ASX CLOSE: Westpac steals the limelight, jumps 6.2%

Tuesday 16th February 2010

In Asia, the Kospi is the best performer, up 0.5%, while the Nikkei 225 is 0.3% higher. This is the fifth gain in six sessions for Asian markets, driven by strong financial and materials leads from London.

Locally, the ASX 200 closed 0.5% higher at 4567.80, off earlier highs of 4598. Solid leads from London got the ball rolling but it was the sharply better-than-expected trading update from Westpac Banking Corporation, featuring a large reduction in impairment charges that boosted market sentiment.

This buoyed the whole sector, with the financials adding the bulk of the points. Consumer discretionary, industrial and materials sectors were all adding significant points early but rolled over late in the session.

Once again, profit taking crept in, especially among the materials names. This has been the theme of late, with few investors convinced of the sustainability of any rally.

Westpac's update this morning caught the market off guard, with many analysts seeing few potential catalysts for share price outperformance. Higher profits and reduced bad debts are likely to see significant broker upgrades, resulting in sector re-weightings and a potential switch of preferences amongst the big four.

It's worth noting that today we're seeing Commonwealth, which has been a clear outperformer in recent months underperform significantly, possibly a sign that switching has already begun.

Today may be a precursor to what we can expect to see when clarity over the current macro issues improves. Valuations and fundamentals should again become the key drivers of stock performance.

Today's monetary policy meeting minutes suggest the RBA still has further rate increases on its agenda, but that it isn't going to tighten policy at every meeting. The decision to hold rates this month was finely balanced with anecdotal evidence of shaky Christmas retail sales and sovereign debt issues encouraging the RBA to stay on hold.

The financial sector was the standout performer today, closing 1.5% higher. Westpac Banking Corporation stole the limelight, jumping a massive 6.2%. This, in turn boosted National Australia Bank and ANZ, both finishing up 3% and 2.9% respectively. Commonwealth bucked the trend, closing 0.1% lower.

Australia's second biggest bank, Westpac said its 1Q cash profit rose 33% on year to $1.6 billion as charges for bad loans (particularly in its institutional bank) fell away a lot quicker than many may have expected. Its impairment charge fell to around $400 million for the quarter, half the amount booked for the same quarter a year ago, with expectations that it will be lower as the year progresses. With earnings growth revving up, investors will be watching for any signs management could start boosting dividends. Although expectations are likely to be dampened by comments last week from rival Commonwealth Bank, which said it is preserving capital amid uncertainty over the global regulatory environment.

The consumer discretionary sector managed to finish marginally higher, up 0.2%. WA News, JB HiFi and Billabong International were the best performers, finishing stronger by between 1.7% and 3.6%.

A 2.2% fall for Foster's Group weighed on the consumer staples space. The sector lost 0.1% after the global beverages company missed profit expectations by 6.8%. Profit came in at $355 million, down 13.5% on year and falling short of the average consensus estimate of $381 million. Also, its dividend did not meet some analysts' expectations. It's a tale of two businesses - the beer side has been relatively resilient with CUB's EBIT up 6.6% from a year ago. However, once again the global wine business has weighed heavily with oversupply and the adverse Aussie dollar movement impacting dramatically on wine's EBIT. Also, the lack of a meaningful outlook may add further pressure to the group's share price.

The materials sector, as it has so often in recent weeks started the day with a blaze of glory but was unable to maintain gains, finishing the day flat.

Heavyweight miners BHP Billiton and Rio Tinto led the rollover to finish 0.3% weaker and flat respectively while Fortescue Metals gave up gains of more than 4% to finish just 2.7% higher.

Onesteel was a standout performer after delivering a stronger-than-expected 1H profit of $117m, ending the day 5.6% to the upside.

In other earnings news, Primary Health Care lost 11.9% after its first-half net profit of $76.6 million missed market expectations of $91 million. The first-half dividend of 15 cents was also below the expected 17 cents. The company said changes in healthcare funding make growth and revenue predictions for the full year "less definite" than usual. However, it had reasonable expectations that the group, in FY11 and FY12, should be looking to earnings before interest, tax, depreciation, and amortization growth rate of 15% per annum.

Also, there were signs that Mirvac Group (1.4%) is beginning to emerge from the problems of the last few years, after it swung to a first-half net profit of $47.2 million. The result is up from a $645.7 million net loss the year earlier, an indication write downs have peaked as the pace of downward revaluations slow. Underlying earnings rose 59% to $129.4 million, ahead of the $116.4 million average of five analysts' forecasts compiled by Dow Jones Newswires. Higher-than-expected earnings will increase investor confidence that Mirvac will meet or beat its FY EPS guidance of 9.2 cents. The company is positive on the prospects for the residential development market, saying investors, second and third home buyers appear to be filling gap left by first home buyers.

Prices are in AUD unless otherwise stated.
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