After a poor start to the week on worries over Europe, Australian shares rallied towards the end on some more positive talk from banking authorities. Comments by European Central Bank president Mario Draghi that the bank would do “whatever it takes” to maintain the euro gave overseas and then Australian stocks a boost.
However amid the general pre-Olympics cheer, a report by Deloitte Access threatened to rain on the market’s parade. According to the economic forecaster, Australia’s forecast federal budget surplus has evaporated and the mining investment boom has only two years left to run.
In company news, Westfarmers-owned Coles click links for news and market data) outperformed rival Woolworths for the 12th consecutive quarter as heavy discounting from both retailers persisted.
Coles posted its 16th straight quarter of positive same-store sales growth, boosting same-store sales by 3 per cent and total sales by 4.6 per cent to $6.5 billion. Wesfarmers’ total retail sales exceeded $50 billion for the first time in the year to June.
Meanwhile, Kerry Stokes’ Seven Group and private equity firm, The Carlyle Group are considering floating equipment rental group Coates Hire as early as October. According to the Australian Financial Review, the private equity float would be the largest since Myer’s and may see the company valued at up to $3 billion.
“We’ve seen world markets rally on the back of Draghi’s comments, with short covering spurring the rally in shares on Thursday night,” said Simon Skerrett, Private Client Advisor at EL & C Baillieu Stockbroking.
“However, it’s going to be another case of three steps forward, two backward and trends lasting one day or five hours. Investors should take profits where possible.”
Ins and outs
Stockland managing director Matthew Quinn will depart by next February after 12 years in charge of Australia’s largest property developer. The company also downgraded its profit forecast amid weak residential property markets.
Online travel service provider Webjet has appointed Robert Turner as its new chief financial officer. The former CFO of Crown, Turner’s arrival follows the departure of executive director Richard Noon in June.
Private equity giant TPG is expected to increase its takeover bid for surfwear group Billabong International to $1.50 a share from the current $1.45 offer, according to market sources.
Documents filed with the ASX have shown that TPG has agreed with Perennial, an institutional shareholder in Billabong, to acquire its 13.7 percent holding at $1.50 a share, or any higher price negotiated between the private equity firm and Billabong.
TPG’s previous bid of $3.30 a share was blocked by major shareholder Gordon Merchant, but he has reportedly reconsidered his position. The company has stated there is no guarantee the board would recommend an offer at the current proposed price after the due diligence process is completed.
Stocks to watch
Oil and gas company Beach Energy is considered a potential target, according to EL & C Baillieu’s Skerrett.
“This shale play has a number of parties currently running the rule over it. Beach’s proximity to the gas hungry LNG plants on the east coast of Australia and its imminent increase of reserves has many market pundits betting it will not be around to see in the new year,” he said.
The week ahead
Company reporting season kicks off next week in Australia, with a number of production reports also due from Beach Energy, Origin Energy and others.
Domestic economic data will include building approvals, house prices and retail trade figures along with the trade balance.
Overseas, US manufacturing activity, personal income and spending data is due, while the Federal Reserve will hold its July policy meeting. In Europe, eurozone consumer confidence and jobless numbers are expected, while both the European Central Bank and Bank of England will announce their interest rate decisions.
This week's tip
“Investors looking for ‘beta’ or greater upside risk in their stock picks should consider banks and not resource shares, as policy initiatives are likely to focus on financial stability and not growth,” Skerrett said.
“Financial stability-style policies help banks, while pro-growth polices help resources.”
Previous market update: 20/07/2012
||A former ASX employee, Anthony Fensom has spent nearly 15 years in the financial/media industries of Australia and Asia. Having been through the dot.com boom and bust, the resources boom and the GFC, he is a great believer in patient investing and in understanding market and economic cycles.