Tuesday 28 April 2015 by Lincoln Tragardh Week in review

From the Trading Desk

This week: Underlying inflation in RBA target range, iron ore extends gains, inflation linked bonds experience strong flows, Fortescue successful with $2.3bn secured bond issue, Newcrest delivers a strong March quarterly result and Dicker Data report ‘on track performance’ with a solid outlook.

Economic wrap

Australian inflation figures (CPI) for the first quarter were released last week at 1.3% year-on-year, down from 1.7%. However underlying (excluding volatile items) CPI was 2.3%, up by 0.1% from last quarter and well within the RBA’s target range. Many market analysts are predicting inflation figures to increase from here, after having factored in the deflationary impact of fuel prices.

Iron ore has impressed over the last few sessions, gaining USD7.50 since last week and an increase of 26% since it hit its 10-year low of USD47.08 earlier in the month. These gains are attributed to stimulus from China, with China’s central bank cutting interest rates, reducing the amount of cash that banks must keep in their reserves and relaxing rules on home purchases. Some commentators are now citing that the commodity has entered a bull market following five straight losing quarters to March and that prices may average $60-$70 over the year.

In currencies last week the Australian dollar was relatively flat, despite the CPI release. Our dollar finished the week worth 78.40 US cents, up from 78.24 US cents.

Yields on the other hand increased moderately with 5 year government bonds increasing by 10 basis points to 2.065% and 10 years up 15 basis points to 2.534%.

Flows

We traded heavily in the inflation linked space last week after CPI figures were released. The Royal Women’s Hospital inflation linked annuity bonds (IAB), which became available in small parcels, dominated this space. We have good supply in this name in both the annuity and nominal fixed rate bond with indicative offers as follows:

  • RWH-IAB--30Jun33 5.50%
  • RWH-6.2%-26Mar17call 5.94% (assuming 2017 call)

We also have very good supply in the Civic Nexus and Melbourne Convention Centre IABs which are indicatively offered as follows:

  • CIVICNEXUS-IAB-0%-15Sep32 4.72%
  • MPC-IAB-0%-31Dec33 4.71%

Last week, Sydney Airport issued a USD500m 2025 fixed rate bond at 3.375% or Australian Treasuries +1.52%. It has since rallied and illustrates the value in the ever popular Sydney Airport AUD inflation linked bonds (ILB) which are indicatively offered as follows:

  • SYDAIR-ILB-3.76%-20Nov20 5.00%
  • SYDAIR-ILB-3.12%-20Nov30 5.30%

Fortescue successful with a $2.3bn, 9.75% secured bond issue

Last Thursday, Fortescue announced the successful completion of a new US high yield bond offer, which will be used to pay out its earlier dated bonds. The bonds were issued at a yield of 10.25% but have since rallied to the 8-9% region. Please click here for full details of the transaction. FMG bonds are indicatively offered at the following buy/sell pricing:

  • FMG Resources 01/04/2017 $102.75/104.75
  • FMG Resources 01/11/2019 $88.00/90.00
  • FMG Resources 01/04/2022 $76.75/78.75

Newcrest delivers a strong March quarterly report

Overall a positive result for Newcrest: the company has increased gold production, upgraded its full year copper production outlook, reduced its capital expenditure forecast and indicated costs were likely to be at the lower end of its previous guidance range. Please click here for the full results summary. Newcrest bonds are indicatively offered as follows:

  • Newcrest Finance Pty Ltd 15/11/2021 3.97%
  • Newcrest Finance Pty Ltd 01/10/2022 4.36%
  • Newcrest Finance Pty Ltd 15/11/2041 5.97%

Dicker Data 1Q15 - Performance on track with solid outlook

Results were in line with the forecasts detailed in the initial research and the company reconfirmed it is confident of $1bn plus in revenue for the full year to Dec 2015. Please click here for the full results summary. Dicker Data bonds are indicatively offered at 6.41% YTM.

All prices and yields are a guide only and subject to market availability. FIIG does not make a market in these securities.

Disclaimer 

The contents of this document are copyright. Other than under the Copyright Act 1968 (Cth), no part of it may be reproduced, distributed or to a third party without FIIG’s prior written permission other than to the recipient’s accountants, tax advisors and lawyers for the purpose of the recipient obtaining advice prior to making any investment decision. FIIG asserts all of its intellectual property rights in relation to this document and reserves its rights to prosecute for breaches of those rights.

The information has been prepared solely for informational purposes only and does not constitute or form part of any offer for sale or subscription of, or solicitations or any offer to buy or subscribe for, or any invitation to subscribe for or purchase any securities and nothing contained herein shall form the basis of any contract or commitment whatsoever. The information is being furnished to you solely for your information and may not be reproduced or redistributed to any other person. No action has been taken to permit the public distribution of the information in any jurisdiction and the information should not be distributed to any person or entity in any jurisdiction where such distribution would be contrary to applicable law.

The information has not been lodged with Australian Securities and Investments Commission or any other authority. The information is intended for distribution only to financial institutions and professional investors whose ordinary business includes the buying or selling of securities in circumstances where disclosure is not required under Chapter 6D.2 or Chapter 7 of the Corporations Act 2001 of Australia (the “Corporations Act”) and only in such other circumstances as may be permitted by applicable law. Any securities that may be offered by the Issuer in, or into, Australia are offered only as an offer that would not require disclosure to investors under Part 6D.2 or 7.9 of the Corporations Act. This information is directed only to persons to whom disclosure is not required under Part 6D.2 or 7.9 of the Corporations Act. The information is a summary only and does not purport to be complete. It does not amount to an express or implied recommendation or a statement of opinion (or a report or either of those things) with respect to any investment in the Issuer nor does it constitute a financial product or financial advice. The information does not take into account the investment objectives, financial situation or needs of any particular investor. FIIG does not provide accounting, tax or legal advice. Prospective investors are required to make their own independent investigation and appraisal of the business and financial condition of the Issuer and the nature of any securities that may be issued by the Issuer. By accepting receipt of the information the recipient will be deemed to represent that they possess, either individually or through their advisers, sufficient investment expertise to understand the risks involved in any purchase or sale of any financial securities discussed herein.

Certain statements contained in the information may be statements of future expectations and other forward-looking statements. These statements involve subjective judgement and analysis and may be based on third party sources and are subject to significant known and unknown uncertainties, risks and contingencies outside the control of the Issuer which may cause actual results to vary materially from those expressed or implied by these forward looking statements. Forward-looking statements contained in the information regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. You should not place undue reliance on forward-looking statements, which speak only as of the date of this report. Opinions expressed are present opinions only and are subject to change without further notice. No representation or warranty is given as to the accuracy or completeness of the information contained herein. There is no obligation to update, modify or amend the information or to otherwise notify the recipient if information, opinion, projection, forward-looking statement, forecast or estimate set forth herein, changes or subsequently becomes inaccurate.

Any offering of any security or other financial instrument that may be related to the subject matter of this communication will be made pursuant to separate and distinct documentation (“Offering Documents”) and in such case the information will be superseded in its entirety by any such Offering Documents in its final form. In addition, because the information is a summary only, it may not contain all material terms and the information in and of itself should not form the basis for any investment decision. Any decision to purchase securities in the context of a proposed offering of securities, if any, should be made solely on the basis of information contained in the Offering Documents published in relation to such an offering.

Neither FIIG nor the Issuer shall have any liability, contingent or otherwise, to any user of the information or to third parties, or any responsibility whatsoever, for the correctness, quality, accuracy, timeliness, pricing, reliability, performance or completeness of the information. In no event will FIIG or the Issuer be liable for any special, indirect, incidental or consequential damages which may be incurred or experienced on account of the user using information even if it has been advised of the possibility of such damages.

FIIG has been engaged by the Issuer to arrange the issue and sale of the Notes by the company and will receive fees from the issuer of the Notes. FIIG, its directors and employees and related parties may have an interest in the company and any securities issued by the company and earn fees or revenue in relation to dealing in those securities.

FIIG provides general financial product advice only. As a result, this document, and any information or advice, has been provided by FIIG without taking account of your objectives, financial situation and needs. FIIG’s AFS Licence does not authorise it to give personal advice. Because of this, you should, before acting on any advice from FIIG, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If this document, or any advice, relates to the acquisition, or possible acquisition, of a particular financial product, you should obtain a product disclosure statement relating to the product and consider the statement before making any decision about whether to acquire the product. Neither FIIG, nor any of its directors, authorised representatives, employees, or agents, makes any representation or warranty as to the reliability, accuracy, or completeness, of this document or any advice. Nor do they accept any liability or responsibility arising in any way (including negligence) for errors in, or omissions from, this document or advice. Any reference to credit ratings of companies, entities or financial products must only be relied upon by a ‘wholesale client’ as that term is defined in section 761G of the Corporations Act 2001 (Cth). FIIG strongly recommends that you seek independent accounting, financial, taxation, and legal advice, tailored to your specific objectives, financial situation or needs, prior to making any investment decision. FIIG does not provide tax advice and is not a registered tax agent or tax (financial) advisor, nor are any of FIIG’s staff or authorised representatives. FIIG does not make a market in the securities or products that may be referred to in this document. A copy of FIIG’s current Financial Services Guide is available at www.fiig.com.au/fsg.

An investment in notes or corporate bonds should not be compared to a bank deposit. Notes and corporate bonds have a greater risk of loss of some or all of an investor’s capital when compared to bank deposits. Past performance of any product described on any communication from FIIG is not a reliable indication of future performance. Forecasts contained in this document are predictive in character and based on assumptions such as a 2.5% p.a. assumed rate of inflation, foreign exchange rates or forward interest rate curves generally available at the time and no reliance should be placed on the accuracy of any forecast information. The actual results may differ substantially from the forecasts and are subject to change without further notice. FIIG is not licensed to provide foreign exchange hedging or deal in foreign exchange contracts services. The information in this document is strictly confidential. If you are not the intended recipient of the information contained in this document, you may not disclose or use the information in any way. No liability is accepted for any unauthorised use of the information contained in this document. FIIG is the owner of the copyright material in this document unless otherwise specified.

The FIIG research analyst certifies that all of the views expressed in this document accurately reflects their views about the companies and financial products referred to in this document and that their remuneration is not directly or indirectly related to the views of the research analyst. This document is not available for distribution outside Australia and New Zealand and may not be passed on to any third party without the prior written consent of FIIG.