ASX falls 2.2pc as second wave virus fears grow

Growing fear of a second wave of coronavirus has spurred a 2.2pc drop in the ASX, to take its three-day dive to 7pc.

David Rogers and Melissa Yeo

34 min read

8:49PMJune 15, 2020

A security personnel wearing a protective suit checks the temperature of people entering the Xinfadi market in Beijing on Sunday after a new cluster linked to the market. Picture: Noel Celis/ AFP.

Healius jumps 10pc on $500m sale
Morgan Stanley sets modest ASX target
Ardent’s Main Event gets PE boost
Adbri director jumps to Boral top job

That’s all from Trading Day for Monday, June 15. Australian shares dropped 2.2 per cent as investors weighed the threat of a second wave of coronavirus, taking its three day drop to 7pc.

In company news, Adbri director Zlatko Todorcevski quit to lead Boral as its new chief, while Healius sold off its medical centres to BGH Capital in a $500m deal and Super Retail was halted to raise $203m.

US futures are trading lower, signalling more pain to come tonight.

John Durie 8.45pm: Boral US sale in limbo

A big group of Boral shareholders want the company to sell its US operations but the company’s board has dodged the issue and chairman Kathryn Fagg says it is up to new boss Zlatko Todorcevski to decide.

He starts on July 1 and says he will be in a position to make a call in October after reviewing the state of play, including a report on the issue by internal strategist Ramesh Karnani.

Todorcevski was appointed some four months after outgoing boss Mike Kane signalled his intention to retire in February and by now you will get the feeling nothing happens quickly at Boral.

Fagg has been in the job for two years, presiding over five profit downgrades, and Kane, who formally leaves in September with $2m in termination pay, has presided over a 63 per cent total shareholder return underperformance in his eight-year term. Return on funds from the US operations is 5.3 per cent against total company cost of capital of 8.6 per cent, so clearly it is draining capital.

If the board sees any upside then so be it but if it wants to sell then it doesn’t need to wait much longer.

Lachlan Moffet Gray 8.18pm: Construction materials building online sales

Online sales will be the foundation for the construction materials industry’s future success in the face of a declining housing market, Brickworks CEO Lindsay Partridge says.

In a presentation at the Macquarie Emerging Leaders Forum on Monday, Mr Partridge said the company - manufacturer of ubiquitous brands like Austral Bricks, Bristile Roofing and Austral Masonry - has “accelerated” its digital transformation throughout the coronavirus pandemic.

“During the past two months we have accelerated various initiatives across the group, including digital sales and marketing efforts, new product development and online training and development programs,” Mr Partridge told the forum.

Speaking to The Australian, Mr Partridge said these current efforts specifically involved online programs to communicate to the “influencers” of the designing world - architects and engineers.

“Before we would do a presentation of products in our design studios, but now we are doing it online and we are getting an international audience,” he said.

Mr Partridge also said that he anticipated an “acceleration of industry trends to online shopping”. He told The Australian the company was currently developing new online sales channels.

“The total percentage of online sales at the moment is virtually non-existent ... historically, it’s only been a tiny percentage of building site product sales.

“But we’re seeing the evolution of click and collect. More often we have builders ordering stuff early in the morning so they can rush it out to the job sight.”

Expanding sales channels will be important for Brickworks, which earlier this month announced that it was expediting the “rationalisation” of its workforce due to the coronavirus pandemic.

The vast majority of workers furloughed were in the US, where Brickworks has in the past 18 months acquired construction materials businesses Redland Brick, Sioux City Brick and Glen-Gery, the fourth-largest brick maker in the US, for a cumulative price in excess of $200m.

Ben Wilmot 8.08pm: Investors cool on Ardent’s US deal

Ardent Leisure’s $US80m ($117.6m) deal to sell a stake in its US-based Main Event Entertainment business has received a cool reception from investors as the company battles the coronavirus crisis.

The deal will help smooth the path back to normal operations for Ardent as it prepares for a reopening of its Queensland theme park Dreamworld.

But Ardent’s shares dropped by 7.1 per cent to close at 45.5c on Monday after an initially positive response.

Eli Greenblat 7.27pm: Buderim Ginger gets an offer

China business specialist Dennis Lin, who as executive chairman of baby food company Bubs Australia has helped turn it into a $500m branded manufacturer with strong exports into Asia, is to take charge of a planned sale of Buderim Ginger’s ginger assets to transform it into a pure player in the lucrative macadamia nut market.

Mr Lin is also a colleague of Albert Tse, businessman, former Macquarie Bank executive and husband to Jessica Rudd, the daughter of former Australian Prime Minister Kevin Rudd. Around four years ago Mr Tse gave Buderim Ginger a $10m convertible note, and later became a small personal shareholder in the ginger company.

Mr Tse is a backer of Bubs, and has extensive experience in the food business including helping to organise a takeover of Capilano Honey.

Now the duo could be sharing ideas on the macadamia business. The plans could be big, with Buderim Ginger after its sale of the ginger business to change its name to Health and Plant Protein Limited and seek opportunities in a range of plant-based protein food products.

The ASX-listed Buderim Ginger announced late on Monday night that it had received a takeover offer for its ginger assets, comprising of a factory, tourism sites and a portfolio of ginger brands from Global Foods.

Robyn Ironside 7.12pm: Airlines running on empty

Stringent travel restrictions banning Australians from leaving the country and mandatory quarantine for arrivals have failed to deter a host of airlines from flying down under.

Data compiled by the Bureau of Infrastructure, Transport and Regional Economics for April showed that despite miserly passenger numbers, carriers such as Qatar, Cathay Pacific and Malaysia Airlines operated dozens of flights in and out of Australia.

Qatar even boosted capacity on flights to Perth, Sydney and Melbourne and added services to Brisbane to claim the largest slice of market share of any airline in April.

James Kirby 6.59pm: Looking at gold in volatile times?

Rising fears of a “second wave sell-off” hover over global markets this week, turning investor attention to the potential of gold to offset losses should the market suffer another bout of nerves.

No doubt the new generation of post-crash retail investors who have made money since the market bottomed in March got a major fright when the Dow Jones dropped 7 per cent in a single session on June 11.

For many seasoned investors the way to play such volatility is holding gold - asset allocation analysts regularly suggest investors hold 5 to 10 per cent of the commodity in a diversified portfolio. That’s because of the proven ability of the yellow metal to offer an investment choice that is not correlated to the wider market.

Gold’s “non -correlation” was most notably revealed during the period after the GFC when stocks slumped 50 per cent and gold prices moved substantially higher.

The markets in 2020 do not present the same hazards as 2008-2010 but the unconvincing nature of the latest recovery, along with its inherent volatility, will make gold worth examining in all its forms - bullion, Exchange Traded Funds and listed gold mining companies.

6.39pm: BP flags massive virus hit

British energy giant BP revealed Monday that it will take a hit of between $13-17.5bn in the second quarter on “sustained” coronavirus fallout.

“With the COVID-19 pandemic having continued during the second quarter of 2020, BP now sees the prospect of the pandemic having an enduring impact on the global economy, with the potential for weaker demand for energy for a sustained period,” it said in a statement outlining the impact of both non-cash impairments and write-offs.

BP had already axed 10,000 jobs on COVID-19 fallout one week ago.

AFP

Lilly Vitorovich 5.57pm: Facebook plays down news value

Facebook has played down the value that news stories bring to its operations, as Australia looks to introduce a news media and digital platforms bargaining code that would force technology giants to pay media companies for the news they carry on their platforms.

In its hefty 58-page response to the Australian mandatory news media bargaining code concepts paper, Facebook says “even if there is indirect value to digital platforms from news content, it is not healthy nor sustainable to expect that two private companies, Facebook and Google, are solely responsible for supporting a public good and solving the challenges faced by the Australian media industry”.

“If there were no news content available on Facebook in Australia, we are confident the impact on Facebook’s community metrics and revenues in Australia would not be significant, because news content is highly substitutable and most users do not come to Facebook with the intention of viewing news.

4.50pm: Boral, Healius standout as market tumbles

Amid the wash of red on the market, there were a few bright spots, dominated by news of bright spots and executive moves.

Healius was the best performer for the day after inking a deal to sell its medical centres to private equity group BGH for $500m. The stock finished up 19 per cent to $3.01.

Boral too got a 1.7 per cent boost to $3.54 as it unveiled its new chief executive, former Adbri director Zlatko Todorcevski. Adbri shares slipped 1.9 per cent to $3.10.

Super Retail trade was halted for the company to raise $203m for growth initiatives. Its shares last traded at $7.81.

In other retail news, City Chic said it had finalised rental agreements with most of its store landlords, but would close 14 of its stores. Its shares added 5.9 per cent to $2.71.

Travel names took a hit from rising virus concerns, Flight Centre fell 8.5 per cent to $13.08 as Corporate Travel Group slipped 10.3 per cent to $11.40.

Here are the biggest movers at the close:

Bridget Carter 4.48pm: Myer explores options with KPMG

DataRoom | Department store Myer has tapped insolvency firm KPMG to offer a range of services, including exploring refinancing options and assisting with its supply chain.

MYR finished Monday’s session down 6pc to 23.5c.

4.14pm: Losses stretch to 2.2pc at the close

Losses on the local market accelerated to the close on Monday, stoked by growing fears of a second wave of coronavirus in parts of the US and in Beijing.

Shares dipped only slightly at the open, and fought into the green twice but by afternoon trade reports that Beijing was imposing new lockdowns across 10 neighbourhoods sent shares sharply lower.

The benchmark ASX200 dropped further in the final match to finish at daily lows of 5719.8, down 128 points or 2.19 per cent.

On the All Ords, shares finished down 130 points or 2.18 per cent at 5830.

3.54pm: ASX dropping 2pc

Australia’s S&P/ASX 200 is sinking 2pc to a 2-week low of 5730.9 as S&P 500 futures fall 2.6pc.

It comes after China locked down a second market due to coronavirus after shutting its biggest market on Friday.

The S&P/ASX has pared its fall to 1.7pc but remains down 6.7pc in 3 days, its worst 3-day fall since March 19.

Global mkts start in Risk-Off mode to week as 2nd-wave fears grow. US & European futures retreated along w/Asia shares. >20 US states seeing pick-up in cases, Tokyo reported jump & Beijing fresh breakout. Bonds gain w/US 10y 0.66%. Brent Oil drop to 37.58, Gold 1727, Bitcoin 9.1k pic.twitter.com/aLAJqFQtd8
— Holger Zschaepitz (@Schuldensuehner) June 15, 2020

3.52pm: Severe pullbacks are inevitable: Citi

Citi’s Tobias Levkovich warns clients not to overlook underlying economic trends, beaten-down business and consumer confidence, and potentially permanent job losses due to the pandemic.

While they are focusing on the amount of money the Fed is pumping in to support asset prices, Mr Levkovich notes that the S&P 500 is more closely correlated to forward earnings expectations and coincident income levels than the growth of monetary assets relative to nominal GDP – known as “Marshallian K” – “implying that increased monetary supply must turn into profitability”.

“Economic progress must back up the stock market surge, or severe pullbacks are inevitable,” he says.

He also notes that the level of the S&P 500 relative to sales has “rebounded to problematic levels” after hitting a record high last week.

While that could be appropriate if profitability is higher, the sales relationship is “quite stretched” and Citi’s lead margin indicator is not arguing for a major bounce-back, and commercial & industrial loan lending standards are tightening.

Citi’s clients are looking ahead to 2021 earnings now, But Mr Levkovich thinks that this is “very much priced in already.”

3.42pm: ASIC puts investment schemes on notice

The investment regulator has issued a warning to responsible entities of all managed investment schemes to correct their advertising and disclosure or face the penalties.

ASIC said all entities needed to ensure their investment fund advertising provides clear, balanced and accurate information.

It comes after a study of the sector, which found some funds were providing inadequate information or were not accurately and clearly presenting key features of their investment products including unbalanced comparisons, safety and stability representations and withdrawal representations.

“Current market uncertainty and volatility brings a heightened imperative for REs to ensure consumers are not misled or misinformed. This is critical when it comes to the investment product’s risk profile, returns and the fund’s liquidity,” ASIC deputy chair Karen Chester said.

“It is now widely acknowledged that disclosure alone is not enough to protect consumer interests. But balanced and accurate product information, especially about associated risks, remains fundamental for consumers to have at least a shot at understanding what they are getting into.”

3.25pm: Stock sell-off accelerates

Australia’s S&P/ASX 200 is falling 1.9pc to a 2-week low of 5738.7 as S&P 500 futures drop 2pc amid increasing fear of a second-wave of the coronavirus pandemic in the US and China.

It follows weekend news of a rising case count in 22 US states and a lockdown in part of Beijing after an outbreak in the city’s biggest food market.

Perry Williams 3.15pm: Santos to trim Narrabri stake: Macq

Santos will look to trim its 80 per cent stake in the Narrabri gas project in NSW while partner EnergyAustralia may sell its 20 per cent holding should the joint venture win final planning approvals, Macquarie said.

The $3.6bn development received sign-off from the NSW government on Friday after a three year process and its fate now lies with the Independent Planning Commission which has 12 weeks to make a decision.

If the joint venture approves a final investment decision it may also look to realign the partnership. Santos is seen unlikely to shoulder the majority of the cost while EnergyAustralia’s stake dates back to 2012 and Narrabri’s exploration and production focus may no longer line up with its strategy.

“While there are many potential customers of Narrabri, there may be less players willing to co-invest in the upstream joint venture,” Macquarie noted.

Santos hasn’t drilled at Narrabri for six years and would need to mobilise a rig for a 12-18 month appraisal drilling campaign along with engineering and design studies, the broker added.

EnergyAustralia has already struck a five-year, $500m supply deal with a rival development, the Andrew Forrest -backed Port Kembla LNG terminal, which will compete with Narrabri for gas customers.

Santos Narrabri Gas project has one hurdle left for final approval. Picture: Nathan Edwards.

3.06pm: ASX downgraded as volumes peak: JPM

With the rush of companies raising equity now behind us, JP Morgan argues volumes for the ASX have peaked, a factor in its downgrade of the stock to Underweight.

In a note by analyst Siddharth Parameswaran, the broker notes that strength in raisings had been driven by secondary capital, and while there was some prospect of a lift in primary listings, “this should decline after the next 6 months”.

Further to that, JP Morgan says after equity and futures trading volumes peaked in March, they are now off considerably and are expected to remain lower than history in the stable interest rate environment.

On their calculations the stock is trading at 34x forward earnings and a price-to-earnings ration of 1.64x the broader market.

“It appears on the higher end vs. history when compared to other exchanges,” Mr Parameswaran says.

“While the stock offers considerable earnings certainty, given that it is now trading above levels seen at the start of the year and earnings from here are likely to be at near-term peak levels, and that investors appear to believe in more of a V-shaped recovery, where safe

stocks may not perform as well, we downgrade to UW with a PT of $78.”

ASX last down 2.2pc to $83.23.

Gerard Cockburn 2.44pm: 2 million Aussies tap into super

More than 2 million Australians have requested early access to their superannuation, claiming financial hardship due to the coronavirus pandemic.

Weekly figures released by the Australian Prudential Regulation Authority showed $14.8bn has been withdrawn from the country’s near $3 trillion retirement pool, with 1.98 million account holders already being paid out by funds.

As at June 7, 2.12 million applications have been lodged with the Australian Taxation Office for early withdrawals of retirement balances.

2.24pm: Employment still weak: NAB

The latest ABS household survey on the impact of COVID-19 as of late May shows employment “remains weak” near its early April lows, and a jobs recovery has “not yet begun” despite restrictions easing from mid-May, says NAB economist Kaixin Owyong.

While many Australians are comfortable seeing health professionals face-to-face and returning to workplaces, many remain uncomfortable with large events, eating out and taking public transport.

Perhaps more worryingly, NAB’s special coronavirus survey also highlights behavioural changes due to the pandemic, with many citing increased personal hygiene, less travel and more precautionary saving, Mr Owyong adds.

1.34pm: EPS consensus improving

The consensus estimate for S&P/ASX 200 12-month forward EPS is improving as market watchers become more optimistic.

Bloomberg’s estimate of 12-month forward consensus EPS had risen 1pc from an 11-year low of $296.61 on June 5, to $299.50 by Friday.

This is far the biggest rise in 12-month consensus EPS since the S&P/ASX 200 bottomed on March 23.

A sustained recovery in consensus EPS is important because it will help limit near-term overvaluation after the 12-month forward PE ratio hit a record high near 20 times last week.

Morgan Stanleys’ Chris Nicol argues that a rising 24-month forward consensus EPS estimate is more important.

His above-consensus macroeconomic view puts 24-month forward EPS about 9pc above consensus, Mr Nicol tells The Australian.

1.23pm: Beijing extends new lockdowns

China has locked down ten more Beijing neighbourhoods over a virus cluster, according to reports from AFP.

Beijing has carried out mass testing after 36 of China’s 57 new cases on Sunday were linked to a wholesale food market in the capital.

The city has raced to quash the new outbreak, issuing travel warnings, closing the market, deploying paramilitary police and putting nearby housing estates under lockdown.

AFP

1.01pm: Shares fail to hold gains

Shares have twice fought into the green so far today, but are holding lower at lunch as second wave concerns prompt risk aversion.

At 1pm, the ASX200 is off by 25 points or 0.4 per cent at 5823.2, after adding as much as 10 points in earlier trade.

Just tech is higher, buoyed by a 4pc jump in Afterpay while staples and consumer discretionary stocks fall hardest.

Wesfarmers is off by 3pc, Woolworths by 2.5pc and Coles by 0.9pc.

Gerard Cockburn 12.48pm: Super Retail eyes growth after pandemic

Super Retail Group says its decision to raise capital is an attempt to assist its strategic growth strategies as its trade picks up after COVID-19 disruptions.

The retail conglomerate announced it is undertaking a $203m equity raising, to support ongoing growth projects within its four retail brands, Supercheap Auto, Rebel Sport, BCF and Macpac.

In the same trading update it noted like-for-like group sales fell by 26.2 per cent in April, compared to the same month in 2019.

Chief executive Anthony Heraghty said the capital boost will strengthen the performance of the group’s key brands, while further pushing its business simplification plan.

“The execution of our strategy has continued during COVID-19, with our four core brands well positioned to take advantage of shifts in consumer behaviour that have been observed through the pandemic,” Mr Heraghty said.

Like-for-like group sales for May rebounded as restrictions were eased, with group sales 26.5 per cent compared to the same time last year.

The equity raising will consist of approximately 28.2 million fully paid ordinary shares, representing 14.3 per cent of shares already on issue. New shares will be issued at a fixed price of $7.19 each.

Read more: Super Retail raising $203m

Patrick Commins 12.27pm: Crowds still off limits: ABS

Most Australians were itching to dine out at restaurants and cafes again but were overwhelmingly still wary of large crowds, according to the ABS’s latest household survey.

The Australian Bureau of Statistics’ latest survey on the impact of COVID-19 on Australian households was conducted over the final weekend of May at a time when states and territories were announcing plans to lift social distancing measures on eating establishments.

Three in five respondents told the ABS they were looking forward to dining out again, but three quarters were uncomfortable with the idea of attending a large public event.

ABS program manager for household surveys Michelle Marquardt said that the survey found “the level of comfort felt by Australians in returning to their usual activities following the easing of restrictions varied considerably depending on the type of activity”.

ABS survey shows people are happy to go back to work but very uncomfortable on how to get there & they won't be flying or going to the footy soon. This underscores at least a temporary changes in consumer behaviour that will define recovery even as restriction are lifted #ausbiz pic.twitter.com/f30wV82lPY
— Alex Joiner (@IFM_Economist) June 15, 2020

12.23pm: China data undershoots expectations

The latest data drop from China on May industrial production has fallen short of expectations, adding just 4.4pc from expectations of 5pc year-on-year growth.

For the year-to-date, industrial production was down 2.8pc versus expectations of a 3pc slide.

Year-to-date retail sales was down 13.5pc, in line with expectations and following a 16.2pc slip last month.

New home prices edged higher just 0.49pc from 0.42pc last month.

Perry Williams 12.09pm: New Boral boss to speed up US exit

Boral’s appointment of Zlatko Todorcevski as chief executive may hasten a sale of its US business as part of a major overhaul of the construction materials giant, Jefferies analysts said.

Mr Todorcevski, who will replace long serving boss Mike Kane, is the second catalyst for change at Boral after the emergence of Kerry Stokes’ Seven Group as a major shareholder signalled a shift from passive to active investor ownership.

A “North American sale and completion of the Knauf joint venture are still to come to provide management clarity and focus and much welcome balance sheet relief if and when an appropriate buyer can be found for all of part of the US business,” Jefferies analyst Simon Thackray said.

Boral’s US business is worth less than the $3.5bn it paid for Headwaters in 2016, dragging down returns on funds employed, with a potential deal providing balance sheet relief.

“An exit from North America on our valuation would all but extinguish the USD debt burden, reduce span of control to promote management focus and result in a business that delivers returns on funds employed through cycle well above weighted average cost of capital,” the broker said.

Selecting a local executive to take on the top role at Boral also hints at its likely domestic focus compared with the US background of Mr Kane.

After years of international travel and offshore responsibilities, Mr Todorcevski has “adopted a domestic personal preference and we see a local appointment as a likely signal of a renewed domestic focus at Boral”, Jefferies noted.

Boral shares last up 7.2 per cent to $3.73.

11.51am: Goldmans sceptical of EPS rebound

Goldman Sachs Australia equity strategist, Matt Ross, remains sceptical that corporate earnings will recover as fast as consensus estimates imply, though shares are “slightly cheap” relative to bonds.

“While structurally low interest rates are a clear positive, and we have been highlighting the risk of positive earnings momentum in the very short-term given an earlier end to Australia’s hibernation coupled with an unprecedented level of fiscal and monetary support, we remain concerned about the medium-term outlook for earnings as fiscal stimulus fades,” Mr Ross says.

Of course the dreaded “fiscal cliff” that he is concerned about might be avoided by tapering of fiscal stimulus.

While looking beyond this years’ earnings does little to improve the valuation picture in an absolute sense, Mr Ross notes that “the expectation of persistently low interest rates is clearly a positive factor, and a clear departure of recent bear-market recoveries.”

On his estimates, the S&P/ASX 20 now trades an average 12-month forward PE of 18.1 times, which is 26 per cent above the 20-year average. Looking further out – and assuming that whatever earnings are lost this year are recovered by FY22 – takes the valuation to 16.2pc, which is only slightly less expensive in a historical context.

He also notes that what currently looks like extreme valuations on many cyclical stocks improves somewhat looking two years out, including steel, diversified financials, banks and gaming.

In the ASX100, relative valuations improve the most for QBE, Star Entertainment, Oil Search, Crown, Lend Lease, Cochlear, Nine Entertainment and Westpac.

Bridget Carter 11.30am: Another exec was in Boral’s sights

Adelaide Brighton deputy chairman Zlatko Todorcevski may be the successful candidate for the role as chief executive of Boral, but it is believed that another high-profile industry executive was also in the sights of board members from the country’s largest building materials operator.

There is talk in the market that Kevin Gluskie was also approached for the job to replace Boral’s current boss Mike Kane, but turned the opportunity down to continue with his role running the Asia-Pacific operations for Heidelberg Cement.

The Tasmanian-born executive who studied engineering and holds an MBA is also a member of Heidelberg Cement’s managing board and globally is in charge of the Competence Centre Readymix and Global Market Intelligence and Sales Processes.

Originally, Mr Gluskie joined Pioneer, which was acquired by Hanson in 2000 and he is highly regarded in the industry.

Mr Todorcevski’s appointment as the new Boral boss was announced Monday and he is expected to have a strong focus on the allocation and cost of capital.

Eli Greenblat 11.17am: City Chic to close 14 stores

Fashion retailer City Chic said it has secured new rental agreements with its landlords in the wake of the coronavirus. But rents on 14 stores currently in-between leases could not be agreed to and those will be shut down, the company said.

In a statement to the ASX on Monday, City Chic said it had finalised negotiations with landlords and agreed to reduced rents for periods covering store closures, as well as appropriate rents in the future.

But as part of the process, City Chic has decided to close 14 “holdover stores” not covered by a current lease, where it was unable to reach agreement on appropriate post COVID-19 rents.

CCX shares last traded higher by 6.3pc to $2.72.

11.15am: ASX slips further after bounce

Australia’s share market has come under pressure again after a brief intraday bounce.

The S&P/ASX 200 fell 0.6pc to 5809.1 after bouncing from 5819 to 5857.7.

It came as S&P 500 futures fell 1.5pc, suggesting Wall Street will retest the two-week lows reached on Friday.

Strangely, defensive stocks continue to underperform, with Woolworths down 2.6pc and Coles down 2.3pc

Ben Wilmot 11.08am: Ardent climbs 13pc on US investment

Dreamworld owner Ardent Leisure Group has jumped by 13pc in morning trade after striking up a partnership with private investment firm RedBird Capital Partners that will pour $US80m into Ardent’s ailing US-based Main Event Entertainment operation.

Ardent has been hit by the closure of its Queensland theme park and has just reopened a swag of the US venues as they were closed due to the coronavirus crisis.

RedBird will take a 24.2 per cent preferred equity interest in Main Event, valuing the business at an implied enterprise value of $US424m. putting it on an eight times earnings multiple.

RedBird has also been granted an option to acquire an additional 26.8 per cent interest in Main Event from Ardent, exercisable between July 2022 and July 2024, which could give it majority control if exercised.

Ardent shares had jumped by 13.26 per cent to 55.5c as investors backed the deal as it also puts a floor under the value of the US operations.

The initial board will consist of Main Event chief executive Chris Morris, Ardent Leisure directors Gary Weiss and Brad Richmond, as well as RedBird Partners Andrew Lauck and Dan Swift.

Investment bank Goldman Sachs was financial advisor to Ardent and Main Event.

Safely is how we roll. Learn about all the ways weâ€™re keeping you and our team safe at https://t.co/3ls7Ary4dI. pic.twitter.com/Vmfzw1V3Pm
— Main Event (@MyMainEvent) June 1, 2020

Bridget Carter 10.55am: Uniti’s $270m raise covered

DataRoom | The $270m raise by Uniti Group for its proposed acquisition of OptiComm is understood to be already covered.

Uniti has carried out the raise through Goldman Sachs and Merrill Lynch Equities and it involves 1 share being sold for every 1.68 held.

Shares are being sold at $1.40 each, which is a 9.1 per cent discount to the last close of $1.54.

The bid for OptiComm by Uniti an offer of $537m, $407m of which is through cash and the remainder is scrip.

10.48am: Healius jumps 10pc on centre sales

Healius is the best performer on the market in the first hour, after inking a deal to sell its medical centres to BGH Capital for $500m.

The private equity outfit will buy the Healius Primary Care business, leaving Healius to retain its day hospitals and IVF divisions and to continue to operate its existing pathology collection centres and imaging clinics.

Alongside the sale, Healius said it was experiencing good growth in activity as coronavirus restrictions ease, but noted that up to $75m of the deal proceeds may be deferred if the earnings of its dental clinics haven’t returned to pre-COVID-19 levels at the time of completion.

Healius said it had also refinanced a syndicated debt facility of $500m that had been due to mature in January 2021, now $570m due in January 2024.

HLS last traded up 10.7pc to $2.80.

10.40am: ASX recovers from early dip

The early dip on the local market has been brief, with shares popping higher and signs of a renewed rotation to value.

The S&P/ASX 200 share index is flat at 5448 after falling 0.5pc to 5818.9 even as S&P 500 futures are down 1.3pc amid COVID-19 jitters in Beijing and some US states.

Consumer Staples, Health Care, Consumer Discretionary, Utilities and Communications stocks are underperforming while Real Estate, Energy, Financials, Technology and Industrials outperform.

Interestingly, CSL, Wesfarmers and Woolworths are the biggest drags on the market with falls of 1.2pc, 1.8pc and 1.6pc. At the same time, Commonwealth Bank, ANZ and BHP are providing the most support. Amcor and Scentre are up more than 2pc.

Strength in Tech is also interesting because Tech didn’t lead the S&P 500 bounce on Friday, although it was up.

Tech standouts today include Appen, NEXTDC and Nearmap, up 2.2pc, 1.7pc and 2.9pc.

S&P/ASX 200 last down 0.3pc at 5830.

Joyce Moullakis 10.30am: Suncorp hires ex CBA exec Bennett

Suncorp has plugged a key executive hole with the appointment of former Commonwealth Bank executive Adam Bennett to the role of chief information officer.

In an ASX statement on Monday, the insurance and banking group said Mr Bennett would start in the role on July 1, subject to regulatory approval.

Mr Bennett held a range of technology and banking roles at CBA and was most recently the bank’s group executive for business and private banking until early this year. He also held other roles at the bank including information chief for the retail and business banking divisions.

The appointment follows the departure of former CIO Sarah Harland in March. Darren Abbruzzese has been the interim CIO.

But Suncorp is yet to fill another key role among its ranks after last month’s departure of Lee Hatton, the chief executive of Suncorp’s banking and wealth management unit.

SUN last traded down 1.5pc to $9.16.

Ben Wilmot 10.25am: Centuria makes fresh bid for Augusta

Centuria Capital Group has reignited its bid for the NZ-listed Augusta Capital by making a $130m takeover play, that could see the property funds company grow its asset under management to almost $9bn.

The move is one of the first consolidation plays in the wake of the coronavirus crisis in the property sector and more are expected as company’s deal with stretched balance sheets.

The proposed offer would give Augusta shareholders 20c in cash and 0.39 Centuria shares in exchange for each of their Augusta shares.

The implied offer price of $NZ1 per share is a 46 per cent premium to the closing price of Augusta shares last Friday of NZ69c.

Centuria’s initial bid in January was for $NZ2 per share. However, this bid was withdrawn due to global uncertainty regarding the COVID-19 pandemic.

10.13am: Shares slip on virus jitters

The local market is falling in early trade, adding to weakness at the end of last week as global coronavirus case numbers spike.

In opening trade the ASX200 is lower by 26 points or 0.44 per cent to 5821.9.

All sectors bar tech are lower, led by energy and health care.

10.08am: Morgan Stanley sets modest ASX target

Morgan Stanley Australia equity strategist, Chris Nicol, has set a modest 12-month target price of 6200 for the S&P/ASX 200, implying a 6 per cent rise from the current level.

But while index levels are feeling “valuation stretch”, he sees opportunity in “early-cycle” rotation to value stocks.

“While outright 12-month gains now look modest, fundamentals, valuations and technicals all support more rotation towards many traditional early-cycle beneficiaries,” Mr Nicol says.

Given the investment bank’s “increased conviction in a sharper but shorter economic downturn, and Australia’s relatively strong performance through the June trough’, Morgan Stanley has upgraded its Australian growth forecasts to project a 2020 fall 3.7pc on year – the smallest of the G10 – while a slowing recovery from Q4 sees 2019 output reached in 4Q21 – in line with other developed markets, and earnings back to 2019 levels by FY22.

“Fiscal policy is vital to the outlook – we expect a tapering in support but no cliff, with the RBA’s policy stance unchanged throughout,” Mr Nicol says.

And economic recovery combined with an “extreme gap” between value and growth stocks is “sending warning signals regarding the potential for a more sustained rotation event.”

His forecasts assume “that in a world of low rates, ultimate recovery in economic activity, and continued policy support, that multiples stay elevated compared to the long run.”

9.57am: Ardent’s Main Event gets $117m PE boost

Theme park and leisure centre operator Ardent has inked a $US80m ($117m) deal with private equity group RedBird Capital Partners for its Main Even entertainment centres.

The deal is for a 24.2pc interest in the US business, with the option to acquire a further 26.8pc interest at a future date.

Ardent said the deal would enhance the financial flexibility of Main Event and position the company for future growth.

The deal values the Main Event group at $US424m ($621m), with an enterprise value to earnings multiple of 8x based on CY19 earnings.

“We are excited by this new partnership with RedBird which not only reinforces Main Event’s financial strength and liquidity, but also provides a value-added strategic partner who can help drive the Company’s growth and expansion plans in the United States,” chairman Gary Weiss says.

Lachlan Moffet Gray 9.40am: Woolies lifts all purchase limits

Supermarket giant Woolworths has announced that all remaining purchase restrictions on items designed to stem COVID-19 panic buying will be removed from today.

It comes three weeks after competitor Coles did the same, meaning the majority of Australian supermarket consumers will be able to buy any item in any quantity for the first time since March.

The last of the remaining categories with restrictions being removed today are antibacterial wipes, hand wash and frozen fruit. Product limits that existed before the coronavirus pandemic, like those on baby formula, remain in place.

“This is a big milestone and a positive sign following months of hard work from our teams and significant support from our suppliers to ensure the replenishment of our shelves during a period of extraordinary demand,” supermarkets managing director Claire Peters said on Monday.

Panic buying at the onset of the coronavirus pandemic led to buying limits on products such as toilet paper. Picture: AAP Image/James Gourley.

9.37am: Virus jitters could restrain trade

The Australian sharemarket faces more coronavirus jitters which may generate a retest of the two week lows it reached on Friday.

Friday night futures relative to fair value had suggested the S&P/ASX 200 would open down just 0.2pc after the S&P 500 rose 1.3pc. But S&P 500 futures fell as much as 1.7pc this morning with COVID infection rates rising in 22 US states over the weekend and part of Beijing locked down after an outbreak in the city’s biggest food market.

White House economic aide Larry Kudlow said Friday that the US won’t shut down again and isn’t seeing a “second wave”, but infectious disease department head, Anthony Fauci, said US States should rethink reopening strategies if hospitalisations increase.

S&P 500 futures have pared the early fall to 1.2pc, but still suggest the S&P 500 will again probe its 200-day moving average support at 3014. Thus, Australia’s S&P/ASX 200 may retest Friday’s low at 5756.5.

But with real time measures of S&P 500 futures sentiment remaining net bearish, central bank liquidity continuing to provide massive support, high-frequency economic data recovering and mass lockdowns likely over, shares remain a buy on dips.

Focus turns to China’s release of new home price data at 11.30am AEST, followed by monthly economic activity data for May, due at 12.00pm AEST.

Other events this week include, RBA Minutes, Senate testimony from Fed’s Powell, domestic employment data and BoE and BoJ meetings.

9.32am: What’s on the broker radar?

ASX cut to Underweight – JP Morgan
Crown Resorts raised to Overweight – Morgan Stanley
Fortescue cut to Hold – Shaw and Partners
New Hope rated new Buy – Goldman Sachs
Reliance Worldwide raised to Outperform – Credit Suisse
Star Entertainment cut to Underweight – Morgan Stanley
Stockland cut to Neutral – JP Morgan
Unibail Rodamco Westfield target price cut 24pc to $4.80 – JP Morgan

9.15am: Propel Funerals revenue bounces back

Funeral home operator Propel says easing of attendee limits in Australia and New Zealand has sparked a rebound in its average revenue per funeral, as it set out guidance for record annual earnings.

COVID-19 restrictions in April prompted a 10pc decline in average revenue per funeral, but Propel notes today that May revenues had rebounded 8pc in May and were likely to head higher as attendee numbers grow.

Despite that, Propel, the second largest provider of death services in Australia and New Zealand, said it was on track for revenue of $110m for the year and operating earnings of $32m.

The group said higher personal hygiene measures would likely result in a benign flu season this year and consequently trim death rates, but that volumes were forecast to increase in the longer term as the ageing population trend persisted.

Full year results will be released in late August.

PFP last traded at $2.88.

John Durie 8.54am: Downer not rushing Spotless sale

Downer boss Grant Fenn is in no rush to sell his $250m laundry business even after granting exclusivity to private equity fund Adamantem earlier this year.

Last week Alsco joined Anchorage’s South Pacific Laundry in seeking ACCC approval to buy the division.

Both were encouraged to seek clearance in case the Adamantem deal fell through.

The South Pacific deal is due to be cleared on July 23 and the Alsco deal on August 27.

The combined South Pacific and Downer laundry operations firm would control 57 per cent of the laundry linen market, with the former Spotless operations having a 25 per cent market share.

Bridget Carter 8.35am: Super Retail raising $203m

DataRoom | Super Retail Group is raising $203m through an entitlement offer, with Macquarie Capital and UBS on the ticket.

Shares are being sold at $7.19 each, a 7.9 per cent discount to their last traded price on June 12. The raise represents 14.3 per cent of shares on issue.

A term sheet sent to investors says entities controlled by founder and rich lister Reg Rowe have expressed their support for the equity raising and have committed to take up their full entitlement, representing a subscription of $59.2m new shares in the equity raising, and remain committed to their shareholding for the long term.

The use of the proceeds for the company that owns retail brands such as Macpac and Rebel and Supercheap Auto are to enable the group to continue to execute its strategy and continue to pursue strategic growth initiatives.

They will also allow Super Retail to position the business to take advantage of changing consumer trends by returning capital spending to historic levels of about $90m per annum, even if a softer trading environment emerges.

8.03am: Boral names new CEO

Building materials group Boral has named Zlatko Todorcevski as its new managing director and CEO. He will take up the position at the start of July.

“This will allow a transition period with Boral’s current CEO and managing director, Mike Kane, who will retire from Boral in September,” the company said in a statement to the ASX.

Mr Todorcevski had 30 years experience, in steel, logistics and energy businesses, including stints as CFO at Brambles, oil Search and BHP USA, Boral said.

Zlatko Todorcevski.

He has been on the board of Adelaide Brighton since 2017 and chairman since May 2019, but will give up the position to take up the new role at Boral.

“ Zlatko is also on the board of Coles Group Limited, where he serves as chairman of the Audit and Risk Committee, and The Star Entertainment Group Ltd, where he is chair of the Audit Committee. He will complete an orderly transition off those Boards over the coming months,” Boral said

7.24am: ASX to edge higher

Shares are expected to gain at the opening of the trading week on the ASX, after technology and financial stocks in the US pushed Wall Street higher on Friday.

The local SPI 200 futures contract was higher by 24 points, or 0.41 per cent, to 5,834.0 at 7am on Monday, indicating gains in share values early. Bargain hunters returned to US markets on Friday after grim Federal Reserve projections for the economy had caused plenty of selling midweek. The cautionary economic forecast and concerns over a possible resurgence of COVID-19 had tempered investors’ appetite.

Data on people arriving in Australia from overseas in April is due to be published today, and may give some indication of how the airline industry is tracking amid the coronavirus pandemic.

The Australian dollar was buying 68.42 US cents at 0700 AEST, down from 68.61 US cents at the close of trade on Friday.

Alan Kohler 7.14am: Staying out of US-China fight

If the coronavirus has taught us anything it is that politics always beats economics.

Faced with the prospect of a large and unpredictable number of deaths, and an overwhelmed health system, governments everywhere chose to shut down their economies and throw millions out of work.

Australia did that more effectively than most, and an economic depression with very few COVID-19 deaths is the result.

The same principle – that politics trumps economics – applies to the developing cold war between the United States and China.

President Donald Trump began a trade war that involved increasing the taxes that Americans pay for goods from China, seriously damaging the US economy, for purely political reasons. The close integration of the two economies has clearly been as beneficial for the US as for China, but an enemy “over there” is too useful for a President entirely focused on winning the next election.

As Trump’s polling deteriorates because of his mishandling of the pandemic, and now his mishandling of the racism protests, he is escalating the conflict with China as a political distraction.

READ MORE: Word’s getting out: we’re not that racist|Fresh cluster raises fears for control|Andrews defends China deal despite execution|China tensions threaten coal

Meanwhile, no doubt seeing this country as a weak link in the American chain, China is heaping political pressure on Australia in a variety of ways, including advising Chinese students to rethink coming here to be educated, sentencing an Australian to death for having some methamphetamine and wedging the federal and Victorian Governments by signing Premier Daniel Andrews up to the Belt and Road infrastructure cash splurge.

Getting Australia to openly side with China in Cold War 2.0 would be a huge victory for Xi Jinping in his battle against Trump’s America.

But it can’t happen.

Eli Greenblat 6.08am: PAS garners interest

The administrators of failed fashion retailer PAS Group have received expressions of interest from about 30 parties keen on restructuring parts or all of the fashion chain, with non-binding indicative offers due by June 30 and binding offers to be lodged in the second half of July.

At an update to creditors last week by PwC partners Stephen Longley, David McEvoy and Martin Ford as voluntary administrators, the meeting was provided with an update on the interest from outside parties to save the business as well as early investigations into the collapse of PAS Group late last month.

The administrators remain confident that, despite the economic downturn caused by the coronavirus pandemic, PAS can be restructured, and with the help of fresh equity and renegotiated deals with landlords can emerge from voluntary administration as a successful retail chain.

The creditors’ meeting was told there were 30 parties that lodged an expression of interest in parts or all of the PAS retail business, mostly from domestic companies, with the bulk of the interest in either buying PAS as a whole or picking off its contract design and manufacturing arm Designworks.

6.03am: France reopens

President Emmanuel Macron announced that France is fully reopening its economy, including all restaurants, to accelerate the country’s recovery after virus crisis.

Macron said restaurants in the Paris region will be allowed to open indoor seating starting on Monday. Until then, only outdoor seating was permitted. Restaurants in other French regions have already reopened.

From June 22, all nursery schools, primary schools and junior high schools will be open and mandatory for all students – instead of classes capped to small groups and many children staying at home.

Macron also confirmed that the second round of local elections that have been interrupted by the virus lockdown will take place on June 28. “We must relaunch our economy,” Macron said.

France is reopening its borders with other European countries at midnight and will start allowing visitors from other continents on July 1st. The country, which has reported at least 29,398 deaths from the virus in hospitals and nursing homes, has been under strict lockdown from March 17 to May 11, before gradually easing restrictions.

5.56am: China US’ largest trading partner

China has retaken its mantle as America’s largest trading partner, emerging as a rare bright spot for US farmers and other exporters as the coronavirus pandemic constrains global commerce.

Trade between the two nations rose to $US39.7 billion in April, up nearly 43% from the month before, and enough to once again surpass Mexico and Canada. The jump followed the signing of a trade pact in January in which China agreed to sharply step up purchases of US farm products and other goods.

US-China trade remains well below the record $US61.4 billion set in October 2018, and economic fallout of the coronavirus pandemic has cast doubt on China’s ability to meet ambitious purchase targets set in the trade accord. China is nonetheless the only major world economy likely to post positive growth this year, according to a recent World Bank forecast.

“China looks like it could be the biggest engine of global GDP growth in 2020 and maybe 2021,” said Craig Allen, the president of the US-China Business Council. “We want American companies to benefit from that absolutely.” Despite the rise, China is so far not on pace to meet purchase terms under the trade pact, which specifies that it increase purchases of US goods and services by $200 billion over 2017 levels over a two-year period.

Mr Allen contends that the deal shouldn’t be judged solely on the purchase targets, however, pointing out that China’s commitment to scaling back regulatory measures is of greater long-term significance to US companies.

“There have been very significant regulatory changes in intellectual-property rights, agriculture and financial services,” said Mr. Allen.

Dow Jones Newswires

5.49am: What’s on this week

China’s business-activity report for May is expected to reflect a slow recovery amid Beijing’s efforts to reboot its economy. Economists are forecasting a pick-up for value-added industrial production alongside a slower pace of declines for retail sales and fixed-asset investment.

On Tuesday the Bank of Japan is expected to hold off on any major policy moves as it assesses damage from the coronavirus pandemic and the effectiveness of central-bank policies to boost the economy.

US retail sales likely rebounded in May as states eased lockdowns, some businesses reopened and more consumers ventured out. Even a significant swing, however, won’t be enough to bring spending back to pre-pandemic levels.

US industrial production collapsed in March and April. Data for May are expected to show a pick-up in activity as auto and other manufacturers resumed or ramped up operations. But low oil prices likely held back the mining sector, one of the key components in the report.

Federal Reserve Chairman Jerome Powell makes the first of two virtual appearances on Capitol Hill to deliver the central bank’s semiannual monetary-policy report to Congress. The Fed slashed rates near zero and is deploying trillions of dollars to support the economy, and Mr. Powell has urged politicians to do even more.

On Thursday the Bank of England is expected to announce an expansion of its asset-purchases program to further cushion the UK economy during the coronavirus pandemic. The central bank is closing in on the £645 billion target for its bond portfolio, and economists expect the rate-setting panel to authorise another £100 billion of purchases.

U.S. applications for unemployment insurance have been falling steadily but remain historically elevated. If the trend continues, figures for the week ended June 13 will suggest the labour market is slowly healing while still far from healthy.

Dow Jones Newswires