Shares add 0.8pc as US optimism trumps second wave fears
Market bulls triumphed in a choppy local session, sending the ASX up 0.8pc as US optimism won out over fears of rising virus cases in China.
- ANZ upgrades forecasts, still no V
- Infigen recommends rival takeover bid
- CSL financial chief jumps to BHP
- Carsales warns of 10pc profit slip
That’s all from Trading Day for Wednesday, June 17. Shares finished at their best levels of the day, up 0.83pc after a blip into the red at lunch. Overnight, record US retail sales spurred a jump on Wall Street, while the reinstatement of some coronavirus containment measures in Beijing spooked some Asian markets.
In company news, Infigen recommended a Spanish takeover proposal to its shareholders, while Carsales reported a lift in first-time car buyers and ANZ upgraded its economic forecasts but warned there will be no V-shaped recovery.
US futures point to gains to come overnight.
Adam Creighton 8.45pm: May jobless rate ‘a crapshoot’
Record uncertainty about the job market and doubts over the relevance of the official unemployment rate have prompted calls for more information on the number of welfare recipients and a rethink of how “unemployed” is defined.
Forecasts for the May unemployment rate, to be released at 11:30am on Thursday, ranged from 6.3 per cent to 8.5 per cent according to Bloomberg, the widest gap in at least a generation as analysts struggle to understand how JobKeeper, JobSeeker and the pandemic are affecting worker and business decisions.
“It’s a complete crapshoot,” declared economist Saul Eslake who called on the government to publish weekly figures on the number of JobSeeker recipients.
“This data is available. Ministers see the figures weekly. It shouldn’t be a state secret and the US has been publishing this sort of data since 1967.”
Mr Eslake said the May jobless rate — likely to be 6.9 per cent — would be nearer to 13 per cent if the 1.64 million recipients of JobSeeker and the youth allowance (as of late May) were counted as unemployed.
JobSeeker recipients did not have to look for a job until June 9, meaning they weren’t classified as unemployed by the Australian Bureau of Statistics.
Joyce Moullakis 8.15pm: Financial planning industry granted reprieve
The battered financial planning industry was granted a reprieve on Wednesday that gives it more time to meet tougher professional standards and qualifications, following intense scrutiny of the sector at the Hayne royal commission.
Legislation was passed through federal parliament that gives existing planners additional time to meet qualification and examination requirements set by the Financial Adviser Standards and Ethics Authority (FASEA).
The law now mandates that existing advisers must complete the FASEA exam by January 1 2022, reflecting a one-year extension, while they have an extra two years to meet qualification requirements now due by January 2026.
These changes do not apply to new advisers registered after January last year. The new FASEA requirements were put in place to help rebuild consumer trust in the battered financial planning industry, which has been caught up in a number of scandals in the past five years.
The industry received breathing space on the professional standards when the legislation overcame a hurdle posed by a proposed amendment by South Australian senator Rex Patrick. The impediment was removed when the amendment was withdrawn.
Jane Hume, assistant minister for superannuation and financial services, said the new timetable provided “welcome relief” and certainty to financial advisers.
“The government recognises how valuable access to quality professional financial advice is, particularly at the moment during the COVID-19 crisis. ”
The new timetable follows a report by Adviser Ratings last month that showed just 7488 advisers had done the exam, with 1080 failing to pass.
Nick Evans 7.53pm: BHP looks outside its own ranks
The last time BHP looked outside its own ranks to appoint a new finance boss was in 1999, when Paul Anderson tapped Chip Goodyear to help rescue a company wallowing in debt and with little clear vision for the future.
The clear differences between BHP now and then arguably make Mike Henry’s decision to recruit CSL chief financial officer David Lamont to fill the role even more surprising.
The early pitch to shareholders from the new BHP boss was that his leadership of the world’s biggest miner would be, essentially, more of the same, only faster.
The focus on operational performance would remain, but sharper and paired with a reshaped emphasis on innovation in the search for the next wave of productivity gains through technology and data.
The expectation was that Henry would seek to achieve that with the team already in place at BHP — some would depart, obviously, but the group that has worked so hard over the last five years to transform the company would largely remain intact to continue the work.
Henry’s progress in installing his own executive leadership team and putting his own stamp on BHP has been badly interrupted by the coronavirus crisis, and the shape of his strategy for the company is not yet clear.
Stealing a key executive from Australia’s most successful biotechnology company is a step towards building a greater culture of innovation and accelerating BHP’s adoption of new technology, Henry believes, with Lamont also offering a valuable set of external eyes on the work of its established management group.
Ben Wilmot 7.20pm: Primewest creating $300m Aust shopping centre fund
The John Bond-chaired property fund manager Primewest has unveiled plans to create a new $300m Australian shopping centre fund that is focused on daily needs shopping.
The unlisted fund, backed by a new institutional mandate, will be grown into a major neighbourhood retail property trust.
The new trust has the Spring Farm Shopping Centre south of Sydney under contract as its first property, after striking a deal to acquire the complex from Woolworths Group.
The centre is located on a 2.1ha landholding, is anchored by a Woolworths supermarket and has a long-term lease term of 7.3 years.
Mr Bond said the new trust would acquire up to $300m of retail assets across several states with a pipeline of potential opportunities.
He said COVID-19 had shone a light on a number of highly successful retail assets that had continued to perform well during the crisis due to their strong tenant mix that focused on non-discretionary and serviced-based retailers.
“This made a new retail trust highly attractive, especially given the defensive nature of the Spring Farm centre which had proved to be very resilient and therefore highly attractive as an investment,” Mr Bond said.
Primewest has grown its property fund empire to about $4.2bn.
Lisa Allen 7.15pm: Key travel destinations looking hot
The Kimberleys, the Northern Territory and Tasmania will be the key travel destinations for Australians once COVID-19 inspired travel bans lift, and savvy tour companies are devising new itineraries centred on these areas.
Melbourne-based tour operator Intrepid Travel on Wednesday launched 10 new itineraries designed to appeal to Australian holidaymakers who will be all but forced to travel domestically over the next year or so.
“We are absolutely expecting more Aussie bookings because of COVID-19, that is why we have changed our product here in Australia to be shorter breaks and more focused on what an Australian would want when travelling in Australia,” Intrepid managing director Sarah Clark told The Australian. “Definitely come summer and Christmastime people will be wanting to get away.”
She said Australians typically travel overseas to immerse themselves in cultural activities such as food and wine experiences, or travel to Europe or Japan for skiing.
But over the next year she reckons Australians will want to experience those activities here and will look to food and wine experiences in their own local regions as well as farm-to-table holidays.
Nathan Cahill 6.53pm: Putting investor capital to work
Australia is now starting to turn to the arduous task of rebooting its economy. To do this, business needs some eye-watering amounts of capital. AMP Capital has estimated business will “pull” in the order of $350bn across capital raisings, JobKeeper, rent relief and various other measures.
The government has done a great job with its quick and decisive policy measures to save the economy from falling off a cliff. But in a world where sharemarkets have arguably overshot fundamentals and most investors are sitting on the sidelines, the question arises: how does Australia encourage investment at a time when it is most needed yet most unlikely?
James Kirby 6.17pm: Can my super fund make money this year?
It might sound unbelievable, but your superannuation just might make money this financial year. As we stand right now in the financial year to the end of June 2020, it’s a line ball call.
As superannuation research group, Chant West, put it in its latest bulletin: “Remarkably a positive year remains a real possibility.”
Who would have thought in the depths of the pandemic back in March, the fund managers could manage yet another positive year - or even a year where total returns are little changed?
As institutional investors fall over one another arguing against the flawed logic of a rising market set against a slowing real economy, the latest returns on super suggest traditional diversification remains the bedrock of successful investment portfolios - even against the backdrop of what might be the fastest bear market in history.
For super investors in “growth” funds - the most commonly held funds - the month of May offered a 2.2 per cent improvement.
On a three-month basis, funds are down 4.3 per cent - but Chant West estimates the financial year to date return sitting at the middle of June is zero.’
With ample warning that markets remain highly volatile, despite huge efforts by the US Federal Reserve to bolster confidence on Wall Street, Mano Mohankumar, a senior investment research manager at Chant West has suggested Australia’s largest funds’ ability to diversify out of listed markets has been crucial.
Bridget Carter 6.00pm: UBS selling stake in Pendal Group
Investment bank UBS is selling a 9.5 per cent stake in Pendal Group on behalf of Westpac.
The stock is being sold at $5.98 per share, which is a 4 per cent discount to the last closing price of $6.23.
On offer is 30.8 million securities, worth about $184m .
The move comes after Westpac had earlier flagged a selldown out of Pendal Group was on the cards.
It has offloaded shares in the fund manager during 2007, 2015 and 2017.
Bridget Carter 5.10pm: Cyrus may call on Macquarie for equity
DataRoom | Cyrus Capital Partners could be calling on Macquarie Group to inject equity into its bid for Virgin Australia, say sources.
It is understood that Macquarie’s involvement has made the Cyrus offer stronger from a financial perspective, in what could turn out to be a closely fought out contest with Bain Capital when final bids are due on Monday.
It is understood that former Virgin Australia shareholder Eithad has been keen to partner with Cyrus, but does not have the funds to do so, while Richard Branson’s Virgin Group will also be involved with Cyrus if it is the winner.
But as the final bid deadline draws closer for the contest to buy Virgin Australia, it is Macquarie Group’s involvement with Cyrus Capital Partners that is gaining attention.
4.58pm: a2 lifts, Mayne lags ahead of rebalance
Ahead of the quarterly index rebalance next week, Pilbara Minerals lost 5.4 per cent to 26.5c and Mayne Pharma gave up 5.2 per cent to 36.5c – both stocks set to get the boot from the top 200 while a2 Milk gained 7.8 per cent to $19.10 as it prepares to join the top 50.
Elsewhere, tech and real estate were the best performing sectors, as Afterpay set new records of $58.46 before settling to a gain of 2.1 per cent at $57.73.
WiseTech jumped 5.9 per cent to $22.33, Xero added 2.5 per cent to $88.45 and Carsales outperformed with a 6.2 per cent jump to $18 even as it trimmed its forecasts for revenue and profit this year.
Here’s the biggest movers at the close:
4.44pm: Second wave threat more mild: Oliver
US futures were a key driver of momentum in Wednesdays trade after Wall Street cheered a record 17 per cent jump in retail sales last month.
By the close of local trade, S&P 500 futures were trading up 0.3 per cent, adding to the risk on tone which helped the Aussie dollar to gain 0.39 per cent to US69.11c.
While the growing virus case tally and reinstated containment measures in some parts of Beijing has knocked sentiment somewhat, AMP Capital chief economist Shane Oliver noted that the threat was much more mild than the initial blow in March.
“A serious second wave of coronavirus cases in major developed countries is the biggest risk facing equity markets … however, provided any second wave is relatively mild in terms of pressure on health systems and the number of deaths, its unlikely to reap the havoc seen back in March,” he said.
“Particularly, given the degree of government and central bank support now in place. The risk
should be able to be minimised with lots of testing, tracking and quarantining. As such, our base case remains that the pullback in shares over the last week is part of a correction in a broader rising trend.”
4.14pm: Optimism reigns as ASX adds 0.8pc
In a choppy session for local shares, investors were torn between US optimism after strong retail sales, weighed against growing fear of a second wave in Beijing and rising geopolitical tensions.
That’s not to mention any profit-taking after the market had its best day in 10 weeks on Tuesday.
After a strong Wall Street lead, the benchmark ASX200 burst higher by 0.7 per cent in morning trade, fell as much as 0.5pc at midday but staged a solid comeback to finish at its best levels of the day, up 50 points or 0.83 per cent at 5991.
On the All Ordinaries, shares jumped 51 points or 0.84 per cent to 6109.2.
Gerard Cockburn 3.30pm: Viva upgraded on guidance beat: MS
Morgan Stanley has lifted its investment consensus for Viva Energy, after the fuel group delivered first half guidance ahead of the broker’s own estimates.
The brokerage upgraded its target price for Viva from $2.10 to $2.40 per share, after Viva flagged earnings for the first half were expected between $325m and $335m.
Viva on Tuesday said it would enter the race to build Australia’s first LNG import terminal, with plans in place to turn its Geelong refinery into a major energy hub.
Morgan Stanley’s analysts said retail fuel margins are expected to be structurally higher post-COVID-19, after 18 months of intense industry competition and lower profits.
“We think Viva is well placed given a likely improvement in driving volumes, support for the share price via further share buybacks and low trading multiples which offer upside should the company demonstrate sustainable growth in its retail business via higher margins,” its analysts said.
VEA last traded up 2.3pc to $1.79.
2.59pm: Japan trade sinks in pandemic fallout
Japan’s exports sank 28pc in May, while imports dropped 26pc as the coronavirus pandemic slammed global trade.
The provisional Ministry of Finance data, released Wednesday, showed May was the second straight month Japan recorded a trade deficit.
Japan has historically been criticised for racking up a huge trade surplus, not buying enough from the countries flooded with its products. Data show April last year is the last month in which both imports and exports weren’t negative, showing how exports and imports have been falling for more than a year.
Japan’s growth relies on trade and tourism, as well as domestic small and medium consumer-oriented businesses, all of which have been hurt by the travel, stay- home and social-distancing restrictions aimed at curbing the spread of COVID-19
AAP
2.14pm: ASX shakes off jitters, adds 0.5pc
The market rally has resumed in afternoon trade, with shares trading just shy of their best levels of the day.
With two hours left of trade, the benchmark ASX200 is higher by 0.48 per cent or 29 points to 5970.9 – turning sharply higher after earlier yoyo trade.
It comes as US futures trim their losses to 0.1pc.
IG chief markets analyst Chris Beauchamp said of yesterday’s rally that “once again another apparent sell-off has morphed into a superb buying opportunity for risk assets” and it seems as if the same is true today.
“The strength of risk assets continues to surprise many, but this market has shrugged off all the bad news that the world can throw at it, and investors underestimate the strength of the rebound at their peril.”
Materials is now the only sector in the red as NAB and Commonwealth Bank head higher but Westpac and ANZ keep trading at a loss.
Gerard Cockburn 1.40pm: No super growth a good 2020 result
Chant West says super funds experienced a growth spurt over the month of May, as share markets recovered from the initial financial meltdown caused by COVID-19.
The superannuation research company said median growth funds were up 2.2 per cent over the month, with continued gains in June likely to deliver a flat line return for the 2020 financial year.
Chant West senior investment researcher Mano Mohankumar said a yearly return of zero would be an excellent outcome given the impacts of the pandemic upon Australia’s near $3 trillion retirement pool.
“One key reason that funds appear headed for a better than expected result is that they manage well-diversified portfolios invested across a wide range of growth and defensive asset sectors including, for many, a meaningful allocation to unlisted and alternative assets,” Mr Mohankumar said.
1.34pm: Second wave, profit takers hit Asia
Asian markets fluctuated through the morning with profit-takers also cashing in after Tuesday’s big run-up.
Hong Kong is up 0.05 per cent and Tokyo is lower by 0.9pc after lunch, a day after a near-five per cent surge.
Shanghai and Singapore edged down 0.1 per cent while Seoul traded down 0.2 per cent. Manila and Jakarta were up almost one per cent while Wellington jumped more than two per cent.
But observers warned there could be a pullback after a massive surge in valuations from their March troughs, fed by government and central bank support as well as the easing of lockdowns.
“There is so much uncertainty right now and it looks to us like the market has really gotten ahead of itself, and that concerns us,” Sandi Bragar, at Aspiriant LLC, told Bloomberg TV.
“We are in the early stages of this and we are concerned the recovery is going to be long and slow.”
The major threat to any rebound is a renewed surge of infections, which could slow the easing of restrictions and reopening of economies.
Eyes are firmly on Beijing, which on Wednesday cancelled more than 1,200 scheduled flights, having already urged residents not to leave the city and closed schools again as authorities scramble to contain a “severe” new outbreak in the city of 21 million people.
AFP
1.02pm: Shares flat as US futures rewind
Australian shares are flat at lunch after a choppy morning session, as investors shrug off an optimistic lead from the US.
The benchmark ASX200 gained as much as 0.7pc in early trade but at 1pm was trading up just 2 points at 5944.5 after swinging into the red. US futures are adding to the negative drag – last down 0.44pc.
Banks and miners are the key detractors, while CSL is offering support with a 0.7pc lift and Afterpay has set a new record high of $58.46.
The upcoming rebalance is shaking some stocks – A2 is higher by 5.7pc ahead of its inclusion in the market’s top 50 stocks, while Perseus Mining is off by 7.6pc in heavy volume even as it is poised to join the top 200.
A 1pc jump in Woolworths and 0.5pc lift in Wesfarmers is also offering some support for the market.
Here’s the biggest movers at 1pm:
12.50pm: Deal activity heating up: Spheria
Small and microcap investor Spheria has forecast a resurgence of corporate and private equity activity in the smaller end of the market as investors “look to put abundant liquidity and low interest rates to work”.
In a fund update for May, Spheria said it had participated in capital raisings for Breville and Blackmores last month, as well as initiated a position in Charter Hall’s Social Infrastructure fund.
After a “plethora” of capital raisings over the past 6 to 8 weeks, the fund notes that companies are fit to take on the economic slowdown, and valuations are coming back to the fore.
“While high growth concept stocks particularly in the fintech space have led the recovery so far, there remains the prospect of a strong rotation into cyclical sectors which offer far
greater relative valuation appeal,” the fund said.
“Sectors which include building materials, consumer discretionary and media. The re-emergence of private equity and corporates on the acquisition path is also likely.
“With our focus on strongly cash generative businesses with modest gearing we should be the beneficiary of some of this activity looking forward.”
City Chic, Breville, Beacon Lighting and Superloop were key positive holdings for the fund.
Ben Wilmot 12.35pm: Beware of retail REIT payout ratios: MS
It’s all about yield for many investors as they seek a safe haven from market volatility but Morgan Stanley analysts have warned that payout ratios could drop in the listed property sector.
They have nominated three big names, Scentre Group, Vicinity Centres and Stockland, all of which are exposed to the struggling shopping centre industry, as having the potential to drop their payout ratios.
Morgan Stanley said traditional payout ratios across some real estate stocks may be too high, especially against the backdrop of flat to declining asset values.
REITs may need to retain more earnings to shore up balance sheets and boost flexibility for developments.
Traditionally, REITs have had high payout ratios and it may be prudent for some REITs to lower their payout ratios in the current environment.
Morgan Stanley said that cutting the payout ratios to 50 per cent for two years would help offset the gearing impact resulting from a 15 per cent decline in asset values.
Lowering payout ratios to 50 per cent would mean forward yields for Scentre, Vicinity Centres and Stockland would drop to 3.9 per cent, 3.3 per cent and 4.2 per cent respectively, well below the 5-6 per cent the market is used to.
Morgan Stanley said if companies employed this move as a temporary measure and guided to possible reassessment post the COVID-devaluation cycle, the market would be comfortable with owning more financially sustainable companies.
Jared Lynch 12.32pm: CSL on hunt for CFO replacement
CSL has already commenced a global search for a replacement for outgoing CFO David Lamont, who this morning announced he was moving to BHP, and has confirmed the role will continue to be based in Australia. He will leave the company on October 30 this year.
Most recently, Mr Lamont had been acting as one of the executive spokesmen for CSL, which overtook Commonwealth Bank as the biggest company on the ASX in February, if BHP’s London listed shares are excluded.
“David has been an integral part of the success of CSL over the last four years and has been a key member of the Company’s Global Leadership Team,” chief executive Paul Perrault said.
“We will all miss his contribution to CSL and together with the Board of Directors I wish David every success in his new role.”
During his four years at CSL Mr Lamont oversaw a transformation of its finance function during a period of significant growth of the company. Mr Perrault said he was influential on several important projects, including reshaping CSL’s Enterprise Resource Planning, which uses software to centralise financial management across all businesses units, saving costs.
CSL last traded up 0.8pc at $286.19.
Read more: CSL’s Lamont heads back to BHP
12.05pm: ANZ upgrades forecasts, still no V
ANZ has upgraded its economic forecasts on a faster-than-anticipated return to “normal” but warn a V-shaped recovery is still unlikely.
Economists Felicity Emmett, Catherine Birch and Hayden Dimes have trimmed their expected 2020 GDP drop to 2pc from 4.7pc previously, with a 1.8pc lift to come in 2021.
“We continue to expect the recovery, post a sharp bounce in Q3, to be relatively slow and grinding, with both GDP and employment not expected to return to pre-pandemic levels until early 2022,” they say.
“Even factoring in some extension of the current fiscal stimulus past September, we expect that GDP will decline in Q4, as the level of support for the economy is cut back. We have factored in some additional stimulus, but to avoid a negative quarter, stimulus will need to taper off more gradually than we are currently assuming.”
The bank adds that fiscal policy will play a larger role in supporting growth over the next few years, tipping further targeted support packages to come in the coming months.
We have upgraded its forecasts and now expect #GDP to decline 2% in 2020 (previously −4.7%) before rising 1.8% in 2021. #ausecon #auspol @felicity_emmett @cfbirch @DimesHayden pic.twitter.com/8GkGM7MgyW
— ANZ_Research (@ANZ_Research) June 17, 2020
11.36am: Shares give up gains
The local market has given up its early gains as much as 0.4pc as the major banks weigh on trade.
Just after 11.30, the ASX200 is lower by 6 points to 5936.5 with banks, energy and materials stocks all in the red.
The big four banks are all down between 0.5pc and 1.5pc while BHP is off by 0.4pc and Rio by 0.8pc.
A2 Milk is higher by 5.8pc ahead of its inclusion in the ASX 50 next week, while Viva is cheering analyst upgrades after unveiling its plans for the Geelong refinery yesterday.
Ben Wilmot 11.28am: Barings flags commercial property push
Real estate manager Barings has flagged a major push into the local commercial property market and has tapped senior executive John Ratcliffe to head its operations.
The former Challenger executive will become head of Asia Pacific real estate and will work with the senior management team at Barings to develop the company’s pan-Asian and Australian real estate platform covering both equity and debt.
He will drive the growth of Baring’s third-party investment management business in the region, replicating the strategy that has allowed it to achieve significant growth in the U.S. and Europe.
Based in the company’s Sydney office and working alongside Duncan Robertson, Barings head of Asia Pacific and head of global business development group, Mr Ratcliffe will primarily be responsible for sourcing investment opportunities in the region, with an initial focus on Australia and Japan before exploring opportunities in China.
11.18am: Westpac’s leading index shows recession
Westpac’s leading index of the economy edged mildly higher in May, but still paints a grim picture of an economy in the depth of a recession.
The index, which indicates the likely pace of economic activity relative to trend three to nine months into the futures, rose from -5.08pc in April to -4.79pc in May.
Chief economist Bill Evans said weakness in US industrial production and aggregate monthly hours worked were the key contributors for the continued weakness.
On the flip side, a lift in commodity prices, the yield spread and consumer unemployment expectations have each contributed to the slight uptick.
Westpac is expecting a 7.3pc contraction in the economy for the first half.
Eli Greenblat 11.11am: Metcash gaining market share: MS
Grocery, hardware and liquor wholesaler Metcash is tipped to have taken market share through the depths of the coronavirus downturn, says Morgan Stanley, who upgrades the stock’s rating from equal weight to overweight and lifts its price target on the stock from $2.90 to $3.30.
In a note to its clients analyst Niraj Shah said industry feedback suggested that Metcash’s food business has taken share in April/May. Ritchies, Metcash’s largest customer has flagged sales growth of around 21 per cent in May.
Mr Shah said April ABS data show that small food retailers grew around 9 per cent versus majors of around 6 per cent growth.
“We think the industry is benefiting from channel shift to “food at home” and Metcash has benefited from consumers avoiding shopping centres and staying local.
“We remain positive on the supermarket segment given easing food deflation; discounters being less of a headwind and general defensive nature given prevailing economic uncertainty.”
Shares in Metcash last traded up 3.2pc to $2.88.
Gerard Cockburn 10.37am: Lockdown prompts Beacon sales boom
Beacon Lighting says strong sales growth and the $28m sale of its distribution centre will boost its profits for the 2020 financial year.
The lighting company said it had continued to trade through the worst of the shutdowns, helping it to notch a year-to-date sales jump of 7.1 per cent, while online sales were up by 47.8pc over the same period.
As such, the group said it expected to exceed last year’s $16.5m annual profit, excluding the impact of the sale of its distribution centre and Beacon Energy Solutions closure which came at a higher cost than initially expected.
The energy venture is expected to cost $5m, with increases driven by larger costs in solar projects, realising excess stock, warranty obligations and doubtful debts.
Beacon said the impacts of the pandemic upon consumer spending trends has made it uncertain as to whether the higher level of sales activity will persist.
“Given the recent changes to customer shopping patterns and future changes in government policies, it is uncertain as to whether the higher levels of sales will continue in the future,” Beacon said.
BLX last traded up 24.6pc to $1.24.
Bridget Carter 10.34am: Infigen on the takeover hunt
DataRoom | All the competition to buy Infigen Energy in the past three weeks may have distracted it from some takeover activity of its own, with the Australian listed renewable energy provider said to have been poised to raise equity and embark on an acquisition.
While it is unclear exactly what has been on its radar, some believe it is likely to be a retail energy business that compliments its renewable energy generation business – possibly a business such as Click Energy.
Click Energy is owned by the Australian listed mobile phone service provider Amaysim and is currently up for sale through Luminis Partners.
It is an Australian energy retailer selling electricity to private and business customers in Victoria, New South Wales, South Australia and Queensland. The company is unique in being a dedicated online energy retailer.
IFN shares are up 7.6pc to 88.2c in morning trade.
Read more: Infigen backs Spanish offer
10.14am: Financials offset market optimism
The local market is headed higher, but more moderately than expected as the heavyweight financial sector drags.
At the open, the benchmark ASX200 is higher by 21 points or 0.35pc to 5963.3 – after hitting highs of 5983.3.
Futures relative to fair value had projected a larger early gain as much as 1pc, but a 0.15pc slip in US futures is sapping some of the risk-on sentiment.
Financials and energy are the key laggards on the local market – majors ANZ, and NAB are down by around 0.45pc while Commonwealth Bank and Westpac edge higher by 0.25pc.
Bridget Carter 10.11am: Mercury paid up to $50m for Bauer
DataRoom | Mercury Capital is understood to have outlaid between $40m and $50m to buy Bauer Media Australia, say sources.
A deal was reached on Wednesday after DataRoom tipped that it was expected to happen this week.
The transaction will see the Sydney-based private equity firm buy magazine titles such as Women’s Weekly and Woman’s Day and now others such as New Idea and That’s Life!.
Mercury Capital is run by former Goldman Sachs banker Clark Perkins, who had been in talks to buy the Bauer Australia magazine business last year once it purchased Pacific Magazines from Seven West Media for $40m.
It takes the price to be the same paid by Bauer to Seven West in recent weeks for its magazine business, plus another $7m, according to one source.
That puts a value on Bauer’s Australian magazine business of about $7m and takes its losses in Australia up to about $600m.
Read more: Bauer poised to confirm Mercury takeover
10.06am: Jumbo suspended for WA talks
Lottery operator Jumbo Interactive has been suspended ahead of the open, pending detail of its reseller operations in Western Australia.
The group had been halted earlier this week, but said that talks were still ongoing, and shares would remain suspended until June 29.
Jumbo said it “has not yet concluded the relevant matters in relation to its reseller operations in WA that necessitated the trading halt request”.
JIN last traded at $11.41.
Gerard Cockburn 9.41am: Carsales warns of 10pc profit slip
Carsales.com has warned of a 10 per cent profit slip for the full year in the wake of the coronavirus downturn, even as it sees a lift in first-time car buyers as commuters seek to avoid public transport.
In a business update on Wednesday morning, the company set out FY20 profit forecasts between $120m and $124m, equating to a 6pc to 9pc drop compared to the previous year. Revenue and earnings are also expected to decline by 5pc to 7pc.
Carsales said website traffic volumes in its Australian operations were improving since it last updated the ASX on April 22, however, total inventory listed on its website has decreased in the past six weeks, as dealers faced challenges in obtaining used and new car stock, while also experiencing an increase in buyer demand due to easing shutdown measures.
“Carsales research indicates an increase in first-time car buyers and people adding an additional car to their household as consumers look to avoid public transport,” the company said.
It noted its Brazil and Korea divisions are also experiencing similar improvements in listing volumes and traffic.
The company said it had completed the sale of its 50.1 per cent interest in Stratton Finance, with proceeds from the sale going towards reinvestment into its core businesses.
Lilly Vitorovich 9.35am: Bauer to announce Mercury takeover
Bauer Media’s local CEO Brendon Hill is set to announce the sale of the Australian magazine business by the family-managed Hamburg-based company to private equity firm Mercury Capital.
Mr Hill will tell staff via a video conference at 10am and then the media.
The Australian’s DataRoom reported on Monday that staff at Bauer’s Australian headquarters have been burning the midnight oil lately, prompting some to wonder whether it’s getting close to selling the newly enlarged business to Mercury.
Bauer completed its acquisition of Seven West Media’s Pacific Magazines for $40m last month, bringing together more than 50 magazines, including Women’s Weekly, Woman’s Day, New Idea and Better Homes & Gardens.
Read more: Bauer’s late nights suggest Mercury is in its orbit
9.17am: US retail surge to support ASX
A 17 surge in US retail sales is set to support the local market for a second day of gains, after $62bn was added in yesterday’s session.
Overnight, the US reported sales more than double the market consensus, as consumers rushed to spend their stimulus payments – feeding hopes of a V-shaped recovery.
The Dow rose 2pc, S&P 500 by 1.9 per cent (now up 6pc from Monday’s low) and Nasdaq by 1.8pc on the positive data print – and futures relative to fair value suggest an early 1pc jump on the local bourse.
NAB director of economics Tapas Strickland noted that the bounce confirmed the narrative of a recovery from a mid-April trough.
“Two big implications from the number are that; Q2 GDP may not be as weak as first thought given the strong bounce in May and a likely repeat in June and for advanced economies consumption might recover faster than the industrial side due to government payments offsetting lost income – a big contrast to the experience seen in China,” he said.
US retail sales up strongly in May, IP not so strong. pic.twitter.com/tqBRNhijWi
— Shane Oliver (@ShaneOliverAMP) June 16, 2020
Adding to the optimism is reports of a coronavirus treatment breakthrough in “boring” drug Dexamethsone, a widely available drug which, according to a UK study, cuts mortality for those on a ventilator by one-third.
ASX 200 last at 5942.3.
9.03am: What’s on the broker radar?
- ASX cut to Underweight – Morgan Stanley
- Computershare raised to Overweight – Morgan Stanley
- Costa raised to Neural – Macquarie
- Healius cut to Hold – Morgans
- Iluka cut to Neutral – JP Morgan
- Link Administration cut to Underweight – Morgan Stanley
- Metcash raised to Overweight – Morgan Stanley
- NAB cut to Equal-weight – Morgan Stanley
- South32 raised to Outperform – RBC
- Viva Energy raised to Overweight – JP Morgan
- Westpac raised to Equal-weight – Morgan Stanley
8.56am: Ansell CEO delays retirement
Ansell chief Magnus Nicolin has delayed his retirement for a further six months, citing the need for increased focus during the pandemic and travel restrictions as a hindrance to the company’s plans to find a successor.
Mr Nicolin was slated to leave the company in July 2021, and will now stay on til December 2021.
“Direct, personal engagement is fundamental to the Board’s assessment and governance processes. Rather than compromise, we have instead opted to give ourselves further time and we are thankful to Magnus for enabling us to make that choice,” chairman John Bevan said.
Ansell said it had increased capacity for in-demand products during the coronavirus pandemic, and was actively shifting its focus away from high growth sectors such as health, food processing, cleaning, logistics and government.
ANN last traded at $35.36.
Max Maddison 8.43am: Village Roadshow sets reopening path
Village Roadshow’s theme parks in Queensland are set to open their doors on June 26, but visitors will be met with strict social distancing measures.
Sea World and Paradise County on the Gold Coast will both open by next weekend, while Australian Outback Spectacular will reopen on July 3. Movie World and Wet’n’Wild are both hoping to open by July 15, in line with the return of interstate travel.
Guests will be required to adhere to 1.5m social distancing throughout all parks and venues and to download the theme park group’s app to provide contract tracing information and to encourage “virtual queuing”.
Earlier this week, the theme park group said it was extending its period for exclusive takeover talks with private equity group BGH Capital.
Read more: Village Roadshow extends BGH’s due diligence
Nick Evans 8.29am: CSL CFO jumps to BHP
BHP has tapped CSL finance boss David Lamont to replace Peter Beavan in its chief finance officer, in Mike Henry’s first major external appointment as chief executive.
More to come
Bridget Carter 8.28am: Sky City raising $NZ230m
DataRoom | New Zealand casino group Sky City Entertainment is raising $NZ230m through Credit Suisse, Jarden and UBS.
Shares are being sold at $NZ2.50 each, with $NZ180m sold through a placement and the remainder raised through a share purchase plan.
The shares are being sold at a discount of 6.4 per cent to the last closing share price of NZ$2.67.
A term sheet sent to investors says the proceeds are being used to strengthen Sky City’s balance sheet and secure additional liquidity in response to uncertainty around the impacts of COVID-19.
The equity raising was first foreshadowed by DataRoom on May 11.
Perry Williams 8.21am: Infigen recommends Spanish bid
Renewables developer Infigen Energy has recommended a new takeover bid by Spanish giant Iberdrola and rejected an offer from Philippines-backed UAC Energy.
The Iberdrola bid at 86c a share was lobbed at a 69.8 per cent premium to Infigen’s three-month volume weighted average price and substantially outstrips UAC’s 80c a share bid worth $777m.
Infigen’s largest shareholder, TCI Funds, has entered into a pre-bid agreement to sell 20 per cent of its 33 per cent stake no earlier than two months after the start of Iberdrola’s offer.
7.24am: ASX set to lift
Shares are predicted to rise early in trade on the Australian market after US indexes climbed on the prospect of additional stimulus and a record jump in retail sales.
The Australian SPI 200 futures contract was higher by 29 points, or 0.49 per cent, to 5,974.0 at 7am on Wednesday, indicating gains in share values early.
Those figures follow a good day on Wall Street, where all three major US stock indexes posted their third consecutive daily gains. Data released by the Commerce Department showed US retail sales jumped by a record 17.7 per cent in May, blowing past the eight per cent increase analysts expected.
Investor risk appetite was given a further boost by the Trump administration’s anticipated $US1 trillion dollar infrastructure package aimed at jump-starting the economy.
Amid a resurgence of new COVID-19 cases in China and the US, a UK-led drug trial showed low doses of generic steroid drug dexamethasone reduced COVID-19 death rates among the most severe cases.
The Australian dollar was buying US68.89c at 7am, lower from US69.41c at the close of trade on Tuesday.
6.55am: Morgan Stanley spat over race
Morgan Stanley’s former head of diversity sued the investment bank for discrimination Tuesday, alleging she was repeatedly thwarted in efforts to promote black staff and boost lending to African-Americans.
In a scathing complaint that names Chief Executive James Gorman among the defendants, Marilyn Booker depicts the firm’s efforts to diversify its ranks in the wake of recent racial justice protests as “hypocritical” window dressing.
“Rather than seriously examine its own role in perpetuating inequalities in hiring, pay and promotion and in fostering toxic workplace cultures and consumer discrimination, Morgan Stanley has instead repeatedly stopped short of any meaningful major overhauls during prior opportunities for change,” the lawsuit says.
A Morgan Stanley spokeswoman said the company would fight the suit. Booker worked at the investment bank for 26 years before losing her job in a reorganisation in December 2019.
She was hired in 1994 as the bank’s first diversity officer and grew the department to a team of more than 15, according to a complaint filed in US district court.
6.22am: Wall St surges
Wall Street stocks surged Tuesday following better-than-expected US retail sales data that boosted hopes the economy will recover more quickly than some economists expect.
The Dow Jones Industrial Average climbed 2.0 per cent, gaining around 525 points, to close at 26,289.98.
The broadbased S&P 500 rose 1.9 per cent to 3,124.74, while the tech-rich Nasdaq Composite Index advanced 1.8 per cent to 9,895.87.
US retail sales posted a surprise spike of 17.7 per cent in May, outperforming expectations much as the strong May jobs report left analysts scratching their heads.
Adding to the positive sentiment, a study at Oxford University showed use of the steroid dexamethasone cut risk of death for people on ventilators from 40 to 28 per cent.
During the first of two days of congressional testimony, Federal Reserve Chair Jerome Powell vowed to maintain aggressive stimulus efforts in light of the hit from coronavirus shutdowns, but said Congress may need to do more as well.
“A full recovery is unlikely” unless consumers feel confident COVID-19 has been defeated, said Powell, who has been cautious about making too much of improving data in light of high unemployment levels and warned the recovery remains shrouded in “significant uncertainty.” Stocks have now gained three sessions in a row after suffering a rout last Thursday following data showing upticks in coronavirus cases in several states.
Analysts say the gains point to a strong tendency of investors to bargain hunt when stocks pullback.
5.57am: Hilton cuts 22% of staff
Hilton Worldwide Holdings said it is cutting nearly 22% of its corporate workforce globally, in what analysts said is one of the deepest job cuts so far by a major lodging company in response to the coronavirus pandemic.
The job reductions amount to 2,100 corporate employees, Hilton said Tuesday. The hospitality company said it is also extending its corporate pay cuts, reduced hours and furloughs for up to three more months.
“Never in Hilton’s 101-year history has our industry faced a global crisis that brings travel to a virtual standstill,” chief executive and president Christopher Nassetta said in prepared remarks.
Hilton’s move is the latest sign that the hospitality industry continues to face headwinds from the COVID-19 pandemic, which caused travel to collapse and occupancy levels to fall below 30% earlier this spring in the US
Hilton shares were up 0.7% in late-afternoon trading.
While the US lodging business has picked up a bit in recent weeks, led by leisure travellers taking short trips, corporate and group travel remain subdued. Analysts don’t expect overall hotel revenue to return to 2019 levels until at least 2022, or even later.
5.52am: PG&E pleads guilty
US utility Pacific Gas & Electric confessed to killing 84 people in a devastating wildfire that wiped out the Northern California town of Paradise in November 2018.
PG&E CEO Bill Johnson entered guilty pleas on behalf of the company for 84 felony counts of involuntary manslaughter stemming from the fire, which was blamed on the company’s crumbling electrical grid.
“Our equipment started that fire,” said Johnson, who apologised directly to the victims’ families. “PG&E will never forget the Camp Fire and all that it took away from the region.” Although the admission was part of a plea deal, it came during a dramatic court hearing designed to publicly shame the nation’s largest utility for neglecting its infrastructure.
Butte County Superior Court Judge Michael Deems read the name of each victim aloud in the courtroom while the images of the dead were shown on large screen as Johnson entered a plea for each of the counts. The fire killed 85 people, but prosecutors weren’t certain they could prove PG&E was responsible for one of the deaths.
Johnson also pleaded guilty on behalf of the company to one felony county of unlawfully starting a fire.
Later Tuesday, Butte County District Attorney Mike Ramsey is expected to release a long-awaited grand jury indictment detailing the corporate misconduct that ignited the November 2018 wildfire that destroyed Paradise, California, located about 170 miles (275 kilometres) northeast of San Francisco. PG&E has agreed to pay a maximum fine of $US3.5 million for its crimes in addition to $US500,000 for the cost of the investigation.
5.47am: ‘ Significant uncertainty’, says Fed’s Powell
Despite some recent positive signs, “significant uncertainty” remains about the recovery of the US economy from the coronavirus pandemic, Federal Reserve Chair Jerome Powell said Tuesday.
And unless consumers feel confident COVID-19 has been defeated, “a full recovery is unlikely,” Powell warned in his semi-annual testimony before the Senate Banking Committee.
The central bank chief once again pledged that the Fed will use all of its policy tools to ensure the economy recovers from the pandemic, which he said has inflicted its worst consequences on low-income and minority groups.
Powell cautioned that despite the positive data, “The levels of output and employment remain far below their pre-pandemic levels, and significant uncertainty remains about the timing and strength of the recovery.” In fact, signs of the devastation wrought by the pandemic were still apparent in the retail sector, with sales in the period between March, when the business disruptions started, and May down 10.5 per cent compared to the same months in 2019.
Even before the lockdowns were in full effect nationwide, the Fed slashed interest rates to zero and flooded the financial system with cash, then rushed out a series of lending programs to support businesses as well as state and local governments.
The central bank is also working on a facility to help non-profit organisations. “We are committed to using our full range of tools to support the economy and to help assure that the recovery from this difficult period will be as robust as possible,” he said.
However the Fed can only lend, not spend, and Powell told politicians, “I think you’ll want to continue support for workers in some form. I think there’ll be an awfully lot of unemployed people for some time.”
AFP
5.34am: Record rebound for US retail
American shoppers ramped up their spending on store purchases by a record 17.7% from April to May, delivering a dose of energy for retailers that have been reeling since the coronavirus shut down businesses, flattened the economy and paralysed consumers during the previous two months. The government’s report Tuesday showed that consumers’ retail purchases have retraced some of the record-setting month-to-month plunges of March (8.3%) and April (14.7%) as businesses have increasingly reopened. Still, the pandemic’s damage to retailers remains severe, with purchases still down 6.1% from a year ago.
Last month’s bounce-back by consumers comes against the backdrop of an economy that may have begun what could be a slow and prolonged recovery. In May, employers added 2.5 million jobs, an unexpected rise that suggested that the job market has bottomed out. Still, a big unknown is whether early gains in job growth, retail sales and other areas can be sustained in the coming months or whether they may plateau at a low level.
Wow! May retail sales show biggest one-month increase of ALL TIME, up 17.7%. Far bigger than projected. Looks like a BIG DAY FOR THE STOCK MARKET, AND JOBS!
— Donald J. Trump (@realDonaldTrump) June 16, 2020
“This may very well be the shortest, but still deepest, recession ever,” said Jennifer Lee, a senior economist at BMO Capital Markets. But she added that it’s “not likely that we’ll see a repeat in June as this is pent-up demand unleashed in one month.” The return of shoppers last month was likely aided by the $3 trillion in rescue money that the federal government has provided to companies and households. Americans’ retail purchases would need to surge by an additional 9% to return to their level before the pandemic.
Any sustained recovery, though, will hinge on an array of factors: The path of the coronavirus, how willing people are to shop, travel and congregate in groups, how many businesses manage to stay open and rehire many workers and whether the government provides additional support.
AP
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