Morning Market Report, Feb 04, 2008

Great start to the week – the market is up 149 – almost the 202 point gain the the SFE Futures predicted this morning. The rise comes on the back of a strong rally in RIO after Chinalco and Alcoa raided the stock in the UK to buy 12% at a 21% premium to the market price. Its seems they want a slice of the merged group (the aluminium assets) which may actually suit BHP and alleviate the financial burden on the post merger group.

The Dow Jones closed up 92 on Friday – Wall St. moved in a 165 point range and finished a volatile week in a positive mood on the back of takeover activity and better-than-expected earnings results. Yahoo Inc. put on a massive 48% – its biggest single day gain since its 1996 IPO – after receiving an unsolicited $44.6bn bid from rival Microsoft whose shares finished 6.6% lower on concerns about the deal. Rio Tinto had a good session (in ADR form) after Aluminum Corp. of China bought a $14bn stake in the company. Economic data disappointed – the Labor Department said payrolls fell by 17,000 in January after an 82,000 gain in December but the unemployment rate did fall slightly to 4.9% last month from a two year high of 5% the month before. It was a volatile but positive week for US markets; intraday moves in the Dow index averaged 264 points this week, three times the average this time last year and the Dow had its biggest weekly gain (4.4%) since March 2003 (the Dow fell 4.6% fall in January). The NASDAQ closed up nearly 1% – but Google fell 8.6% after its 4th Q profit and revenue result missed analysts’ forecasts. Interest rate futures are predicting a 70% chance of the Fed cutting interest rates by 50bp when it next meets on 18 March.

Resources doing very well this morning led by both BHP and RIO. Both BHP and RIO up a big 9.1% and 8.3% respectively in the US on Friday on the back of the Alcoa/Chinalco raid on RIO. They paid a 21% premium in the UK for a 12% stake in RIO which looks like an attempt to get some leverage on BHP to enable them to buy the aluminium business of the combined RIO/BHP (there is even a chance they have done this with the full knowledge and encouragement of BHP – if they want to buy the aluminium business they would not risk upsetting BHP). They will end up with 9% of the merged group if the merger goes ahead. The move may actually help the merger process hence the bounce in both RIO and BHP in the US and UK.

Rio Tinto released a statement on the ASX this morning with its CEO Paul Skinner saying, “This unsolicited development, of which we had no prior notice, reinforces our view of the long term value of Rio Tinto… In line with out long standing strategy, we shall continue to focus on operating our many world class assets to maximize value and prospects for all shareholders”. BHP has until Wednesday (Feb 6th) to firm up its intentions towards RIO. They also have interim results and ahead of the biggest scrip bid in history you might imagine they have every reason to want their share price up and produce good results therefore. Interestingly you might remember rumours that BHP was interested in bidding for Alcoa. Now Alcoa are seemingly interfering in the RIO bid. BHP up 141c to 4000c and RIO up 471c to 13200c.

Metals mostly down on Friday, Copper down 1.7%, Zinc down 1.6% and Aluminium 2.1%. Nickel up 2.1%. Zinifex down 32c to 1066c. Oil price down $3.31 or 3.7% to $89.03 on concerns the weakening US job market will reduce demand for oil. Woodside up 20c to 4870c. Gold down $11.90. Newcrest up 99c to 3635c.

RBA Meeting tomorrow. Decision at 2.30pm on the day of the meeting instead of the next day.

Hopefully some relief for shareholders – MFS Ltd (MFS) announced this morning it has sold its 65% stake in the Stella Group to funds advised by CVC Asia Pacific. MFS will receive $409m in cash and will retain a 35% stake in the Group. MFS last traded at 99c. They remain in trading halt pending a strategic review.
Suncorp-Metway (SUN) provided the market with an “Integration and Insurance Update” which was OK on Friday. Merrill Lynch say the stock is too cheap to ignore at 9.1x cash earnings and with a 7.65 ff dividend yield. The maintain their BUY recommendation and have a 1900c target price. SUN up 31c to 1628c.
Commander Communications (CDR) announced they have sold off their wholesale network services business, Unitel Australia, to M2 Telecommunications Group. CDR up 1c to 19.5c.
Queensland Gas Company (QGC) announced on Friday in London that it had signed a major deal with UK based natural gas supplier BG Group. Both companies will invest $8bn in the development of QGC’s coal seem gas fields and build a liquefaction plant and pipeline. QGC up 15% or 52c to 394c.
BlueScope Steel has completed its US$730m acquisition of IMSA Steel corp. BSL had a positive January putting on 7.1%. BSL up 20c to 1071c.
Energy Resources of Australia (ERA) reported an impressive 2007 NPAT of $76m. Citigroup maintain their BUY recommendation and 2600c target price (38% above Fridays closing price) and say ERA’s fully franked final dividend of 20c was above their 11c estimates. ERA up 69c to 2049c.
Citigroup cut their target price on Jubilee Mines (JBM) to 1580c from 1670c and their recommendation to SELL from HOLD after its “fairly ordinary production report”. They say with Xstrata now holdings 61.3% of the company, an over bid is highly unlikely. JBM up 2c to 2298c.
Macquarie Bank expects Seek (SEK) to announce a net profit of $36.2m for the 1H08 when it reports on Feb 19. They have a 817c target price and an OUTPERFORM recommendation saying “This robust increase is principally being driven by the increase in online job ad volumes in a tight labor market”. SEK up 18c to 672c.
Valad Property (VPG) is in a trading halt – something related to a strategic alliance. Stock last traded at 122c.
On the diary today we have international trade in goods and services, ABS House price index, Argo interim results and Ruralco AGM.
Macquarie Group has an operational briefing. MQG up 160c to 7060c.
Results season gets going this week with results from News Corp, BHP, Stockland, Corporate Express, Futuris.