Santos Q3 Production

Santos Energy Group (STO) report a sharp rise in Q3 production and sales allowing the company to re-calibrate its forward guidance to the top end of the range.

For the three months ending September 30, Santos posted a 31% increase in sales volume to 21.3 million barrels of oil while forward production advanced 7% to 15.5 million barrels. Sales volumes are anticipated to hit 81-83 million barrels for the full year.

Overall LNG sales volumes more than doubled to 1.3 million tons as the ramp-up of the company’s cornerstone GLNG project in Queensland accounted for 755,000 tons and shipping 21 cargoes in Q3.


Global Macro

Investors who were looking for specific details about the future trajectory of monetary policy from yesterday’s European Central Bank (ECB) press conference would have been sorely disappointed. Granted there was very little consensus that there was going to be any new policy measures announced, but ECB chief Mario Draghi and his staff still managed to fall short of even the lowest expectations. This lack of substance is best illustrated by the fact that Mr Draghi’s prepared statement at the beginning of the press conference, which usually run for 15 to 20 minutes, lasted less than five minutes.

However, Mr Draghi said nothing to dampen expectations that the new staff forecasts in December would support the extension of the of the current asset purchase program past the current expiry date of March 2017. This assessment is based on two economic realities: First, there are no convincing signs of an upward trend in Euro zone inflation. Second, growth risks in Europe’s largest economies are skewed to the downside. European equity markets were happy with Mr Draghi’s dovish tone as both the French CAC and German DAX both posted fresh two-month highs at 4557 and 10,750 respectfully.

The Euro has responded accordingly with the EUR/USD dipping below the 1.0900 handle for the first time in over four months in today’s Asian session. Reading between the lines of the ECB statement, it’s likely that  December will be the time when the asset purchase program is extended by at least six months and the asset pool will be expanded. In contrast, recent comments from FED Governors Fischer and Dudley keep the prospects of further rate normalization in the USA very much on the table.


RIO 3Q Production Result

RIO’s 3Q16 production result was mixed. Copper production was weaker than expected & iron-ore shipments were broadly in line with market expectations. Thermal coal & coking coal delivered strong production numbers.

FY17 forecast revenue of $35b, EBIT of $5.5b, EPS $2.00 and DPS of $1.10, places the stock on a forward yield of almost 3%.





US Earnings – Microsoft Corp

Shares of Microsoft have jumped over 5.5% higher in after hours trade to post a new all-time high of $60.60 on strong earnings results.

The software giant posted adjusted earnings of 76 cents per share on revenue of $22.33 billion, which eclipsed analysts’ forecasts of 68 cents per share on revenue of $21.71 billion. The $22.33 billion in adjusted revenue is 2.3% higher than the same period in 2015.

Microsoft’s major intelligent cloud division, Azure, brought in $6.38 billion which underscores the firm’s ability to become a major beneficiary of the commercial shift to cloud and digital storage.

MSFT Daily
MSFT Daily Chart


US Earnings – Morgan Stanley Q3 Result

Shares of Morgan Stanley posted a new high for the year at $33.00 as the bank joined its Wall Street peers by easily beating Q3  profit expectations. The bank reported earnings of 81 cents per share on revenue of $8.9 billion versus a consensus forecast of 63 cents per share on sales of $8.17 billion.

Like the other Wall Street banks, Morgan Stanley had faced challenges in its fixed income, merger/acquisition and trading operations over the last 12 months. However, those components of the business posted a strong quarter which lifted earnings by over 139% from the 34 cents per share in Q3 2015.


US Earnings – Intel Q3 Result

Intel shares dropped close to 6% in US trade after the company gave a slightly disappointing revenue forecast into the end of the year. The chip-maker said it expects Q4 revenue of $15.7 billion against the consensus estimates of closer to $15.9 billion. The company reported adjusted Q3 earnings of 80 cents per share versus analysts’ forecasts of 73 cents per share on revenues of $15.58 billion.

A bright spot in the report came from the growth in the client computing group; which is composed largely of PC chips. Revenues from the client computing group increased 4.5% to $8.9 billion from a year ago Q3 which includes a 4% increase in the price of chips used in notebooks.

Still, the tepid revenue guidance into Q4 was enough to influence investor sentiment and push the share price below $35.00 for the first time in a month. This comes after posting a new 5-year high at 38.10 on October 7th.



BHP 1QFY17 Production Results

The 1QFY17 production result for BHP was weaker than the market had expected. Weather related issues were mainly the cause.

BHP maintained FY17 shipping guidance for Iron Ore at 265-275mt. Petroleum volumes are anticipated to improve in the year ahead following recent issues with weak production from the Gulf of Mexico assets and lower shale volumes.

Forecast FY17 revenue to be in the range of $35b, EBIT of $7b, DPS of $0.50, which places the stock on a forward yield of 3%.

Many analysts have a bearish outlook for commodity prices in Fy18 and as a consequence, lower forecast EPS and DPS for the majors. Our view differs slightly and we think any pullback early next year will most likely create a solid “buy on the dip” opportunity for both BHP and RIO.

Our algorithm engines will track these and other major resource names for potential entry conditions.




Australian Bank Earnings Preview

2H16 reporting season for WBC, NAB and ANZ starts on 27th of October with NAB kicking off.

We’ll be keeping an eye on expenses and cost discipline along with trends within the bad debt exposure. There’s a strong likelihood that dividends will be cut slightly, especially in WBC and NAB. Westpac is on a payout ratio above 80%. They may look to scale this back a little.

Overall revenue is likely to flat at best and profits will show some deterioration on the same time last year.




US Earnings – Netflix Surges 19%

  •  NETFLIX surged over 19% to new high for the year at $118.80 as the video streaming service reported stronger-than-expected earnings, and a total of 3.6 million new subscribers for the quarter. This brings NETFLIX total number of subscribers to over 86 million worldwide.

They reported earnings of 12 cents a share, which double analysts estimates of 6 cents a share as revenue for the quarter climbed to $2.16 billion from $1.58 billion during the same time last year. The company attributed the strong earnings to a popular schedule of original programming.

Now that the technical price level of $117.00 has been cleared, the next key price target will be  $131.00; the all-time high posted in December 2015.

Netflix (NFLX.NAS)


Recent Buy Ideas Revisited

Sonic Healthcare (SHL.ASX)


Amcor (AMC.ASX)


James Hardie (JHX.ASX)


Lend Lease (LLC.ASX)


Newcrest (NCM.ASX)


Resmed (RMD.ASX)


For more analysis on our recent buy recommendations and market stratagey, please keep an eye out for tomorrow’s mid-week market update video report. It will be sent out tomorrow morning as a blog post.