Morning Market Report, Dec 21, 2007

The market is up 35 – a bit better than the 29 point rise the SFE Futures predicted. The market was down 39 points yesterday amidst option and futures expiries which were thought to have weighed on a lot of stocks.

The Dow Jones is up 38 – Wall St. moved in 135 point range and finished a volatile session slightly higher after fighting off disappointing economic data. The Dow initially fell after bond insurer MBIA announced it had $8.1bn worth of exposure in exotic CDO’s – its shares fell 23% as Morgan Stanley described the exposure as “massive”. Bear Stearns also fell on the back of resutls and write-downs. The NASDAQ had a great session closing up 1.5% helped by Oracle’s profit announcement after market close yesterday. Not only did their 2Q profit beat analyst’s expectations but they also upped their earnings guidance for the next few quarters. Google finished 1.6% higher after obtaining regulatory approval for its $3.1bn purchase of DoubleClick Inc. after an 8 month investigation, and eBay put on a big 5.3% after announcing its PayPal unit won a legal case proving they did not infringe two patents for Internet billing owned by a Massachusetts company. Both eBay and Amazon Inc. were given a boost after Sanford C. Bernstein said there is a good possibility they may have a “strong” holiday season.

Resource pretty quiet today (in fact everything is pretty quiet today)… BHP up unchanged at 3950cc and RIO up 13c to 12813c. The AFR lists the top eight most likely takeover targets for next year in the resources sector as Oxiana, Zinifex, Lihir, Albidon, Western Areas, Equinox, CBH Resources and Andean Resources. Metals mixed overnight – Copper up 0.3%, Zinc up 0.5%, Nickel down 1.3% and Aluminium down 1%. Zinifex up 5c to 1203c. Oil price down 23c to $90.88 on concerns about the state of the US economy. Woodside up 65c to 4665c. Gold down $2.20. Newcrest up 34c to 2934c.

No, the property sector has not taken another big hit, but almost all the property trusts and a lot of the infrastructure stocks have gone ex distribution or ex dividend today. Despite that GPT and Westfield Group have managed a rise. Centro is down 8% despite JP Morgan declaring them a BUY.

Banks leading the market up today.

Worth reading the Pierpont “Dubious Distinction Awards for 2007” in the AFR page 36 today. Investment of the year…subprime mortgages made to NINJAs (No Incomes, No Jobs, No Assets). Project of the Year…Dyno Nobel’s Ammonium Nitrate plant….spent $280m before deciding it wasn’t worth it. Failed Gambler….MarginBet for raising $2m for an online gaming business, spending most of it and then moving into gold exploration. Political Correctness Award….banning the display of the Australian flag on The Big Day Out. Revolving Door Award….Sydney Gas….appointed a CEO on 3 Septemberand he left on 17 September. Customer Service Award a stand out.

Orica down 14c to 3204c on their AGM and despite CEO Graeme Liebelt announcing the first 2 months of fiscal 2008 have been positive and ahead of last year. ORI have made $2.5bn worth of acquisitions in the past 2 years (bought Minova for $857m and Excel $743m) resulting in its gearing ratio going above its target range of 35-45%. The CEO said he expects a big year in 2008. The share price did well for shareholders in 2007 – up 31%. PE 18.6x. Yield 3.0%.
Devine (DVN) announced this morning they have formed a JV with Leighton Holdings (LEI) to build $400m mixed use Hamilton Harbour project in Brisbane. The JV complements Leighton’s acquisition of a 40% stake in Devine back in May this year. Both stocks have had a great year, DVN up 40% and LEI up 185%. Leighton down 5c today to 5745c and DVN up 0.5c to 138c. DVN on a PE of 10.2x and a yield of 5.7%. LEI on a PE of 27.3x and a yield of 2.3%.
Moody’s Investors Service said it will place on review around 7 classes of notes issued by Centro Shopping Centre Securities Limited. The stock is down 8% today to 122c after putting on 9.5% yesterday. CNP have opened a due diligence room to allow potential buyers look at their Australian Shopping Centres.
Better news for another property trust – The GPT Group announced today it has established its German Retail Fund. They have successfully completed the equity raising component with a total os 136.5m euros of equity raised. GPT unchanged at 420c. GPT on a PE of 14.4c and a 6.9% yield.
Babcock & Brown Infrastructure Group (BBI) announced this morning it has secured debt funding for its planned expansion of the Dalrymple Bay Coal Terminal in QLD state. Yield 9.7%. PE 31.4x.
Boeing tell us Qantas ordered 31 more 737-800 planes to add to the 38 it had previously ordered. No numbers were confirmed but Boeing have them going for around $US2.3bn. QAN is down 10% since hitting record highs 6 sessions ago. QAN PE 10.7x. Yield 6.8%. BBI down 3.5c to 150.5c.

Despite Dyno Nobel (DXL) announcing a huge savings program yesterday, Citigroup are only factoring in 50% of the targeted savings announced and have lifted earnings by 6-18% to US12c this year. They say the only way the program will work is if rising fertilizer prices feed through to higher ammonium nitrate prices. They don’t expect DXL to remain independent for long, they expect Incitec Pivot (IPL) to make an uncontested bid for them early in the new year. PE 13.9x. Yield 3.4%. DXL up 7c to 213c.
Sydney Gas (SGL) had a big day yesterday closing up 13% after having received proposals from third parties including AJ Lucas (AJL). There is talk that SGL might be considering handing over management control to AJ Lucas. SGL down 1c to 38.5c.
Both Were’s and UBS Warburg have upgraded CSR . UBS upped their recommendation to BUY from NEUTRAL due to recent share price depreciation, the stock is down 18% since November despite a rise in the sugar price. Were’s say “With CSR having pulled back to a 14 month low and the stock trading in line with its historical PE relative, we have upgraded our recommendation on the stock to SELL from HOLD.” They have a 327c target price, 14% above yesterdays 285c close. PE 16.6x. Yield 5.3%. CSR up 17c to 302c.
Citigroup upped their recommendation on Toll Holdings (TOL) to BUY from HOLD on the back of it underperforming the S&P/ASX 100 by 13% since September. The broker did warn their call may be a little premature “given the market’s jitters”. They say “the new phase of growth is more complicated and will take longer but we back TOL management,” with 4 Asian acquisitions in 18 months “more about revenue and cross border opportunities than cost synergies.” PE 15.5x. Yield 2.6%. TOL unchanged at 1167c.
Merrill Lynch upgraded their recommendation on Suncorp-Metway (SUN) to BUY from NEUTRAL after a 14% in the share price in past 10 days. They do say this is “a trading-oriented call rather than a fundamental agreement with trends being seen in the business.” PE 12x. Yield 6.7%. SUN down 4c to 1666c.
ANZ pays out $1.382bn of dividend cheques today (equates to about 3 weeks of stockmarket trade).

Well that’s about it for us for this year. Off home to the family this evening…back in January.

I once worked with an economist at UBS Phillips & Drew in London. He calculated that the average statistic in the whole world, of everything in his database, interest rates, rates of return, economic statistics, everything, was 9. A useful, number to know if you ever want to guess anything in the financial world. This year was an average year. The market was up 9%. Forecast for next year? Up 9%. Probability of a stockbroker guessing what the market is going to do next year… 9%, and don’t let anybody tell you otherwise. We’ll just do what we always do, take it one day at a time.

I hope you have all enjoyed the stockmarket this year and what we at MARCUS TODAY have written for our friends at Crikey.com. Although many of you might despair of the market occasionally you should know that the alternative to the stockmarket is reading nothing, having no interest in the amazing, the unpredictable, in the brilliance and stupidity of others and never waking up to your financial responsibility (lucky buggers). It is also about giving yourself a chance to improve and make a difference to your life and your family’s life.

Have a good break… See you in January with whatever next year has in store. Never what we expect, hopefully.

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