Tag: Street Talks

Categories
Currencies Trading Ideas & Charts

Fears over the economy have pushed the Australian dollar to a one-year low.

Investors interested in US bonds

As investors raced into safe assets like US government bonds, the decrease matched a small decline in the New Zealand dollar, which is also closely linked with growth, as well as declines in US and European sharemarkets. Only a few weeks earlier, the main concern on financial markets was that unprecedented levels of fiscal and monetary stimulus would cause inflation to spiral out of control.

Now, markets are expressing increasing concern about the possibility that a reduction in stimulus from the likes of the US Federal Reserve could hinder the comeback before the global economy has fully recovered from the pandemic.

Reason for drop Aussie dollar

The Australian dollar has dropped in value just days after the Reserve Bank of Australia announced a plan to gradually withdraw quantitative easing and stop buying yield curve control bonds in April 2024 rather than continuing it to the next issuance. The initiatives are the first, cautious steps towards reducing the record levels of monetary stimulus, which also include $200 billion in bond purchases to underpin rates and lower borrowing costs across the economy in order to stimulate development.

Spite of low in stimulus, the July meeting was dovish overall, as the RBA reiterated its expectation of raising interest rates in 2024, while market pricing suggests other central banks may move faster. The Fed’s recent effort to contemplate reducing its massive bond-buying programmes against the backdrop of a chronic COVID-19 threat, with new varieties like the delta strain forcing even fully vaccinated nations like Israel to consider fresh lockdowns, has fueled fears that stimulus may be withdrawn.

Comments on Aussie dollars by Rodrigo Catril, senior FX strategist, NAB

The Australian dollar is extremely susceptible to growth, and there has been a change in focus to growth worries. The RBA’s overall message is that it is dovish in comparison to other central banks. The economy and labour market are strengthening quicker than the RBA anticipated, indicating slowing, but wages growth has not exceeded projections, so no rate hikes are projected until 2024.

Source AFR

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Currencies Trading Ideas & Charts

USD/JPY Price Analysis: Bounces off a dip below 50-DMA as Treasury yields recover

From a short-term technical standpoint, the spot has recovered ground above the 50-day moving average (DMA) at 109.80.

This is in accordance with the 14-day Relative Strength Index (RSI) rising to 48.43, moving closer to the centre line.

However, with the momentum indicator still below 50, a test of the 21-day moving average upside hurdle at 110.113 is unlikely.

The increasing 100-day moving average (100-DMA) appears to be the line in the sand for USD/JPY buyers.

(Source: FX Street)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Currencies Trading Ideas & Charts

AUD/USD Price Analysis: Struggles for resistance on the road to recovery

The Relative Strength Index (RSI) has flattened out, hovering just below overbought zone, supporting the recent market correction.

If the purchasing interest resumes, the bulls will break above the resistance noted above, opening the way to the July 7 high of 0.7536.

Price Analysis

Failure to reclaim the 0.7490 supply zone, on the other hand, could reawaken the selling, resulting in a new downswing towards the 0.7450.

The upward-sloping at 0.7441 could come into play further south.

(Source: fxstreet)

General Advice WarningAny advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Currencies

The Australian dollar may suffer as a result of the RBA’s actions.

Analysts believe the RBA will not prolong its yield curve objective than April 2024, but the next phase of its quantitative easing programme is less definite. The third phase of QE may comprise $5 billion weekly bond purchases with an adjustable lever associated, allowing the RBA to reduce in reaction to economic developments without producing too much uncertainty, according to ANZ strategists and others.

In the lacking of a significant taper announcement, Commonwealth Bank predicts the dollar’s ongoing decline will continue. The Australian dollar has been under pressure in over the last week as a rebounding greenback has risen on expectations that the Federal Reserve will raise interest rates twice by 2023.

Despite commodities prices being higher and Australia earning its 41st consecutive trade surplus in May, and continuing on track to extend that streak in June, the fallout was enough to drive Australia’s dollar lower.

Expert’s predication on Australian dollar

Many experts predicted the Australian dollar would break beyond US80 in the following months due to these factors, but other reasons have already come into play, causing analysts to revise their expectations. This scenario, combined with Westpac’s projection that the RBA will raise interest rates in early 2023, prompted the bank to lower its Australian dollar end-of-year estimate from US82 to US80.

ANZ FX strategist John Bromhead Comments

Given that the resolution on the yield target is set for April 2024, we believe the devil will be in the details of the QE programme. We don’t believe there will be a reduction in volume, but the real test will be how transparent they are with the evaluation process and how frequently they conduct it.

Source:- afr

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Shares Small Cap

Bega Cheese’s Strength isn’t Strong Enough to Justify a Financial Moat

Competitive pressures from branded peers, niche operators, and private label products and a reliance on powerful supermarket customers will weigh on Bega’s ability to increase prices, leading to potential market share and margin deterioration. Despite the firm’s strategic shift toward a more diverse product offering, we expect dairy products to continue to represent the majority of Bega’s sales over the next decade, exposing the firm to commodity pricing and volatile input costs.

In November 2020, Bega entered an agreement to acquire Lion Dairy and Drinks from Kirin Group for AUD 534 million with the deal expected to be finalized in January 2021. Revenue from the branded segment, which includes spreads and grocery products and Lion’s Dairy and Drinks portfolio, to expand at a CAGR of 7.4% to fiscal 2025, underpinned by new product innovation and bolt-on acquisitions. Historically, Bega Cheese has made limited investment in its brands, particularly in Australia where Fonterra is the licensee of the Bega brand, however since acquiring the spreads and grocery business in 2018, marketing spend as proportion of revenue has increased to 3% from 1% and it to remain the higher level.

Bega Cheese’s Supply Chain and Manufacturing

At least 70% of Bega’s energy consumption is from fossil fuel generation. But these risks are immaterial to our unchanged AUD 5.00 per share fair value estimate and high uncertainty rating. Bega Cheese already operates in a highly competitive market, with a largely commoditized product offering and high private label penetration in key categories. Bega Cheese’s supply chain and manufacturing is heavily reliant on water, exposing the company to increased water costs and community backlash from inefficient water use.As pressure mounts to reduce global carbon emissions, there is the potential for a reintroduction of regulated carbon pricing in Australia, however, this is not factored into our base case. Extreme weather events such as droughts and bushfires may result in higher input costs, margin deterioration from reduced production volumes, disruptions to the supply chain and increased scrutiny on resource use. Climate change risk may lead to extreme weather in the short term or changing climate patterns longer-term impacting its supply chain and input costs. Management is certainly diversifying Bega Cheese’s product offering and building out the branded business through acquisitive growth in recent years

Financial Strength

Bega’s balance sheet will be stretched following the acquisition of Lion Dairy and Drinks, with pro forma net debt/EBITDA on a post AASB 16 basis deteriorating to 3.3 (from 2.3 pre-acquisition). Bega funded the acquisition through a AUD 401 million equity raising and AUD 267 million of new and extended debt facilities. The balance sheet to gradually deleverage as synergies are delivered, earnings improve and noncore assets are divested, with net debt/EBITDA falling to below the firm’s target of 2 by fiscal 2024. Bega will continue to explore potential bolt on acquisitions and partake in industry rationalisation. While the timing and scale of further acquisitions is uncertain, Bega has the capacity to pursue smaller acquisitions while maintaining a dividend payout ratio of 50% normalised EPS.

Changing Consumer Trends

  • Bega is shifting investment to the spreads and grocery business, which we view as less commoditised and higher margin than dairy, with strong niche positions in Vegemite and peanut butter
  • External factors outside of Bega’s control, such as the weather, can adversely impact supply and demand dynamics. This can impact commodity prices, inputs costs and the firm’s supply chain and lead to volatile earnings
  • Changing consumer trends toward dairy-free and vegan diets could lead to declines in per-capita dairy and cheese consumption, weighing on the majority of Bega’s earnings

Company Profile

Bega Cheese is an Australian based dairy processor and food manufacturer of well-known brands including Bega Cheese and Vegemite. On a pre-acquisition of Lion’s Dairy and Drink’s basis, the firm generated approximately 70% of sales from its domestic market, with the remainder from exports to over 40 countries, predominately in Asia. Bega Cheese operates two segments: the branded segment which produces consumer packaged goods primarily sold through the supermarket and foodservice channels and the bulk segment which produces commodity dairy ingredients primarily sold through the business-to-business channel.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Technology Stocks

Asbestos Ringfence Doesn’t Alter Our Long-Term View of ITT, but it simplifies the business

After reviewing the terms of the deal and modeling it in the background based on pro-forma, we don’t expect to materially alter our FactSet consensus low fair value estimate of $89 per share (the math in our model currently suggests a reduction in the intrinsic value of about $1).

However, we await further details in order to re-publish our model. While the company estimates an after-tax loss of $27 million in the second quarter, according to the 8-K filing, it’s still evaluating the accounting for the transaction.

At a high level, the terms of the deal are rather simple. The deal effectively ringfences ITT from further asbestos-related and other product liabilities, as the indemnification provisions aren’t subject to any cap or time limits. ITT contributed approximately $398 million of cash to InTelCo, which is the subsidiary that holds these liabilities, in order to adequately capitalize the entity. As part of the deal, ITT’s balance sheet removes all asbestos obligations and related insurance and deferred tax assets as of July 1. Delticus, Warburg Pincus’ investment vehicle, will assume the operational management of InTelCo, including the administration of all asbestos claims.

While the deal may negligibly reduce our fair value, we like that it allows ITT to close a chapter on having to manage this legacy liability. The transaction simplifies the balance sheet, removes a layer of investor uncertainty, including “known unknowns,” and allows ITT to focus on its core operations. From that standpoint, the deal is a win

Company Profile

ITT is a diversified industrial conglomerate with nearly $3 billion in sales. After the spin-offs of Xylem and Exelis in 2011, the company’s products primarily include brake pads, shock absorbers, pumps, valves, connectors, and switches. Its customers include original-equipment and Tier 1 manufacturers as well as aftermarket customers. ITT uses a network of approximately 700 independent distributors, which accounts for about one third of overall revenue. Nearly three fourths of the company’s sales are made in North America and Europe. ITT’s primary end markets include automotive, rail, oil and gas, aerospace and defense, chemical, mining, and general industrial.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Commodities Trading Ideas & Charts

Con Ed four natural gas storage facilities with a combined Capacity

The principal asset of the joint venture is three natural gas pipelines with a total capacity of 3 billion cubic feet per day and four natural gas storage facilities with a combined capacity of 41 Bcf. The pipelines and storage facilities are all located in New York and Pennsylvania. The sale of the joint venture for $1.225 billion was in line with our estimate and has no impact on our fair value estimate or EPS estimates. We had already assumed Con Ed would divest its gas transmission investments, following comments in the 2020 10-K that it was considering strategic alternatives for its interest in Stagecoach. Stagecoach is the primary operating asset for the Con Edison Transmission segment, or CET, contributing $0.17 per share in 2020, or about 4% of consolidated EPS.

In March, we reduced our EPS estimates from 2021-2024 by $0.04 to $0.06 per share due in large part to the dilutive impact of our assumption that Con Ed would exit the gas transmission business. At that time, we also established a 2025 EPS estimate of $5.00, resulting in a 4.1% average annual EPS growth rate near the bottom of ConEd’s EPS growth target of 4%-6%. CET also has a projected 8.5% ownership interest in the proposed 300-mile Mountain Valley Pipeline. In 2019, exercised its option under the MVP joint venture agreement to cap its cash contributions at $530 million. In May, MVP announced a six-month delay in the projected startup and an increase in the estimated cost to $6.2 billion from the previous estimate of $5.8 billion to $6.0 billion.

We remain concerned the MVP will never be completed due in large part to the ongoing delays and increasing uncertainty with respect to obtaining necessary permits for waterbody and wetland crossings because of ongoing court challenges. Dominion Energy and Duke Energy elected to abandon The Atlantic Coast Pipeline, a project also moving Appalachian shale gas to Virginia and North Carolina, last year after running into similar challenges.

Company Profile

Con Ed is a holding company for Consolidated Edison Company of New York, or CECONY, and Orange & Rockland, or O&R. These utilities provide steam, natural gas, and electricity to customers in south eastern New York–including New York City–and small parts of New Jersey. The two utilities generate roughly 90% of Con Ed’s earnings. The other 10% of earnings comes from investments in renewable energy projects and gas and electric transmission. These investments have resulted in Con Ed becoming the second-largest owner of utility-scale PV solar capacity in the U.S.       

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.               

Categories
Dividend Stocks Philosophy Shares Technical Picks

AusNet Services Posts Good result

Reported EBITDA rose 6% to AUD 662 million. Adjusted EBITDA rose 7% to AUD 627 million, tracking slightly ahead of our full-year forecast mainly because of higher-than expected electricity demand. More people working from home benefited volumes and saw the firm earn AUD 21 million above its regulatory cap. This will be returned to customers via lower tariffs mainly in fiscal 2022. As AusNet is regulated, there is no lasting impact on our longer-term earnings forecasts or valuation from demand fluctuations.

Electricity distribution performed well, with revenue up 4% to AUD 502 million and adjusted EBITDA up 11% to AUD 288 million. The strong result benefited from tariff increases and stronger residential demand, but the outlook isn’t as rosy. This asset undergoes a regulatory reset in early 2021, which will likely reduce allowed returns on equity to under 5% for the next five years, from over 7% currently. We forecast average annual revenue growth of just 1% over the next five years, despite ongoing reinvestment and growth in regulated asset base. Gas distribution also benefited from tariff increases and stronger residential demand, helping revenue increase 4% to AUD 149 million and adjusted EBITDA increase 8% to AUD 117 million. The next regulatory reset for the gas network is in early 2023. Overall, we expect revenue to grow at about 3% for the next two fiscal years, before resetting about 5% lower from 2023.

EBITDA in the electricity transmission network rose 1% to AUD 181 million. We forecast revenue grows 1% per year for a couple of years, before falling a few per cent in fiscal 2023 following the next regulatory reset in 2022. The main growth opportunity for AusNet is transmission connections to new wind and solar farms and between states. Some will be unregulated, some regulated. All will be capitalintensive, but we think the firm can fund without an equity raising.

 (Source: Morningstar)

Disclaimer

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Dividend Stocks Shares Technical Picks

Fortescue Metals Group- Iron Ore Price to Strong

There is an approximate one-month delay between shipping the iron ore and prices being finalised. Higher profit versus last year was driven primarily by price, which rose 21% to USD 79 per tonne. Volumes were mildly positive, with iron ore shipments up 6% to 177 million tonnes. The strong result saw Fortescue increase total dividends by 54% to AUD 1.72 per share, slightly ahead of our AUD 1.60 forecast.

We make no change to our AUD 7.70 per share fair value estimate. While the fiscal 2020 result was strong, we struggle to see how the buoyant iron ore price can be sustained. It’s hard to imagine external conditions getting materially better, and we see longer-term downside. On the demand side, we see a coming headwind as infrastructure spending to offset the COVID-19 downturn in China abates and as urbanisation and infrastructure requirements

generally reduce. The peak of urbanisation has passed, and China’s stock of housing and infrastructure is now relatively mature. We expect China’s steel consumption to slow accordingly and for a growing proportion of steel to come from recycling at the expense of iron ore demand.

We see modest supply additions from Fortescue’s Iron Bridge, Vale’s planned 20 million tonne S11D expansion, and the 7 million-8 million tonne Samarco restart. Longer term, the restart of production from Vale’s mines interrupted by the 2019 Feijao tailings dam failure is material. Production in 2020 is likely to be almost 100 million tonnes lower than we expected before the failure, or about 6% of global supply.

Admittedly, the outlook for near-term earnings is very strong. We expect only a 9% decline in earnings in fiscal 2021 from fiscal 2020’s record level. However, the iron ore price is way above its marginal cost, reflecting the dual shocks to supply–primarily from Vale since 2019 –and demand from China’s stimulus.

Year-to-date steel production in China is up a remarkable 2.8% with a sharp recovery from the February COVID-19- related downturn. In July 2020, steel output in China was up 9.1% on the same month in 2019. The uptick in iron ore imports has been even stronger with China imports up 12% to 659 million tonnes in the year ended July 2020. And for the month of July, imports were a record 102 million tonnes and up 24% on July 2019. With China the dominant source of demand for iron ore, accounting for more than 70% of seaborne consumption, strength there has more than offset any weakness everywhere else.

 (Source: Morningstar)

Disclaimer

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Dividend Stocks Shares Technical Picks

Domino’s Pizza Enterprises- Outlook

The stock suits investors seeking exposure to the food and beverage sector. Australia can still increase its store base by around 40% over the next decade. European growth is much more substantial, with potential to substantially increase the existing store base to around 2,850 outlets during the next decade. In its capacity as a master franchisee, Domino’s capital requirements are limited, which means that royalty payments should continue to be paid as dividends.

Key Considerations

  • Domino’s was an early adopter of digital. By migrating orders online, the company has been able to save costs, establish a customer database, and up-sell to customers.
  • Japan and Europe are underpenetrated markets. Replicating its success in Australia abroad presents a significant growth opportunity.
  • Short-term drivers can materially affect year-to-year earnings, including currency movements, raw material input costs, and changes to foreign government policies related to sales taxes and wages.
  • Domino’s is a highly visible brand based on a successful U.S. business model. Across Domino’s three regions, sales have increase at a CAGR of 14% over the past four years. We expect annual growth rates to continue in the low teens over the next five years.
  • The pizza market in Europe is highly fragmented, presenting significant opportunity for Domino’s to take market share with an attractive value proposition, increased convenience to the customer, and a differentiated product offering.
  • The company’s large network size has positive implications for discounted supplier arrangements.
  • There is a high level of competition, stemming from independent pizza stores and other quick-service restaurants.
  • The company might evaluate its target markets in new countries incorrectly, given the geographical distance and cultural variances.
  • The low-price business model may still be affected by slowing retail and discretionary spending.

 (Source: Morningstar)

Disclaimer

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.