Australian Stock Market Report – Midday 2/11/14

MID-SESSION REPORT
(12.45pm AEDT)

Despite a slightly weaker start this morning, the Australian sharmarket is managing to maintain some modest gains at lunch. The All Ordinaries Index (XAO) is up 0.4 per cent and has cracked through 5250.0pts.Our second largest trading partner; Japan is closed today for a holiday1.

The earnings season heats up today, with Cochlear (COH), Bradken (BKN) and ANZ Banking Group (ANZ) amongst those to issue profit numbers with mixed results.

Inner ear implant maker, Cochlear (COH) shares are down 9.7 per cent; its worst daily fall in eight months after announcing a 73 per cent slump in half year profit to $21 million. COH has also downgraded its profit expectations for the full year. A $1.27/s half year dividend was announced.

Engineering firm Bradken (BKN) is down 10.1 per cent after announcing an 18.5 per cent slump in half year profit to $38.1 million (for the six months to December 2013). It blamed a drop in sales for the disappointing outcome. Despite today's share price weakness, BKN is still up by more than 10 per cent since the start of January 2014.

One of Australia's big four banks, ANZ Banking Group (ANZ) delivered a 13 per cent rise in cash profit for the three months between October and December 2013 to $1.73 billion. This was around 3 per cent better than most market expectations however was in line with the company's own guidance provided last year. The surge in profit was driven by a bigger than expected fall in bad and doubtful debts (BDD) to $191 million (about $100 million better than forecast). These are essentially loans that are deemed unlikely to be recouped by the bank. The result was helped by a low interest rate environment as it makes it easier for Australians to afford their mortgage repayments. As a side note, cash profit is often quoted rather than net profit when analysing a bank as the result strips out one off items which can skew the company's underlying performance. Lending growth in its small business and corporate sectors remained robust while the Net Interest Margin (a measure of bank profitability) eased slightly.

On the economic front, a monthly report on confidence showed that businesses are a little more optimistic. A housing finance reading highlighted a 1.9 per cent fall in new home loans in December.

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