ASX down 08 mortgage curbs likely by year end Morgan Stanley
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UBS has downgraded Fortescue Metals to “sell†and downgraded iron ore price forecasts.
Analyst Lachlan Shaw wrote in a note to clients this morning the firm had decided to cut Fortescue’s price target from $18 to $15, explaining that a sharper than expected slowdown in property activity in China has seen iron ore prices correct faster than expected.
UBS downgraded Fortescue Metals on Friday.
UBS expects the iron ore market to swing to surplus in the second half of 2021 which will push prices below $100/tonne over the next few months, before averaging $89/tonne in 2022.
“We remain cautious medium-term, as supply from the incumbents is set to lift, Guinea is set to add
100-200mt from 2025/26, and as steel scrap in China increasingly displaces iron ore demand.†Shaw wrote.
UBS has also downgraded earnings forecasts for Rio Tinto by 10 to 15 per cent and reiterated the sell call its analysts put on the stock back in June.
“Our price target is revised to A$86/share (A$102/share prior),†its analyst team wrote.
Fortescue shares have declined 8.3 per cent for the session so far and were trading at $15.82 at 11:00am. Rio was 3.2 per cent lower at $100.35.
ANALYSIS: Telstra’s “T22†overhaul has given way to a new “T25″ growth agenda, one that is likely to leave the telco a very different beast by the time the strategic rebalancing is complete.
Whether CEO Andrew Penn will be around to do a victory lap remains to be seen, but there’s no indication that Penn is looking to hang up the gloves just yet.
Telstra CEO Andrew Penn is confident the worst is behind the telco giant. Credit:Justin McManus
Having done the hard yards, it’s unlikely that Penn would be keen to depart without seeing the full fruit of his labor come to pass. If he does decide to stick around until 2025, it will cap off a tumultuous 10-year tenure as a CEO for him, one that started with a nationwide outage of Telstra’s networks.
Things have improved considerably since that baptism of fire for Penn, and he deserves credit for pulling Telstra out of a steadily declining trajectory.
The telco, for the most part, is learning to live with the National Broadband Network, its margins are no longer entirely captive to the whims of wholesale broadband pricing. It has also managed to reassert its dominance in the mobile market and may yet find itself in a position where it has a meaningful role to play in the future of the NBN.
As for the dividend, the 16 cents a share payment looks secure and provided Penn’s 5G ambitions come to pass there may even be room for some growth. Meanwhile, the infrastructure arm of the business is also primed to deliver a windfall for shareholders by 2023 at the earliest.
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Iress shares tumbled more than 10 per cent this morning after it told the ASX that suitor EQT has walked away from the table.
One week after extending due diligence, Iress says discussions between the two parties have concluded and they have “been unable to agree a transactionâ€.
Iress provides pricing and and real-time trading information. Credit:AP
Iress’ Chair, Roger Sharp, says: “In our 11 August announcement, Iress advised shareholders that there was no certainty the indicative proposal would result in a binding or formal offer from EQT.
Nevertheless, the Board took the view that it was in the best interests of shareholders to engage further with EQT in relation to the indicative proposal.â€
â€The announcement today in no way impacts our strategy to accelerate growth and returns to shareholders, as detailed in our announcement of 29 July 2021 and presented at our investor strategy day,†he says.
Iress says it remains focused on doubling net profit after tax by 2025, with potential for further upside. “With our strong operating businesses, favourable industry trends and growth investments, we have a positive outlook,†says Mr Sharp.
EQT’s Chairman of Asia-Pacific, Thomas Von Koch, remains positive about Iress.
“During our work we have been able to confirm that Iress is an impressive, technology-focused business with strong market share and a very loyal customer base driven by its market-leading software solutions. We have not come across any red flags during our due diligence but were not able to sufficiently confirm our investment hypothesis,†he says.
“We wish management and the company well and have every confidence Iress will continue to be a leader in its field.†Iress shares were 9 per cent lower at $12.27 this morning.
Mining stocks dragged the ASX 200 lower at Friday’s open, with the index dropped 34.6 points of 0.46 per cent to 7,425.6 at 10:05am.
The materials sector has reacted sharply to a tumbling iron ore price, dropping 2.7 per cent in the first minutes of trade. Fortescue opened down 6.7 per cent lower to $16.10, while BHP lost 3.4 per cent to $39.28.
Rio Tinto and South32 had also lost more than 4 per cent by 10:15am. IT stocks were the only major bright spot at the open, with tech companies rebounding slightly after some weakness this week.
The sector opened 0.9 per cent higher, with Afterpay gaining 2.7 per cent to $1.27. Not all businesses are booming, however - Iress shares dropped 10 per cent to $12.17 after news suitor EQT wouldn’t be proceeding with a takeover offer.
Strong growth in house prices and mortgage lending could see regulators impose curbs on new lending by the end of this year, Morgan Stanley analysts predict.
Even so, the investment bank says the potential tightening in credit is unlikely to drive a sharp turnaround in the property market because interest rates will remain extremely low.
In a note to clients on Friday, analysts at the bank said the housing cycle had slowed, but price growth was still unusually strong, and leverage was increasing sharply.
The Reserve Bank says it does not expect to raise the cash rate from 0.1 per cent until 2024.Credit:
Recent housing credit growth had hit annualised rates of 8 per cent, they said, which meant the conditions needed for intervention from regulators were already being met.
“We think an announcement of tightening is likely alongside one of the Council of Financial Regulators quarterly meetings â€" September is possible, but we think December is more likely,†the note said.
The bank said the most likely type of loan curb would be a limit on lending to customers with a debt-to-income ratio above six times, which has shot up in recent quarters.
Such curbs would take some of the heat out of the market, but low interest rates would remain the main driver, the bank said.
“While this would clearly tighten credit supply, we don’t think it would drive a sharp reversal in the housing market â€" even after the strong run in price serviceability remains supportive, with rates on hold at very low levels and central bank guidance unlikely to change in the near term.“
The Reserve Bank says it does not expect to raise the cash rate from 0.1 per cent until 2024.
Medibank directors Christine O’Reilly and Peter Hodgett will both retire from the health insurer’s board at its annual general meeting in October.
The two experienced non-executive directors will exit after significant periods with the company - both joined the board prior to Medibank’s listing on the ASX in 2014. Chairman Mike Wilkins said the business was a stronger organisation because of the duo’s contributions.
The board is now looking for replacements.
Medibank is seeking fresh board members. Credit:Chris Hopkins
The health fund’s annual report also dropped this morning, outlining the company’s focus on more short-stay surgery programs and “hospital in the home†approaches to care. Investors will be asked to vote on the remuneration of newly-minted chief executive David Koczkar at Medibank’s AGM later this year.
Koczkar’s proposed total fixed remuneration for 2022 will be $1.5 million (in line with former executive Craig Drummond), while he will get a long-term incentive opportunity of 718,849 performance rights, which hold a face value of $2.25 million.
He’ll also get a short-term incentive of up to 150 per cent of his fixed pay. Kozckar was part of the fund’s executive leadership team prior to taking the reins, and according to the annual report had a fixed salary of $960,000 last year.
Medibank shares closed on 0.8 per cent on Thursday to $3.56.
The world is facing high energy prices for the foreseeable future as oil and natural gas producers resist the urge to drill again, according to Chevron’s top executive.
“There are things that are interfering with market signals right now that we haven’t seen before. Eventually things work out, but eventually can be a long time,†Chief Executive Officer Mike Wirth said on Wednesday in an interview in New York. He expects strong prices for gas, liquefied natural gas and oil, at least “for a while,†without specifying a time frame.
Oil producers are resisting the urge to drill despite rising prices. Credit:AP
Even though oil and gas prices have surged this year as the world recovers from the COVID-19 pandemic, major producers have been reluctant to invest their cash in new projects, a shift in behaviour from previous upswings. That’s leading to concerns of shortages. Already, Europe is facing its worst natural gas crunch in decades, with prices rising to record levels even before winter when demand is typically at its strongest.
One reason executives are wary to plow investment dollars into new supply is shareholders haven’t shown they’re in their corner. They want cash returned to them immediately rather than seeing it re-invested in new developments. Although soaring commodities markets are “signalling we could invest more,†equity prices are sending boardrooms a different sign, Wirth said.
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Air New Zealand may have suspended its guidance last month after prolonged lockdowns hit home, but it has continued to provide updates on the continuing financial impact of its wings being clipped, and it is acting as a sobering proxy for the likes of Qantas and Virgin.
In its latest update today the Kiwi airline says, following a month of constrained trading it remains unclear how long these restrictions, the suspension of trans-Tasman flights and associated travel restrictions will continue. And there is also uncertainty about how demand will recover when the restrictions are lifted.
Air New Zealand is drawing on its government debt facility to fund aircraft payments. Credit:Getty Images
But it did provide some numbers on the estimated impact on its financial performance.
The monthly impact of nationwide New Zealand Level 3 or 4 travel restrictions is approximately $NZ45 million to $NZ55 million, including the benefit of any wage subsidies received.
The monthly impact of an Auckland-only Level 3 or 4 travel restriction, with the rest of New Zealand operating at Level 1 or 2 is approximately $NZ25 million to $NZ35 million, including the benefit of any wage subsidy.
The monthly impact of suspension of New Zealand to Australia travel is approximately $NZ20 to $NZ25 million it says.
“Operation of cargo flights is continuing with approximately 50 flights per week and the company is observing strong demand for air travel across regions in New Zealand that are currently under Level 2 restrictions.â€
The airline has had to draw down further on government loans provided to it to meet planned cash payments relating to aircraft.
“The Company has recently requested additional drawdowns on the Facility which, including those drawings, will total $NZ435 million. Remaining available funds under the Facility are $1.065 billion. Earnings and cash flow guidance remain suspended.â€
Good Morning and welcome to another day on Markets Live.
Your editors today are Emma Koehn and Colin Kruger.
This blog is not intended as financial advice.
Crown Resorts director Toni Korsanos will depart the casino giant next month, in a surprise exit that comes as the crisis-stricken group tries to rebuild its board and governance.
Ms Korsanos joined the Crown board in mid-2018 and, along with former senior bureaucrat Jane Halton, is one of only two directors to survive a subsequent wave of scandals and public inquiries into the James Packer-backed group.
Crown director Toni Korsanos during her inquiry hearing at the Royal Commission into the casino operator in July this year.
Crown said in a statement on Thursday afternoon that Ms Korsanos will retire after its annual general meeting on October 21.
The company’s board currently has only four members, with former Telstra and Optus boss Ziggy Switkowski awaiting probity clearance to join as chairman. He will replace Helen Coonan, who resigned last month following Victoria’s damning royal commission into Crown’s Melbourne casino.
Ms Korsanos said was stepping down to focus on her “extensive†other commitments, which include a directorship at Treasury Wine Estates and executive vice chair at US gaming company Scientific Games.
She said she was proud of the work Crown had done to date reforming itself. “I am confident under the leadership of Dr Ziggy Switkowski and [new chief executive] Mr Steve McCann, and the refreshed senior management team, Crown is well positioned today to become one of the most responsible and respected operators of integrated resorts,†Ms Korsanos said in a statement.
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