Australian Stocks Rise, Santos Wins Approval

Mayank Mehta, Chandrasekhar Atreya and Darlington Musarurwa
28 May, 2010
New York City

Stocks in Sydney continued their advance for the second day in a row on the global optimism and positive comments from China. Virgin Blue lowered its profit outlook but Qantas kept its estimate but cited weaker performance in international segment.

[R]3:00 AM New York, 7:00 PM Sydney – Stocks in Sydney advanced for the second day in a row on the global optimism and positive comments from China. Virgin Blue lowered its profit outlook but Qantas kept its estimate but cited weaker performance in international segment. Suncorp-Metway Ltd doubled the issue of residential mortgage-backed bonds.[/R]

Stocks in Sydney continued their advance for the second day in a row on the global optimism and positive comments from China. Virgin Blue lowered its profit outlook but Qantas kept its estimate but cited weaker performance in international segment.

The Australian dollar gained as Asian stocks extended their global rally boosting demand for high yielding assets. The currency touched 85.34 U.S. cents, the highest since May 19 and gained 2.4% this week.

Australian stocks rose 1.8% buoyed by optimism the global economic recovery is taking root after China indicated that it will not be reviewing its euro holdings and will remain a long term investor in Europe.

The market was also supported by the Spanish government’s move to approve a €15 billion austerity budget to reduce its deficit and Italian prime minister proposed to cut €30 billion in spending.

The Australian dollar gained 0.3% to 83.35 U.S. cents and in Sydney trading ASX 200 Index rose 1.8% or 78.3 to 4,457.50.

Of the ASX 200 index stocks, 161 gained, 35 fell, and 4 were unchanged. Gunns Ltd led gainers in the index shares with a rise of 43.6% followed by Eastern Star Gas advancing 14.6%.

AMP Capital Investors Ltd, the Sydney-based asset manager is buying stocks and commodities after switching global stocks to ‘overweight’ from ‘underweight’ this week.

The firm is betting on a reflex rally as investor’s concerns over budget deficits in Europe recede.

‘The market is oversold and is building a base for a good reflex rally of at least 10% till August’, Nader Naeimi, a strategist at the firm said over telephone yesterday.

CP2 Ltd, Transurban’s largest shareholder is seeking a change in the board of Transurban and will push for one. The bid to buy Transurban by CP2 and two other Canadian pension funds had failed.

‘We really haven’t even considered exiting and we’re certainly seeking a change in the board’, said Peter Doherty, the CEO of Sydney-based CP2 Ltd.

Santos Ltd was the first company to gain Queensland government approval to develop a liquefied natural gas project in the state.

‘This is the first liquefied natural gas project to get conditional approval and so it is important that we get this right’, said Queensland Premier Anna Bligh in a statement today.

The statement confirmed that Queensland Coordinator-General Colin Jensen had cleared the Gladstone LNG venture with ‘strict conditions,’ after reviewing the environmental impact from the development.

The Adelaide-based Santos said it now aims to make a final investment decision later this year as opposed to its previous mid-year target.

Poseidon Nickel Ltd, the Perth-based company is seeking between $50 million and $100 million to start production of stainless steel after renovations in its Mt Windarra project, and is talking to a number of potential investors in China.

‘We are talking to investors and off-take parties in China about funds needed to get us into production within two years’, said CEO of the firm David Singleton in an interview in Shanghai.

The company is planning to build a plant at this site to turn ore into concentrate, Singleton said. The plant will have a capacity to process as much as 800,000 tons of ore per year.

Suncorp-Metway Ltd doubled the issue of residential mortgage-backed bonds to A$1 billion as demand from investors pushed down the cost to the least this year. The original class of these notes totaled A$630 million and was priced to yield 100 basis points above the bank bill swap rate, according to a regulatory filing.

The government also bought A$300 million of these separate class of securities, the filing shows.

Virgin Blue Cuts Profit Forecast by 75%

Virgin Blue today estimated its pre-tax profit this quarter will decline 75% to between A$20 million and A$40 million compared with a previous estimate of A$80 million.

Australia’s second largest carrier also cautioned that average fare may be 10% lower than earlier expected.

“Since the guidance given earlier this month, we have continued to see rapid deterioration and increased volatility in the operating environment, particularly in respect of the leisure segment both domestically and internationally,"" a Virgin Blue statement said.

Virgin Blue gets most of its revenue from the domestic market where passenger numbers were flat in April.

Qantas Maintains Profit Forecast

Qantas announced that it estimated that its underlying profit before tax for the full year ending June 30, 2010 will be between A$300 million and A$400 million as passenger numbers advanced 5.3% in the period.

All units except Qantas international reported positive results.

However, total domestic yields, excluding foreign exchange, for the financial year to April declined 3.8% from the same period a year ago, while international yield fell 14.3% and the group yield dropped 11.5%.

According to the airline, the European volcanic crisis affected performance in April as passenger numbers decreased 19.4% and load factors slipped 3.9 points to 79.4%.

ASX 200 Index Movers

Gunns Ltd. led gainers in the ASX 200 index stocks with a rise of 43.6% followed by Eastern Star Gas 14.6%, Panoramic Resources 9.9%, Spotless Group 9.9%, and Emeco Holdings 8.2%.

Virgin Blue Holdings led decliners in the ASX 200 index stocks with a fall of 27.9% followed by Ausenco Ltd. 5.3%, St Barbara Ltd 4.6%, Mermaid Marine 3.1%, and Isoft Group 2.6%.

Other Movers

Commodity stocks were mixed. Perseus Mining declined 1.5% to A$1.92 and Platinum Australia decreased 1.3% to A$0.76.

However, BHP Billiton increased 43 cents to A$22.52 and Rio Tinto edged up A$1.17 to A$68.20.

Financial stocks gained on renewed confidence in the market. Commonwealth Bank of Australia rose A$1.39 to A$52.12 and Westpac advanced 68 cents at A$23.40.