ASX CLOSE: Market higher; Wesfarmers viewed positively

Friday 23rd October 2009

Across Asia, regional markets are all higher this Friday as positive leads from the US flow through, boosting speculation the worst of the global crisis is behind us. The Shanghai Composite is the biggest riser, up 2.3% while in Hong Kong, the Hang Seng is up 1.5%. The Nikkei 225 and Kospi are higher by 0.5% and 1%, respectively.

In Australia, the ASX 200 was 1% higher at 4859.4, only nine points off earlier highs, with Wesfarmers' better-than-expected sales update driving strong gains in the consumer staples sector. There's appears to be a growing belief that Wesfarmers's strategy is finally beginning to payoff and is likely to trigger broker re-ratings for the conglomerate and probably drive further gains in the coming weeks.

The market is loving the Wesfarmers trading update which now shows it's holding its own against rival Woolworths. Long considered a second rate competitor, today's sales result is confirmation the company's turnaround strategy is gaining traction and beginning to yield results with comp store sales at Coles outperforming Woolworths. This is a real boon for the new supermarket management team.

Today's price action on the ASX 200 largely mirrored that of the US session with investors buying back into financial stocks. In the US we saw the market seemingly acknowledge that its knee jerk reaction to Dick Bove's Wells Fargo downgrade was overdone, while local investors appeared happy to increase exposure to the sector ahead of full year earning results from ANZ, National Australia Bank and Westpac Banking Corporation due out next week.

In the materials space, the major names regained their ‘mojo', overcoming their initial disappointment over the strong (but only "in-line") economic numbers from China, and taking comfort from the prophetic words of outgoing BHP Chairman Don Argus who suggested the global economy was on the verge of a new era of unparalleled growth spurred on by China and India.

Turning our attention to the market and it was the consumer staples sector which stole the limelight today, finishing 2.3% higher. Wesfarmers was the biggest gainer, up 6.9% while Foster's Group, Goodman Fielder and Coca-Cola Amatil were all higher between 0.5% and 0.9%.

Following a strong rebound in US financials stocks, the Australian financials sector was a major gainer, rising 1.5% for the session. All of the big four banks were up between 0.6% and 3.2% with Commonwealth Bank of Australia leading the charge. Elsewhere, Axa and AMP were up 2.2% and 1.6% while Westfield Group brought up the rear, down 0.6%.

Morgan Stanley said "AMP's 3Q fund flows were relatively disappointing, but expects retail investor appetite and fund flows to improve. It retains an ‘equal weight' rating, given the regulatory uncertainty surrounding the Australian government's current effort to crackdown on fees paid in the superannuation industry. Whilst it considers AMP inexpensive relative to its history, it thinks regulatory risk will likely overhang the stock until the industry has greater clarity from the government on the general operating landscape within wealth management". It raised its price target to $6.33 from $5.74.

The materials sector was also strong today, finishing 1% higher as the likes of Orica, BHP Billiton, Fortescue Metals Group and Rio Tinto added the most points. They were all up between 1% and 2%, with Orica the frontrunner.

Elsewhere, Deutsche Bank raised Amcor's target to $6.30 from $6.15 and its FY10-FY11 net profit estimates by 5% to $355.6 million and by 4% to $457.2 million, respectively, to reflect stronger-than-expected 1Q ANZ and PET earnings and Alcan asset buy. It said "1Q earnings were ahead of our expectations, notwithstanding the decline in volumes and challenging comps, with PET, Flexibles and Australasia all ahead of expectations. It kept a ‘buy' with the stock trading at a 9% discount to revised valuation, based on 12.4 times FY11 earnings, which we deem appropriate given the enhanced EPS growth profile of the company post the acquisition of Alcan Packaging".

Also, JPMorgan said "Newcrest Mining's Q1 gold and copper production disappointed. However, it still upped its target price to $35.49 from $32.50, after boosting its valuation on higher long-term copper price assumptions. Gold output was 14% below its forecast and copper came in 10% below. Newcrest will now have to play catch-up to meet its unchanged FY output guidance".

On the downside, a slight fall in Crude Oil prices overnight took the wind out of the energy sector, which finished lower by 1%. The two heavyweights in Woodside Petroleum and Santos both detracted, down 1.8% and 0.7%.

Deutsche Bank this morning said that "Apache and KUFPEC's decision to direct their gas to Chevron's Wheatstone project was a "significant setback" for Woodside's plans to expand its Pluto LNG project. They will now have to rely heavily on exploration and on another third party deal, although the other options are probably not as mature as Apache's Julimar field. Woodside's 3Q production of 20.6 million barrels of oil equivalent came in ahead of his expectations and that the improved performances from Vincent and Enfield were positive".

Prices are in AUD unless otherwise stated.
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