Morning Market Report, Jun 25, 2008

The market is struggling again today — down 34. Financials recovering a little after yesterdays heavy falls. Resources struggling — down 2.0% — led by the big boys BHP and RIO, both down over 2%. BHP has taken 20 points off the index and RIO 4 points. Fortescue unchanged. The SFE Futures suggested a 53 point fall this morning.

Wall Street closed down 35 — Up 62 at best. Down 117 at worst. Financials had a good session for a change — up 1.5% (having been down 2.2%) — Wachovia up 5.56% after they employ Goldmans to “perform analytics on our loans to evaluate various alternatives.” UPS announced a profit warning — down 6.04% — lowers 2Q earnings guidance — cites higher fuel costs. Not great news for the likes of Toll and Brambles. Bonds up on expectation Fed rate will remain unchanged thanks to house prices falling, consumer confidence plummeting, economy sluggish, and extended credit crisis concerns. June consumer confidence down 13% — lowest level since 1992 and Home price index down 15.2% on-year — biggest drop in composite’s 8 year history. FOMC meeting underway — statement likely to reveal Fed fund rate unchanged at 2.0%. Some suggest the Federal Reserve should raise rates tonight in the US in what is a case of the lesser of two evils. Much prefer a slowdown due to interest rates then an oil-price led inflationary blow-out.

The SFE Futures suggested a 53 point fall in the market.
Both BHP and RIO down in ADR form overnight, 0.79% and 1.43% respectively.
Metals all down overnight — Nickel down 1.6%, Zinc down 1.4% and Aluminium 1.3%. Copper down 0.6%.
Oil price up 51c to $136.49 — OPEC President Chakib Khelil reiterated his stance that oil producers saw no need to raise supply, saying U.S. pressure on Iran over its nuclear program and the weak US dollar are to blame for the record breaking price.
Gold up $4.40 to $891.60.
Bonds up with the 10 year yield down to 4.08%.

TAX LOSS SELLING — Some of the weakness in our market being blamed on tax loss selling (there is a lot of stocks in loss this financial year so there is a lot of tax loss selling being done). We only have four trading days left for tax loss selling and traditionally the bargain hunters will be moving in now to pick up stocks “on the cheap”. July is statistically a good month (4th best month on record since 1936). One broker predicting a sharp bounce in the market in the next two days.

IRONORE — Suggestions that RIO and Nippon Steel could achieve a higher settlement than yesterday’s. The WA government is expected to receive around $834m in royalties on the back of Rio Tinto securing a record iron ore price rise. Will use the funds to pay off debt.

Plenty of press about the BG GROUP BID FOR ORIGIN going hostile. Waiting to see what brokers think BG will have to pay (above $18 according to the research today).

Ten Network (TEN) continues to slide — hit an all time low of 135c — on ongoing concerns about the outlook for the Australia TV advertising market. Around 97% of TEN’s earnings come from TV advertising. Stock down 50% so far this year. TEN down 7c to 137c.
Rio Tinto today priced US$2.5bn of 5-year, US$1.75bn of 10-year and US$750mof 20-year SEC registered securities in the US. RIO CFO Guy Elliott says the company will repay the debt from strong cash flows, asset disposals and to term out debt as the opportunity arises. He says, “Our disposal program remains firmly on track, and cash flows are continuing to run strongly – as this week’s iron ore price settlement reflects”. Rio is expected to undertake US$10bn worth of divestments in 2008 and sell around $US15bn worth of assets to pay off the Alcan. RIO down 306c or 2.2% to 13869c.
Futuris Corp (FCL) cut their earnings guidance on the back of lower-than-expected managed investment schemes sales and higher interest costs and a possible negative contribution from Australian Agricultural Co (AAC). Now forecasts underlying profit of $80m-$85m, down from previous guidance of $100m. The stock has been a struggler, down 28.2% in the past month and 51.6% for the year. FCL down 25% to 100c.
Babcock & Brown — PER: 3.1x; Yield: 9.4%; 52 week H/L: 3400c/470c; EPS 185.1c — has told the audience at the UBS Financial Services Conference that it continues to work on multiple transactions (in other words business as usual), talks with bankers progressing well, receiving excellent support from banking syndicate and more importantly is likely to update the market in the next week or two. Click here for the full presentation. BNB up 28c to 608c
UBS Warburg agrees with the AFR’s Chanticleer, saying the market volatility has created opportunities in Aussie banks. They maintains their OVERWEIGHT recommendation for the sector with is trading on a PER of 9.3x FY09 forecasts and a price to book of 1.8x and dividend yield of 7.7%. ANZ Bank (ANZ) is their preferred stock claiming recent price fall looks overdone at 8.4x FY09 earnings, a 10% discount to peers. ANZ up 34c to 1829c.
Macarthur Coal (MCC) resumed trading this morning — likely to be a uninspiring day for the stock after talks with ArcelorMittal failed to produce a bid. Shareholders will be hoping for a bid from elsewhere, perhaps from South Korea’s Posco. MCC down 163c to 1910c.
Macmahon Holdings (MAH) — PER: 19.4x; Yield: 1.8%; 52 week H/L: 200c/112c; EPS 8.6c — has negotiated a $100m extension to a contract at the Saraji coal mine in QLD owned by BHP and Mitsubishi Corp. CEO Nick Bowen say MAH will continue to look for opportunities to build its market share “in this buoyant sector”. MAH down 1c to 166c.
New Float today — Emerson Stewart Group — stock code ESW, opens at 1pm. It is in the business of project implementation and development and operates across the resources, energy and infrastructure sectors.
Allco Finance Group (AFG) and Babcock & Brown (BNB) have obtained $135m in additional funding for their Life settlement JV. AFG up 1c to 36c.
Minara down 4% – tipped as a SELL by Sam Fimis from MARCUS TODAY in the weekend press. Charlie Aitken at Southern Cross Equities suggests Glencore should bid 500c for it. PE 6.4x is cheap he says. Bid aside, it all depends on the nickel price of course and who really knows what that’s going to do. Patersons think it is going up.
Ansell holds its own today — up 21c to 980c — as Merrill Lynch label the 17% share price fall as underserved for a defensive growth stock.
Computershare (CPU) has reiterated 40% FY08 EPS growth forecast. The stock is up 11% in the past couple of weeks. CPU up 4.7% to 943c.
Perilya struggling today having pulled out of bidding for CBH yesterday. Credit Suisse says at current zinc prices it is not profitable. Down 5c to 63.5c.
Alan Greenspan said the economic data pointed to the US being “on the brink of a recession.” He said next year “will be a very sluggish period, with a highly volatile oil market.”