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Australian stock market and companies daily report (August 31, 2010)

Contributed by Intersuisse

By Intersuisse Research

Market Overview

- US stocks fell on Monday despite deal activity from Intel and 3M as investors continued to fret about the health of the economy.

- The drop came in thin trading. NYSE Composite volume on Monday totalled about three billion shares, making it the lowest-volume day this year. The Dow Jones Industrial Average declined 1.39%. With just one day left in the month, the measure is off 4.4% for August.

- Bank of America was one of the Dow's weakest performers with a drop of 2.5%. Ohio Attorney General Richard Cordray pledged to move forward aggressively with two investor lawsuits over Bank of America's disclosures before its acquisition of investment bank Merrill Lynch. "The court ruled that companies cannot pick and choose what they will tell their shareholders," Cordray said.

- Deal activity failed to excite investors as worries about the sustainability of the economic recovery lingered. Weak readings on personal income and Texas-area manufacturing activity added to the market's concerns at the start of a week that includes key reports on manufacturing, unemployment and retailers' same-store sales.

- Gold futures continued their incremental march higher as market participants remain wary about the economic recovery and anticipate a return of more robust buying of the metal in September.

- Australian company gross operating profits rose 18.9% to a seasonally adjusted $68.46bn in the second quarter of 2010 from the previous quarter, the Australian Bureau of Statistics said. Profits also rose 27.5% from the year-earlier quarter.

- Australian new home sales fell 7% in July from June, the third consecutive monthly decline and further confirmation that higher interest rates are eroding demand in the sector.

INTERNATIONAL OVERNIGHT NEWS

US stocks fell on Monday despite deal activity from Intel and 3M as investors continued to fret about the health of the economy.

The drop came in thin trading. NYSE Composite volume on Monday totalled about three billion shares, making it the lowest-volume day this year.

The Dow Jones Industrial Average declined 140.92 points (1.39%) to 10,009.73. With just one day left in the month, the measure is off 4.4% for August.

Bank of America was one of the Dow's weakest performers with a drop of 32 cents (2.5%) to $12.32. Ohio Attorney General Richard Cordray pledged to move forward  aggressively with two investor lawsuits over Bank of America's disclosures before its acquisition of investment bank Merrill Lynch. "The court ruled that companies cannot pick and choose what they will tell their shareholders," Cordray said.

Intel was also weak with a decline of 41 cents (2.2%) to $17.96, after the chip giant agreed to buy the wireless unit of Germany's Infineon Technologies for $1.4bn.

Conglomerate 3M shed $1.35 (1.7%) to $79.65. The company agreed to acquire small-capitalisation Cogent in a deal valued at $943m, though 3M will only pay $430m to account for the fingerprint-identification systems maker's large cash pile.

Deal activity failed to excite investors as worries about the sustainability of the economic recovery lingered. Weak readings on personal income and Texas-area manufacturing activity added to the market's concerns at the start of a week that includes key reports on manufacturing, unemployment and retailers' same-store sales.

Hewlett-Packard was the Dow's lone gainer, with an increase of 56 cents (1.5%) to $38.56. The company, which remains in a battle with Dell for 3Par, authorised an additional $10bn to buy back its own stock and said it has been selected by the US Air Force for a five-year purchase contract that could be worth up to $800m.

The Nasdaq Composite declined 33.66 (1.56%) to 2,119.97. It is off 6% for the month.

The Standard & Poor's 500 index lost 15.67 (1.47%) to 1,048.92, putting its drop for the month at 4.8%. All of the measure's sectors ended the day in the red, led by financials.

Charles Schwab dropped 40 cents (3%) to $12.82. The discount broker announced its first acquisition of a money manager in seven years, agreeing to buy Windward Investment Management for $150m in cash and stock to broaden its push into the rapidly growing exchange-traded fund market.

CA Inc. shed 30 cents (1.6%) to $18, after the businesssoftware company said it agreed to buy privately held Arcot Systems for $200m in a deal that would add fraud-preven tion and authentication software to CA's portfolio. The deal is expected to ding CA's bottom line in the year ending March 31, but "slightly" add to earnings excluding deal-related charges.

United Airlines parent UAL Corp. rose 26 cents (1.3%) to $20.71, and Continental Airlines edged up 9 cents (0.4%) to $21.89. The airlines said they expect their merger to close Oct. 1 after they were notified that the Department of Justice has concluded its investigation of the deal.

Fossil climbed $1.94 (4.2%) to $47.95. The watch retailer announced plans to repurchase up to $750m of its stock, one-quarter of its market value, through 2013.

US Economic News

In economic news, consumer spending rose 0.4% last month after staying flat in June, the Commerce Department said, but their incomes increased less than expected, up 0.2% after remaining unchanged in June.

US home purchase prices rose 3.1% in the second quarter from the first, and 13% at an annual rate, boosted by the effects of the now-expired first-time home-buyer tax credit, according to Freddie Mac.

European and Asian Markets

European shares finished flat on Monday, as investors digested Genzyme Corp.'s rejection of a buyout bid from Sanofi-Aventis as well as a stronger-than-expected uptick in US consumer spending.

The Stoxx Europe 600 index ended virtually unchanged at 251.16.

European shares rose on Friday in the wake of Federal Reserve Chairman Ben Bernanke's promise to do everything necessary to keep the US economic recovery on track but the rally petered out about midway through the session. Stocks on Wall Street opened lower on Monday, even as  data showed that US consumer spending climbed more than forecast in July.

In the euro area, there was evidence that the recovey remains on track. The economic sentiment indicator continued to improve in August, rising to 101.8, after a surge in July.

Among the largest member states the UK registered the most significant gain. UK markets were closed on Monday for a holiday.

In Germany, the DAX 30 index lost 0.7% to 5,912.41 and France's CAC 40 index fell 0.6% to 3,487.04.

The recent flurry of M&A deals continued, with several new tie-ups surfacing.

In Paris, shares of Sanofi-Aventis rose 0.7% after the drug maker publicly disclosed an unsolicited offer to buy US biotechnology company Genzyme Corp. for $18.5bn, or $69 a share. Genzyme rejected the approach and Sanofi vowed discipline in its pursuit of the deal. Separately, Sanofi said that a new daily treatment for multiple sclerosis taken by mouth met its primary endpoint in a phase III trial.

Another deal moving the markets came courtesy of US chip giant Intel Corp., which agreed to acquire the wireless business of Germany's Infineon Technologies AG for about $1.4bn in cash. Shares of Infineon fell 3.7% in Frankfurt.

Asian markets traded mostly higher on Monday, but Japan's shares ended well off the day's highs as traders were disappointed by the Bank of Japan's new easing measures aimed at addressing the country's anaemic economic recovery and a high yen.

Japan's Nikkei Stock Average, which rose as much as 3.2% during the session, finished the day 1.8% higher at 9,149.26. China's Shanghai Composite Index climbed 1.6%, while Hong Kong's Hang Seng Index snapped a six-day losing streak to finish 0.7% higher.

The New Zealand stock exchange closed sharply higher following gains on Wall Street after Federal Reserve Chairman Ben Bernanke's comments. The NZX-50 index finished up 1.0%, or 29 points at 3,036.81.

Commodities

Base metals on the LME were closed for a holiday. Gold futures continued their incremental march higher as market participants remain wary about the economic recovery and anticipate a return of more robust buying of the metal in September.

Crude-oil settled slightly lower, dropping after a threesession rally as data due this week is expected to show that the economy continues to struggle.

AUSTRALIAN OVERNIGHT NEWS

Australian Markets

Local shares are likely to fall this morning as weakness in offshore markets weighs on sentiment.

Ahead of the local open the September SPI futures were 54 points (1.20%) lower at 4,392.

Companies in the News

BHP Billiton (BHP)

BHP has indicated that it could eventually consider selling Potash Corp's nitrogen and phosphates businesses if its US$38.6bn hostile bid for the group is successful, a newspaper has reported. The report estimated the phosphate division to be worth around US$7bn and the nitrogen business around US$5bn. BHP advanced 57 cents (1.53%) to $37.87.

Rio Tinto (RIO)

Rio said that it has approved a US$1.03bn investment to develop its Hope Downs 4 iron ore joint venture in Western Australia, which it expects to commence production in 2013. The total US$1.6bn investment includes around US$1.2bn to develop the 15m tonne a year open-cut mine, a cost to be shared equally with its joint venture partner Hope Downs Iron Ore. Rio said it will also spend around US$425m to cover the cost of rail, rolling stock and power infrastructure needed to connect the mine to its existing rail and port infrastructure. Construction is expected to start in early 2011 subject to regulatory and other approvals. RIO rose $1.71 (2.47%) to $71.01.

Santos (STO)

Santos said it will develop the Halyard natural gas field offshore Western Australia, and has sold a stake in another gas discovery nearby to US energy company Apache. Santos said gas from the Halyard development will be sold domestically, and is likely to meet around 10% of WA's gas needs from 2012. Santos said Apache will pay an initial US$31m for a 55% stake in the Spar discovery nearby theHalyard field, and may pay up to US$85m more if an appraisal well to be drilled later this year shows significant reserves. The transaction is expected to close in the second half of 2010, following approval by regulators. Halyard is expected to come on line in the middle of next year. The Spar field will be connected to infrastructure built as part of the Halyard development, with production due to begin in late 2012.

Production from the combined development is forecast to start at an initial rate of 50 terajoules a day, and then rise to more than 100 terajoules a day by early 2013 if the Spar appraisal well is successful. In addition, Apache and Santos will drill an exploration well targeting the Beam prospect later in the year, and plan to continue the campaign in 2011-2012 with a view to connecting up any discoveries to the Halyard development. Apache, which already has a 55% stake in Halyard, will operate both fields. STO rose 13 cents (0.91%) to $14.43.

Kingsgate Consolidated (KCN)

Kingsgate said its full year net profit more than doubled as it increased production and the gold price rose. The miner said its profit rose to $73.1m in the year ended June 30 from $32.5m the previous year as its Chatree gold mine in Thailand operated for its first full year since the Chatree North Mining leases were granted in late 2008. Total production for the mine during the year was 132,628 ounces of gold during the year and 549,522 ounces of silver. The company said it will pay a final dividend of 20 cents a share, up from 15 cents a year last year. It forecast production of 120,000-130,000 ounces of gold in the 2011 financial year. KCN increased 27 cents (2.8%) to $9.92.

Macquarie Atlas Roads (MQA)

MQA reported a $141.2m inaugural first half net loss but boosted its proportionate revenue on increased traffic volumes. Proportionate earnings before interest, tax, depreciation and amortisation rose 4.2% to $271.3m from $260.4m. Revenue from continuing operations was $51.9m and proportionate revenue increased 4.5% to $381.8m from $365.5m. MQA did not declare an interim dividend. It said the near term outlook remains positive, with revenue and EBITDA growth expected to improve further in 2010. MQA firmed 3 cents (2.48%) to $1.24.

Centro Retail (CER)

Centro said it made a $113.3m net profit in the year ended June 30, compared to a net loss of $2.68bn in the prior period as property valuations in Australia and the US stabilised. Chief Executive Officer Robert Tsenin said the property trust continues to assess many options for a restructure that would reduce its debt. Net property income  fell to $488m from $625m a year ago. Underlying profit fell to $160m from $186m. The trust said it wouldn't pay a final distribution. CER firmed 1 cent (6.45%) to $0.17.

Australian Economic News

Company Profits Rise

Company gross operating profits rose 18.9% to a seasonally adjusted $68.46bn in the second quarter of 2010 from the previous quarter, the Australian Bureau of Statistics said. Company profits also rose 27.5% from the year-earlier quarter. Company profits before income tax rose 15.4% in the second quarter, after rising 10.8% in the quarter before. The mining and construction industries were the main contributors to the rise in second quarter company profits. The ABS also reported that the value of inventories held by companies fell 0.5% in the second quarter from the first to a seasonally adjusted $136.9bn. The ABS said its trend estimate for inventories rose 0.3% from the first quarter to $137.36bn and rose 0.5% from the year-earlier quarter. The major contributor to the decrease in inventories was mining.

New Home Sales Fall

New home sales fell 7% in July from June, the third consecutive monthly decline and further confirmation that higher interest rates are eroding demand in the sector. Sales were down by 8% over the three months to July to be 2% lower when compared to the same period in 2009, the Housing Industry Association said. Harley Dale, chief economist at HIA, said supply-side reforms need to be undertaken to give housing activity a shot in the arm. "There needs to be a re-doubling of efforts to reduce the impact of regulation, development charging, and excessive taxation on the cost of new housing supply," Dale said. Detached house sales fell by 7.3% in July 2010, while sales in the multi-unit sector fell by 4.1%, the HIA said.