ASX slides as UBS warns of hit from struggling small business

The major banks dragged the ASX lower as analysts highlighted small business weakness as a key hurdle in the economy’s recovery.

David Rogers and Melissa Yeo

UBS warns small business is struggling and a risk to the major banks. Picture: Wayne Taylor.

25 min read

6:56PMJuly 20, 2020

SMEs a linchpin for banks, economy: UBS
10pc of Aussie businesses at risk of failure: Deloitte
Rolling outbreaks reshape bank recovery: Citi
Djerriwarrh slashes payout

That’s all from the Trading Day blog for Monday, July 20. Shares bounced off daily lows to hold the 6000 level by the close, despite banks delivering a hit. Major banks lost between 0.8pc to 1.6pc, offset marginally by strength in the major miners and Afterpay.

The Australian dollar pared much of its daily losses, finishing the local session down 0.08pc at US69.89c.

Eyes are on policy and stimulus changes to come at the federal government’s economic update on Thursday. US futures suggest more weakness to come overnight.

4.34pm: Afterpay leads, Viva lags

Afterpay was one of the best performing stocks in the top 200 on Monday, helping the tech sector to buck the broader market sell-off.

Tech notched gains of 1.3pc, helped by a 3.2pc lift in Afterpay to $69.49 as Xero too added 1.4pc to $91.01.

On the flip side, a weaker oil price sent Viva lower by 5.7pc to $1.70 as Woodside too fell 2.6pc to $20.10.

Here’s the biggest movers at the close:

4.26pm: Telstra schedules virtual AGM

Telstra is the latest company to move its AGM online, describing the change as “a chance to try something new”.

In a note to shareholders, Telstra chairman John Mullen said the group would hold its shareholder meeting online on Tuesday, October 13.

“Our virtual AGM will provide you with similar opportunities online as you would have attending an AGM in person,” Mr Mullen said, noting the company’s 1.2 million shareholders could all join the meeting.

“You will be able to view presentations from me and from Chief Executive Officer Andrew Penn as well as vote and ask questions live during the meeting.”

4.11pm: Shares hold on to 6000 level

Shares bounced off daily lows to hold on to the 6000 level, as banks delivered a hit to shares.

Despite a slight tick higher in opening trade, the ASX200 lost momentum through the session, hitting lows of 5991.9 before closing down 32 points or 0.53pc to 6001.6.

Major banks lost between 0.8pc to 1.6pc, offset marginally by strength in the major miners and Afterpay.

AUDUSD pared much of its daily losses, finishing the local session down 0.08pc at US69.89c.

3.33pm: EU butt heads on rescue package

Divided EU leaders will meet again on Monday to try to agree the terms of a huge coronavirus economic rescue package after a night of tense haggling failed to yield a breakthrough.

After three days and three nights of talks, the 27 states still cannot settle on the exact size and rules of a 750-billion-euro ($1.23bn) bundle of loans and grants to help drag Europe out of a recession caused by the pandemic.

The leaders gathered briefly on Monday morning after spending the night negotiating in smaller groups in pursuit of a deal, only to adjourn until 4pm (midnight AEST).

Over a working dinner on Sunday night, summit host and EU Council President Charles Michel made a fresh effort to win over the coalition of “Frugals” – the Netherlands, Sweden, Austria, Denmark and Finland – which has sought to cut the size of the package and impose strict rules on how it is used.

As fears grew that the summit would collapse without agreement, Michel suggested cutting the grant portion of the deal to 400 billion euros – down from his initial proposal of 500 billion – and raising the loan part to 350 billion, up from 250 billion.

But this was not enough for the Frugals, who insisted grants be cut to 350 billion and demanded big rises in the rebates they get on their EU contributions.

AFP

3.03pm: Xero, Afterpay keep tech afloat

Tech heavy hitters Xero and Afterpay are single-handedly keeping the tech sector in the green as the broader market trades lower by 0.5pc.

With just under an hour left of trade, All sectors bar tech and materials are lower – led by a 2.5pc drop in energy stocks.

Despite that, Afterpay is higher by 2.9pc to $69.30, while Xero adds 1.6pc to $91.19.

2.45pm: eBay in talks to sell classifieds arm

eBay is in advanced talks to sell its classified-ads business to Norway’s Adevinta ASA, according to people familiar with the matter, as the online auction pioneer seeks to refocus on its core marketplace business.

A cash-and-stock deal could be announced as soon as Monday (US time) assuming the talks don’t fall apart, the people said. The price of the deal couldn’t be learned but the eBay unit was expected to sell for roughly $US8bn or more, some of the people said.

San Jose, California-based eBay, once a high-flying internet conglomerate with brands like PayPal and StubHub, has been unwinding that structure under pressure from activist investors who argued it shrouded eBay’s value. The classifieds unit is one of the last remaining businesses outside the core after the company struck a deal to sell its StubHub ticketing division last year.

eBay’s classifieds unit primarily operates internationally across Canada, parts of Europe, Africa, Australia and Mexico. Its platforms allow users to post goods and services in their local communities, similar to Craigslist in the US. Last year, the division produced $US1.1bn in revenue, compared with the $US7.6bn its marketplace business generated.

Dow Jones Newswires

1.57pm: Tech issues plague ANZ investing site

ANZ customers have taken to Twitter as the bank’s share trading platform faces outages this afternoon.

The bank acknowledged technical difficulties with its share investing page around midday, saying it was working to resolve the issue .

“We’re aware of an issue with our Share Trading platform and are working to resolve it as soon as possible,” the bank said in a tweet.

“Some customers can log in but there are still sections of the website that aren’t available. Sorry for this inconvenience.”

Hi, weâ€™re aware of an issue with our Share Trading platform and are working to resolve it as soon as possible. Some customers can log in but there are still sections of the website that arenâ€™t available. Sorry for this inconvenience. Regards Wanda
— ANZ Australia (@ANZ_AU) July 20, 2020

Samantha Bailey 1.37pm: 800k Aussies double dip into super

More than $25.3bn has now been taken out of superannuation as part of the federal government’s early release super scheme, as Australians deal with the financial impact of the COVID-19 crisis.

In the week through July 12, 581,000 applications for early release were received by superannuation funds, totalling $6.2bn, according to the latest data released by APRA.

Around 800,000 people have now dipped into their superannuation twice.

Read more: Early super scheme ‘abused’

1.10pm: SMEs a linchpin for banks, economy: UBS

Small-medium sized enterprises are the “weak link” for banks warns UBS analyst Jon Mott.

While remaining positive on the sector because of low valuations, Mr Mott says investors should “keep an eye on the SMEs” because of the direct and indirect risks they pose for banks.

He notes that 18pc of banks’ SME book is in deferral, with their largest exposures in property, business services, retail, hospitality and construction.

“While these books have security, foreclosure en masse is not a straightforward process (and) the indirect exposures to SMEs could be much larger.”

“While deferred loans are front of mind, we remain concerned about the economic impact when about $100bn of stimulus (about 20 per cent of GDP) is removed,” Mr Mott says.

“We believe this is likely to weigh heavily on small businesses which employ 35 per cent of the workforce. As wage subsidies, rental relief and loan deferrals come to an end, this could lead to a second wave of unemployment.”

He cites ACA research indicating 48pc of SMEs are likely to reduce employees if JobKeeper payments are not extended.

“This indirect economic exposure could potentially compound the banks’ losses, in our view,” Mr Mott adds.

“While we expect credit charges to fall near term, we anticipate a renewed wave of charges in FY21 as the full impact of the recession is felt. This leads to a ‘W’-shaped earnings recovery. We believe the linchpin to the banks’ performance and the broader economy is the SMEs.”

1.01pm: Shares extend losses

Shares are trading at their worst levels of the day, down 0.7 per cent as the major banks take a hit.

At 1pm, the benchmark ASX200 is lower by 41 points or 0.68pc to 5992.5.

Energy and Financials are the biggest weight on the index, down 2.5pc and 1.1pc respectively as NSW coronavirus cases rise, increasing risk of further lockdowns in the state.

In the banks – NAB is lower by 1.8pc, Westpac by 1.3pc, ANZ by 1.4pc and the Commonwealth Bank is faring best with a 0.9pc slip.

Here’s the biggest movers at 1pm:

Joyce Moullakis 12.52pm: Deutsche hits out at ACCC disclosure

Key parts of a witness’ initial recollection were excised from his final statement by the competition regulator to suit its landmark cartel legal case against ANZ and a group of investment banks, according to lawyers for Deutsche Bank.

The Australian Competition and Consumer Commission and Director of Public Prosecutions are pursuing allegations that Citigroup, Deutsche and ANZ acted as a cartel when they were faced with dealing with a shortfall in demand for the bank’s $2.5bn share placement to investors in 2015. JPMorgan was also working on the capital raising but was granted immunity in return for co-operating with the regulator.

In pre-trial hearings in the Penrith District Court on Monday, Deutsche Bank’s senior counsel Murugan Thangaraj hit out at the ACCC’s general manger Jane Lin over the regulator’s disclosure of interactions with JPMorgan and differences in statements formally submitted to the court.

“The ACCC has excised bits that don’t suit them,” Mr Thangaraj said. “How is it that we are supposed to have confidence?”

He was referring to initial statements made to the ACCC by former JPMorgan local markets boss Jeff Herbert-Smith that he didn’t think there was an agreement by the investment banks not to trade in ANZ shares on a specific day. Mr Thangaraj also referenced the omission of earlier comments by Mr Herbert-Smith that the banks undertook a “normal or prudent” approach to managing risk, and were abiding by market integrity rules, in managing the sale of excess shares in the raising.

Bridget Carter 12.47pm: Eclipx more attractive after divestment

DataRoom | Now that Australian fleet leasing company Eclipx has sold its Right2Drive business, the question now is whether Eclipx itself will start fielding takeover approaches.

Market analysts say that a divestment of Right2Drive to Australia-based Growth Factor Group for $26.5m, paves the way for consolidation to occur in the industry.

It is considered that Eclipx achieved a good price for the division, which had a $28m book value, with the stock rallying 6 per cent on the news, although some suspect that the gains are also due to the anticipation of further corporate activity.

The poor performance of the accident loan car provider Right2Drive was always the deterrent for a party looking to buy Eclipx, putting off McMillan Shakespeare which was poised to buy the company after making a bid in 2018 which at the time was worth around $912m.

The Eclipx market value is now about $415m.

McMillan Shakespeare had at the time put forward an offer of 0.1414 McMillan Shakespeare shares and 46c cash for each Eclipx share held, but the value later dived as Eclipx updated the market with bad news.

ECX shares last up 6.1pc to $1.38.

Samantha Bailey 12.28pm: 10pc of Aussie businesses face closure: Deloitte

A staggering 240,000 businesses or 10pc of all Australian businesses are at high risk of failure when government stimulus comes to an end in September, according to the latest modelling from consulting giant Deloitte.

The firm estimates close to 35 per cent of businesses in NSW and Victoria are accessing the federal government’s JobKeeper, and more than 30pc of businesses in Tasmania and Queensland.

Businesses in the hospitality, professional services, and transport sectors were most at risk.

“Some parts of Australia are likely to face higher risks than others,” the report said.

“There are two reasons for this – the degree to which restrictions have hurt economic activity, and the state or territory’s exposure to high risk sectors.”

Proportion of businesses accessing JobKeeper in April, by state and territory. Source: Deloitte.

Jared Lynch 12.25pm: Whispir rising as revenue soars

Shares in cloud-based communications platform Whispir have surged more than 16 per cent after its quarterly revenue soared 36 per cent to $42.2m.

The Telstra Ventures-backed company was trading 16.7 per cent higher at $3.92 at midday on Monday, against a flat broader share market.

The increase puts it within reach of the price target of $4 from Canaccord analysts, Owen Humphries and Seth Hoskin, who like the company’s “strong organic growth”. Whispir signed up 72 new customers in the June quarter.

“The company reports best net revenue retention of 126 per cent – upsell less churn – reflective of the strong organic revenue growth in its history, providing a strong lead for future revenue growth,” Mr Humphries and Mr Hoskin said in a note to investors.

“The company trades at a material discount (-50 per cent) to its closest listed peer Everbridge while experiencing an accelerating revenue growth profile.”

Perry Williams 12.13pm: Pension fund buys into TransGrid

Canadian pension giant OMERS has brought a 20 per cent stake in NSW electricity operator TransGrid after the Kuwait Investment Authority’s Wren House sold out.

The Kuwaiti investor had been expected to offload its stake for several months but the COVID-19 pandemic threw the timing of the deal into doubt, with the Canadian investor also an owner of London City Airport, which has been hit hard by the coronavirus shutdown.

“TransGrid is poised to both continue making a crucial contribution to Australia’s electricity needs, while also playing a key role in helping reduce carbon emissions from the country’s electricity grid,” OMERS Global Head of Infrastructure, Ralph Berg said.

TransGrid is owned by a consortium comprised of Spark Infrastructure, Utilities Trust of Australia, CDPQ, Tawreed Investments Limited, and now OMERS.

TransGrid owner Spark Infrastructure decided against buying an extra 20 per cent stake in the electricity operator over frustration the market had undervalued its existing holding in the business.

The group paid $10.3bn in 2015 to buy TransGrid as part of a major privatisation drive by the NSW government, with major infrastructure including Ausgrid and a half stake in WestConnex also sold as part of an asset sale.

The consortium’s blockbuster bid was ahead of market expectations for a $8bn-$9bn deal and represented a multiple of 1.6 times the regulated asset base of the company, above the 1.4 – 1.5 times that analysts and investors say a company can afford to pay for electricity network assets and still make money.

11.36am: Worse to come for construction: MS

Morgan Stanley is warning “the worst is yet to come” for Australian construction, as COVID-19 dents the economic outlook.

The investment bank’s survey with the Australian Construction Industry Forum and AlphaWise found almost two-thirds of respondents said their business activity was down at least 20pc, with non-residential construction hit the most and infrastructure the least affected.

Two-thirds of firms also reported seeing new leads decline by at least 25 per cent.

“As a result, the construction pipeline remains in question, as more than half of firms have less than six months of work in the pipeline,” head of industrials research Andrew Scott says.

Almost half of respondents said their leads had more than halved, while about 65pc of respondents in the residential sector noted deterioration, with demand risks likely to emerge late 2020 and early 2021 as the pipeline isn’t refilled.

Almost half of those surveyed expected to cut headcount in next 6-12 months. “To us, this highlights concerns about a drop off in activity in Sept-Oct-2020,” Mr Scott notes.

Residential construction is most exposed to the late 2020 “cliff” due to its short pipeline and concerns around financing.

Morgan Stanley has CSR cut to Underweight because it has the most residential exposure in its coverage.

CSR last down 5.8pc at $3.43.

11.15am: Rents plummet amid record oversupply: ANZ

Advertised rental properties are up by more than 50pc in both Sydney and Melbourne, and rental prices significantly lower as low income earners take a hit from COVID-19 cuts and restrictions force migrants back to their home countries.

In the latest data from ANZ and CoreLogic, inner city Melbourne recorded a 57pc increase in rental ads, while ads in Sydney’s city and inner south jumped by 53pc.

As a result of the oversupply, rental values are down as much as 7pc in suburbs such as Haymarket and Barangaroo in Sydney, and Southbank in Melbourne.

“The oversupply of rental stock since March has been largely confined to inner city areas in Melbourne and Sydney, while all other capital cities have experienced a decline,” CoreLogic head of research Eliza Owen said.

“There are still opportunities for investors where rental markets have continued to tighten and rental values have increased, including select suburbs across Perth and Hobart where Airbnb stock may be reverted back to the short term rental market as interstate travel resumes.”

Sofia Charalambous, 28, got her Marrickville rental for $100 less than its usual rental price. Picture: Liam Driver.

Bridget Carter 10.56am: Brookfield hires Randello to run Aveo

DataRoom | Private equity firm Brookfield has hired Lendlease retirement executive Tony Randello to run its retirement village operator Aveo.

It comes after Brookfield purchased the listed Aveo Group last year for $1.3bn in a deal overseen by Bank of America, gaining control of the group in November.

Running the business for a brief period had been interim chief executive Igor Merkin and he was replaced by Jeff Kendrew until a more permanent replacement was sourced.

Mr Randello will start in the role by early January.

He has more than 25 years’ industry experience and for the last 15 years, he has been at Lendlease where he has held several senior roles in finance, operations and asset management.

Most recently, he was the managing director for Lendlease’s Retirement Living business.

Prior to this, the former chartered accountant by profession was head of mergers and acquisitions.

Mr Randello will be based in Melbourne.

Mr Kendrew will continue as acting chief until Mr Randello starts with Aveo and will stay on for a period of time to ensure an orderly transition.

Read more: Brookfield beefs-up Aveo staff

10.42am: Deferments, solvency threaten banks: Citi

Citi has turned more cautious on the banks, cutting CBA and Bendigo to Neutral, while trimming price targets for Westpac and NAB, as the second-waves of coronavirus in Australia pose a threat to the risk profile for the sector.

“We believe the prospect of rolling lockdowns will likely result in a persistent portfolio of loan deferments, create solvency challenges for small lenders, as well as slowing the dividend recovery, as regulators seek even higher capital buffers,” analyst Brendan Sproules says.

Intervention has “blunted market forces and bloated balance sheets”, so that “balance sheets are exceptionally strong due to a lack of lending, as public money crowds out debt”.

But the safety of the system is set to come at a cost of near-term performance, as revenue will be much weaker than expected.

“Our FY22 sector revenue growth has been cut to zero, as lending and activity is expected to be weak,” Mr Sproules says. “We expect net interest margins will be better than expected as excess deposits pay down long-term debt funding.”

“Asset quality will be furloughed” and “normalised dividends delayed”, with dividends expected to restart in 4Q20, at a 40pc payout, pushing capital to “stratospheric levels” – around 11.7pc in FY22.

But the strength of major banks will emerge as the crisis lingers, with a repeat of the “severe morbidity” of smaller lenders seen GFC enabled the major banks to outperform.

“We see a similar dynamic at play here with regulators trying to minimise the damage.”

Eli Greenblat 10.27am: Djerriwarrh slashes payout

Djerriwarrh, the yield hungry listed investment company part of the Australian Foundation Investment Co stable, has been forced to slash its final dividend to shareholders in the wake of the unprecedented volatility on the sharemarket while it sold down key blue-chips as its call options were exercised.

Djerriwarrh said its net operating profit – which is the key component of its dividend – was $28.1m, down 25.5 per cent from fiscal 2019. Net operating result per share was 12.54 cents, down from 16.95 cents per share, while net profit was weaker by 4.1 per cent to $32.9m.

Revenue from its operating activities, drawn from investing in Australian equities as well as writing call and put options to help supplement its income, was down 28.2 per cent in 2020 to $28.6m.

Djerriwarrh has always prided itself on its ability to produce strong dividend returns for its shareholders, many of which are retirees, but the wild swings in share prices since the coronavirus pandemic emerged this year has dented its ability to generate income.

The listed investor declared a final dividend of 5.25 cents per share, down from 10 cents for the same time last year, payable on August 28. This brings total dividends for the year to 14 cents per share, down from 20 cents per share in 2019.

Djerriwarrh said under normal circumstances the final dividend would be close to the net operating result for the half of 4.9 cents per share, but the board considered the difficult conditions brought about by COVID-19 and decided to use a small amount of reserves to bring the final dividend to 5.25 cents.

The investor said major sales for the 12 months period were mostly as a result of the exercise of call options, including its positions in CSL, Wesfarmers, Commonwealth Bank and National Australia Bank. There was also a reduction in its holding of James Hardie and positions exited in the year included AUB Group, Ansell, Worley and Treasury Wine Estates.

10.11am: Bank reversal sends ASX lower

Shares have defied expectations of an early boost, instead slipping at the open as banks and energy stocks reversed.

Futures relative to fair value had suggested an early boost of 0.5pc, but even a boost in US futures couldn’t support the benchmark.

At the open, shares are lower by 14 points or 0.23pc to 6020, after hitting early highs of 6038.8.

All of the major banks are lower by around 1.2pc, while major miners are offsetting some of those losses. The Energy, Consumer Discretionary, Communications and Real Estate sectors are also underperforming, with Beach down 2.6pc, Tabcorp down 2.4pc, Telstra down 1.2pc and Scentre down 1.4pc.

CSR is worst off with a 6.3pc fall after Morgan Stanley downgraded to Underweight, While South 32 is down 3.6pc on a disappointing production report.

9.58am: Oyster grower posts record quarter

Listed oyster grower Angel Seafood says the COVID-19 shutdown has accelerated its growth in retail markets, as the company posted a record 2.1 million oysters sold in the fourth quarter.

In its quarterly report, Angel said record sales for the quarter were achieved “despite key trading channels completely shutting down”. The result reflects a 5pc jump in oysters sold from the same time last year.

The group said it had 20 million oysters on hand at June 30, a larger portion of which it would now push out through retail channels as restaurant trade remained subdued by coronavirus restrictions.

With less than 20pc of major retailers selling the seafood, Angel said there was “significant opportunity to further increase penetration within retailers”.

“Angel is well positioned for strong growth once consumer demand returns to normal levels with larger oyster sizes available.’

9.49am: ASX to rise ahead of key events

A slight rise in Australia’s share market is expected before key events this week.

Overnight futures relative to fair value suggest the S&P/ASX 200 will open up 0.5pc at 6063, which would leave the index drifting sideways near the upper end of the 5705-6017.8 range that’s held since late May.

The local bourse may take direction from the S&P 500 this week as it tests resistance from the top end of a trading range after rising 0.3pc to 3224.7 on Friday

The prospect of further delay in Europe’s proposed EUR750 Recovery Fund after an unproductive three days of talks between EU leaders hasn’t affected risk sentiment this morning.

Nor has the worsening coronavirus pandemic over the weekend. The daily US case count rose 2.2pc, above last week’s average of 1.9pc, as Los Angeles was on the brink of another stay-at-home order.

Victoria’s daily case count rose to 363 while NSW hit 15 new cases, increasing the risk of further lockdowns in Australia.

US earnings season continues this week and the market awaits RBA Minutes and speech from RBA Governor Lowe on Tuesday, Thursday’s Australian Economic Update and EU and US PMI data on Friday.

Bridget Carter 9.39am: Partners to make fresh bid for Healius

DataRoom | Partners Group is expected to revive attempts to do a deal to buy Healius after the target delivers full-year results, sources say, as private equity firms remain focused on the defensive healthcare industry during the pandemic.

Partners made a $3.40-a-share bid for Healius at the start of the year, valuing it at $2.1bn, but the offer was rebuffed.

It had secured an option to buy a 15.9 per cent stake in Healius from China’s Jangho

The thinking has always been that Partners has remained active in the background, but some believe a second attempt to buy the business will happen after August.

Healius is currently worth about $1.88bn — slightly higher than when Partners made a takeover approach the first time around.

9.27am: What’s on the broker radar?

ARB cut to Sell – Morningstar
Ansell cut to Hold – Jefferies
Bendigo and Adelaide Bank cut to Neutral – Citi
Coles cut to Neutral – Credit Suisse
Commonwealth Bank cut to Neutral – Citi
CSR cut to Underweight – Morgan Stanley
Helloworld raised to Add – Morgans
Integrated Research cut to Hold – Bell Potter
Japara raised to Hold – Jefferies
NAB price target cut 5.1pc to $23.50 – Citi
OceanaGold raised to Outperform – Macquarie
Pantoro cut to Hold – Bell Potter
Ramsay Health raised to Buy – Jefferies
Service Stream cut to Hold – Bell Potter
ThinkSmart rated new Buy – Canaccord
Westpac target price cut 9.6pc to $23.50 – Citi

9.14am: Flexigroup joins with Amart, Snooze

Buy now, pay later provider Flexigroup has partnered with retailers Amart, Snooze, Temple and Webster and Bally as it reports further online growth for the fourth quarter.

The group, which offers instalment payments for purchases up to $30,0000, said today that it onboarded a record number of merchants to its platform last month, taking its total merchants to 56,000 as it targets health and home improvement verticals particularly.

Online volumes increased 315pc in the fourth quarter, says Flexigroup, with total online transactions up 447pc from the same time last year.

Its humm service was also integrated with BPAY, allowing customers to pay a range of electricity or phone bills in instalments.

“The continued growth in new retailers joining the humm platform, particularly in the health and home categories, shows that our differentiated product offering is compelling to merchants,” chief Rebecca James said.

“With the ability to facilitate larger transactions than other buy now pay later providers, humm is continuing to attract a wider range of merchants who previously haven’t offered buy now pay later solutions to their customers.”

FXL last at $1.21.

Flexigroup's buy-now-pay-later business, humm has provided a retail partner update for the June quarter. Temple & Webster, Amart Furniture, luxury brand Bally, Cotton On & Snooze are some brands that have joined its platform between April & June #ausbiz pic.twitter.com/2iVqhaEh7q
— CommSec (@CommSec) July 19, 2020

9.04am: South32 signals $109m impairment

South32 Ltd. reported a mixed quarter of production for commodities that it digs up at operations around the world and signalled $US109m in impairment charges tied to a review of its manganese allow smelters.

South32 said its Cannington silver-lead mine was a standout performer, exceeding guidance for the year through June by 8pc. Management also reported record production at the Brazil Alumina, Hillside Aluminium and Australia Manganese ore divisions in fiscal 2020.

However, the latest operational snapshot showed output of energy coal dropped by 3pc in the three months through June, while nickel production and manganese ore output each fell by 6pc.

South32 has responded to the coronavirus pandemic by suspending its share buyback program with $US121m remaining and drawing up plans to cut around $US160m in spending over 15 months.

The company also mothballed its Metalloys manganese alloy smelter in South Africa amid concern that it may not be economic viable in future, while it is reviewing the TEMCO smelter in Australia. Management said completion of the TEMCO review had been delayed by the coronavirus pandemic.

South32 said it expected to book pretax impairment charges of approximately $US109m in its results for the year through June. That charge is estimated at $US90m after tax. The company said it also expected around $US7m in pretax restructuring costs, including redundancies, at Metalloys.

Dow Jones Newswires

South32's manganese operations in South Africa. Picture: Supplied.

9.00am: Macro focus on policy: MS

Morgan Stanley Australia head of research Chris Nicol says this week’s macro focus is mainly on policy, primarily the Government’s economic update on Thursday, but also RBA Minutes and RBA Governor Lowe’s Anika Foundation speech on The Labour Market and Public Sector Balance Sheets on Tuesday.

The economic update in particular will “start to answer investors” questions regarding both the pace of tapering of crisis support and how this transforms into more traditional growth stimulus.

“Fiscal fails are not in the market price, so these pivots will be important to the forecast path of activity recovery and also to help set the tone for outlook commentary that will accompany the not too distant FY20 earnings season,” Mr Nicol says.

8.55am: Sydney Airport traffic down 95pc

Sydney Airport has reported just 172,000 passengers through its doors last month, a 95pc collapse from the same time last year.

In its latest traffic performance report, the airport said 32,000 international passengers had passed through last month, down 97.6pc, while domestic passengers totalled 140,000 a 93.3pc drop.

“While domestic passengers noticeably increased in June when compared with April and May, Sydney Airport expects to continue to see significant reductions in passenger traffic for as long as domestic and international travel restrictions persist,” it said.

Adeshola Ore 8.44am: Guarantees will keep business afloat: Treasurer

Treasurer Josh Frydenberg says the government’s extension of loan guarantees for small businesses will help keep organisations financially viable.

On Sunday night, the federal government unveiled a program to extend loan guarantees for small to medium business to June next year. It will allow banks to provide low-interest rate loans of up to $1 million for terms of up to five years compared to the current three-year period.

“We’ll take out loans to support their growth opportunities or to maintain their working capital to stay operational and viable,” Mr Frydenberg said.

“Today’s announcement is great news for 3.5 million small businesses. We’re giving them more access to money at lower rates and for longer periods.”

The treasurer’s economic statement on Thursday will include a forecast and an update on the future of JobKeeper and JobSeeker.

Read more: $1m loans guaranteed

8.25am: Eclipx sells Right2Drive

Fleet leasing company Eclipx says it has sold Right2Drive to Growth Factor Group for $26.5m.

The sale is expected to complete on August 17.

The sale price comprises fixed and contingent consideration. The fixed consideration of $19.2m includes $15m payable at transaction completion and $4.2m to be paid 18 months after completion. A contingent consideration of up to $7.3m will be payable at six-month intervals.

The carrying value of Right2Drive was $28m as at March 31.

The transaction includes an ongoing commercial relationship with Right2Drive.

Proceeds from the sale will be used to reduce Eclipx’s debt.

5.50am: ASX to open steady

Australian stocks are tipped for a flat start after Wall Street ended mostly higher, benefiting from some encouraging economic data.

Early on Monday, the SPI futures index was up just two points.

On Wall Street on Friday, the Dow dipped 0.2 per cent but the S&P 500 and Nasdaq each gained 0.3 per cent.

Locally on Friday, a late rally helped the ASX200 to clinch a gain for the session, extending its weekly lift to 1.9 per cent.

The key event this week will be Thursday’s economic and fiscal update, with the government set to reveal its plans for the JobKeeper wage subsidy after its currently scheduled end in September. A permanent rise in JobSeeker might be on the cards.

Many economists expect government stimulus to continue, albeit with some tweaks.