October due to the higher oil price and an increased Chinese imports. AT&T Inc. had a good session, up 5.3% – the best performing stock in the Dow index – on the back of Lehman Brothers lifting its target price by 8% to $54.00. AT&T announced yesterday a $15.2 billion stock buyback plan and increased its dividend 13%. The NASDAQ also finished slightly higher

Resources doing OK today. BHP up 7c to 4327c and RIO up 18c to 14212c. Merrill Lynch has research out suggesting iron ore prices could rise more than 40% next year as part of the annual price negotiations between CVRD, BHP, RIO and the Chinese and Japanese steelmakers. The general consensus is 25-50%. Spot prices are up 140% this year to date. Main iron ore stocks: BHP, RIO, FMG, MIS, MMX, SDL, GBG. Metals mostly down overnight, Copper down 1.5%, Nickel down 1.7% and Aluminium down 0.3%. Zinc up 1.2%. Zinifex up 6c to 1500c. Oil price up a big $4.29 or 4.5% to $94.41 – its biggest one day gain since in nearly a year – after an Energy Department Report showed inventories fell last week and on the back of traders speculation the latest interest rate cut will lift economic growth. Woodside up 32c to 4783c. Gold up $1.70. Newcrest up 54c to 3375c.

Plenty of news…

Lets begin with the $22.7m error – Somebody is having a bad day. Someone sold around 1m Orica (952,399) this morning – seemingly with no limit – they hit the button and sold through the bid all the way down to 8.4c from $31.73. By my calculation they sold for $22.7m less than the shares were worth. Difficult to tell if they got the volume wrong or the limit wrong. They have already cancelled all 180 trades so no damage done. Full marks go to the cheeky chaps who saw the rump of the order on offer at 8.6c and hit the screen to buy the last 600,000 shares at 8.6c. They had a 15 second opportunity to do it and had the presence of mind to do it. Two major trades went through at that price – one for 100,000 shares (he was up $ 3,145,414 for a moment there) and one for 600,000 shares (he was up $ 18,354,533). The ASX 200 momentarily dropped 55 points. In fact he was almost certainly trying to sell 1m FDL which has traded 108m shares today at an average of 8.6c.
Qantas are up 4% early on a company profit upgrade. Short statement – profit up 40% this year instead of the 30% guidance given in August. QAN up 26c to 601c.
Fortescue Metals (FMG) has been on a bit of a run lately, no coincidence that they held a site tour for around 90-100 people last week. They also have their share split (10 for 1) on 21 December. We should see more brokers initiating coverage on the stock and Goldman Sachs JB Were has done just that this morning. They have slapped a HOLD of FMG with a 6190c target price. “On the face of it, this is a magnificent story. The drive and determination that this company has shown is, in our view, remarkable, and it has stirred other players into taking more aggressive action.” Better late than never. They say it is tough to come out with a bullish target price and recommendation on “valuation grounds”, the potential for taking a more positive (price/risk trade off) exists should FMG’s plan materialise”. Hasn’t done all that much for the share price, up 61c to 6157c.
Bradken (BKN) getting smashed down 515c or 35% to 960c after a profit warning. It now expects net profit to be “relatively flat” in Q1 – delays in a number of mine expansion projects are to blame. They expect FY EPS growth of “around 15%” and 1H pre-tax profit up around 12% on last year and flat after tax. Investors were expecting a better number after a relatively upbeat analyst briefing as recently as October. Were’s were forecasting FY08 EBITDA growth of approximately 32% to $132m, but this figure is now “too high” and their forecasts are now under review.
Flight Centre (FLT) on the other has upped its profit forecast for the year after a strong start to the fiscal year. They say trading results so far point to a pretax profit of between $85m and $90m for the 1H, 60-70% higher than last year. FLT up 86% this year. So that’s why the major shareholders bid for the company. Lucky they didn’t get it. FLT up 176c to 3167c.
Lihir Gold (LGL) have disappointed with a production downgrade. They now expect 2007 production to fall by 7% to 700,000 ounces, compared to the previous guidance of 750,000 ounces. Despite the announcement, Were’s maintain their BUY recommendation and 450c target price. Price down 3.6%.
Iluka Ltd (ILU) has approved the US$27.5m development of the Brink mineral sands deposit in the US. It is expected to produce around 780,000 metric tons of ilmenite and 157,000 of zircon. ILU down 10c to 451c.
Ten Network (TEN) provided an update on 1Q performance yesterday. The stock is up 5c today to 293c. 1Q EBITDA up 14.2%, TV division was on track, solid revenue growth and cost growth was under control. The stock is up 8% in the past 12 days. ABN AMRO maintain their HOLD recommendation and 275c target price – described the result as good start to the year. The 1Q result is historically the biggest of the year for Ten and usually account for 40%-45% of FY EBITDA. They say the 1Q result indicated that the revenue/ratings share gap is closing.
A bit of broker talk this morning about newly listed Crown (CWN) after announcing yesterday it had acquired Cannery Casino Resorts for US$1.75bn to expand in the Las Vegas region. The deal is expected to be EPS accretive and make a significant contribution to earnings. Goldman Sachs JB were maintain their HOLD recommendation and 1525c target price – they expect sentiment towards the stock to be driven in the near term by the performance of Crown Macau and construction of City of Dreams”. They say to accumulate the stock in weakness in the low $13s.
China’s November CPI came in at +6.9% year-on-year, higher than the 6.5% economists had predicted. Inflation hit an 11 year high on back of food and fuel.
Companies going ex-dividend today include ARJ and SGT.

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