Morning Market Report, May 17, 2007

The market is up 28. The SFE Futures suggest a 34 point rise in the market this morning.

The Dow Jones was 103.6 – It moved in a 126 point range and closed in record territory on its highs. It started the session on its lows after Commerce Department data saw applications for building permits fell by the biggest amount in 17 years — down 8.9%. Takeover activity did its bit to push the Dow to new highs, Bausch & Lomb closed up 9.8% after accepting a $3.67bn offer from private equity firm Warburg Pincus. Airlines closed higher thanks to a fall in the oil price and the fund owned by billionaire investor Carl Icahn disclosed a new 3.1m share position in oil and gas producer Anadarko Petroleum and a new 2.7m share stake in CSX Corp. (The same railroad company Warren Buffett disclosed a stake in not too long ago). The NASDAQ made up all of its losses from the previous session, it closed 0.9% higher.

Resources mixed today. BHP up 32c to 3127c and RIO up 142c to 3207c. Metals all down overnight. Copper down 2%, Nickel down 0.6%, Zinc down 1.7% Aluminium down 0.2%. Zinifex down 16c to 1747c. Oil price down 59c to $62.57. The price has had a good run of late on the back on concerns about supply production, particularly in Nigeria and US inventory data last week showing US inventory data showed inventories were higher than expected. Woodside up 26c to 4236c. Gold down $13. Newcrest up 10c to 2194c.

Qantas is down (just) 8c to 520c today despite the announcement below. APA not making another bid. The lack of price fall tells you the market thinks it is good fundamental value up here. Not that surprising. Almost every broker and his dog was telling you to buy it if it dropped below 500c. Over half the shareholders were telling us that they thought it was worth 545c. To hold this price in the light of “no bid” prospects is impressive and a sign that the stock is a less risky that perhaps you thought. Even has a yield at this price. Balanced Equity reckon it is worth materially more than 545c and they have been holding and analysing the stock for years. You really have to wonder about the credibility of the board who were trying to bully shareholders to accept the bid and warning us of a collapse in the share price if we didn’t. They were wrong about that.
The big news this morning is that Fortescue Metals (FMG) is in a trading halt – maybe this is why it went up 10% the other day. One suggestion was a bid from BHP (!). It doesn’t really matter what we speculate — we will know soon enough. It last traded at 3350c, it now has a market capitalisation of over $4bn.
Boart Longyear (BLY) unchanged at 212c – the stock is 16% above their issue price of 185c and is up 10.6% in the last 10 days on the back of positive broker recommendation from both Macquarie and Goldman Sachs JB Were. Were’s has a 230c valuation published this morning. Macquarie had a 260c valuation yesterday. Both with BUY recommendations.
Coles Group (CGJ) down 2c to 1766c after reporting a huge fall in 3Q sales thanks to the struggling supermarket division. Sales increased by a measly 0.8% from the previous quarter, well below what analysts had expected although Coles say the worst is behind them. No point worrying about the fundamentals at Coles – the bid is the only issue and they are not adding much to that.
The AFR has reported this morning that Orica (ORI) and Macquarie Bank (MBL) together with a Scandinavian private equity group Industri Kapital are planning to bid around $1.3bn for Germany company Dywidag-Systems International. Classic takeover defence play for Orica, bidding for another company after recently rejecting an offer from private equity recently. MBL up to 240c from 9460c and ORI down 6c to 3199c.
Foster Group (FGL) announced this morning it has entered into a long term agreement to brew and distribute Carlsberg, Carlsberg Elephant and Tuborg beer brands in Australia as of 1 July this year. FGL down 1c to 635c.
Lion Nathan (LNN) up 3c to 910c after announcing their 1H NPAT of $162m, up 8.8% and increased its FY07 net profit guidance slightly to $250m-$260m from $245m-$260m. It maintained its dividend at 19c.
Seven Network (SEV) have bought a 10.4% stake in GRD Ltd (GRD), an engineering and waste management company. Good indication that Stokes’s ‘circle of competence’ goes beyond media. SEV down 26c to 1159c. GRD up 1c to 233c (up from 207c this month). GRD is a resource contracting and development company (MINPROC) involved in waste disposal, minerals processing and mining and construction services. They also have a 6.9% interest in Oceana Gold (OGD). OGD down 1c to 84c – up from 74c this month.
AMP have had a good AGM and targeted doubling an investment in AMP every five years. That’s a 15% compound return pa. Pity they are on a PE of 20x.
The new bid story in the UK is CVRD bidding for RIO. RIO up 107c to 9172c. The bid story won’t go away. Seems to be support at $90 with cries of “buy on any weakness” around the market. It’s not exactly expensive on 11.9x.
Macquarie Bank now up 6.2% since announcing their better than expected full year results yesterday and since raising $750m in a share placement. There are broker target prices around of $110. They have returned 30% compound every year since listing. Can’t see that stopping anytime soon….not in this market.