Weekly Market Update – 6 September 2021

US jobs disappointed whilst locally GDP positively surprises

Global equity markets were weaker last week with the MSCI World Index falling -1% in AUD terms. Stripping out currency movements (the AUD rallied +2% against the USD) and global equities rallied +0.9% for the week.

Investment markets continue to climb higher with fears the Federal Reserve will begin the tapering of its asset purchases sooner than expected largely discounted following last week’s Jackson Hole symposium.

The main drivers of equity markets continue to be record low interest rates and the Federal Reserve has indicated an easing of support doesn’t constitute rate hikes, which the market liked.

Friday’s non-farm payrolls in the US disappointed with job creation in August rising by 235,000 compared to expectations of 720,000. A resurgence of COVID-19 cases ultimately hindered jobs with leisure and hospitality suffering the most. The August unemployment rate came in at 5.2%.  

Locally, Q2 GDP beat expectations (+0.7%) with annual gross domestic product coming in at 9.6% meaning any talk of a double-dip recession is delayed for at least another quarter. Australia’s increasing vaccination rates along with pend up demand underpinned Q2 strength.   

What did reporting season tell us?

Ultimately, earnings came in ahead of expectations with small caps positively surprising. Small caps tend to outperform in a bull market (and underperform in weaker markets), so it was pleasing to see small caps rebound so strongly from the impacts of COVID.

Dividends were also largely positive with twice as much dividend per share (DPS) beats as misses. Many companies clearly believed their balance sheets were in a strong position hiking dividends throughout the season.

Further evidence of this was seen with a range of companies announcing capital management initiatives.

ANZ announced a $1.5b on-market buyback, NAB announced a $2.5b buyback and CBA announced a $6b off-market buy-back exceeding expectations of $5b. Woolworths (WOW) also said it would buy back up to $2b of shares off market.

We recommended investors participate in both the CBA and WOW buybacks where appropriate.

The negative theme to emerge from reporting season showed results weakened the further through reporting we went. After 11 consecutive months of upgrades, we saw negative revisions in August which dented confidence somewhat.

The downgrades were predominantly driven by companies whose businesses suffer most from COVID and lockdowns.

So where were returns made?

Australian stocks climbed +1.9% over reporting season but given most stocks went ex-dividend thereby dragging on the overall index return, the ASX200 Accumulation index is a more accurate benchmark, and this climbed +2.5%.

Technology was the best performing sector (+17%) fuelled by the Square Inc (SQ) takeover of Afterpay (APT) which rose +39%. Subject to approval from shareholders the acquisition is expected to occur in Q1 next year.

The second major driver for tech stocks came from software solutions company WiseTech Global (WTC) which rallied +57% after FY21 margins increased to +41% compared to 30% in the prior corresponding period.

WTC’s FY22 guidance ($600m-$635m) in revenue and $260m-$285m in EBITDA also exceeded expectations. Given several companies withheld from providing guidance throughout reporting season given the challenging outlook, the fact WTC provided it was well received.

Health care (+6.8%) and consumer staples (+6.5%) also outperformed the market with CSL (CSL) and Sonic Healthcare (SHL) both stronger during the month (+8%) on the back of stronger revenues and EBITDA growth. Robust demand for pathology services and plasma products underpinned this strength.

Miners dragged on portfolio performance throughout reporting season down -8% as iron tumbled -20%. Major iron ore producers Fortescue (FMG), BHP (BHP), Rio Tinto (RIO) and Mineral Resources (MIN) all fell between 12-16%.

The BHP plan to remove its dual listing was a negative catalyst with the ASX listing underperforming its UK counterpart by circa -12%.

ASX Weekly Wrap

The ASX200 extended its gains last week rising +0.5%.

Small caps once again outperformed rising +2.5% whilst mid caps also contributed to performance climbing +2.2%.

Large caps weighed on performance with the ASX top 20 falling -0.6% whilst miners were once again caught up in the iron ore selloff.

The major banks were mixed with NAB the beneficiary of a broker note which saw the stock upgraded to a buy from what was previously a neutral rating. The broker increased its NAB price target to $29.50.

NAB’s strong capital position, the recent deal to acquire Citibank’s Australian consumer business and Australia’s strong economic recovery have all driven the upgrade with another broker forecasting dividend yields of 4.5%, 5% and 5.3% between FY21 and FY23.

Dragging on performance last week was Wesfarmers (WES) which fell -7% in what we believed was overly harsh. WES delivered FY21 results which showed revenue increased +10% and net profit after tax (NPAT) rose +16%.

Despite the positive results, WES stated that growth began to moderate towards the end of the financial year as lockdowns were once again imposed.

Sales across Bunnings, Officeworks and Catch slowed from mid March which was around about the time Australia’s JobKeeper program ended whilst customer traffic was also negatively impacted due to stay at home restrictions. 

Finally, WES also announced that it had been facing inventory delays and higher ocean freight charges because of supply chain disruptions which may cause the FY22 outlook to be below the prior corresponding period.

WES remains a key holding in the portfolio. Management are good capital allocators with previous acquisitions of Catch, the demerger of Coles and the Target restructure having facilitated a strong balance sheet. 

Best performers were Ramsay Healthcare (RHC) and Northern Star (NST) which rallied +5.5% and +4.5% respectively.

Private hospital operator RHC provided an optimistic outlook when it released its FY21 results a fortnight ago. RHC’s accelerated capex plan is a vote of confidence in its long-range outlook as vaccine rollouts allow activity to normalise.

RHC intends to spend approximately $1b per year over the next four years to support stronger growth split evenly between its Australia and European operations. RHC continues to benefit from pent up demand in the UK and Europe where vaccines have been rolled out more widely.

Northern Star (NST) has been a disappointment in recent months with a volatile gold price ultimately driving NST shares lower.

However, NST’s record financial result (NPAT +300%, revenues +40% and EBITA +216%) which was aided by the takeover of Saracen Minerals has provided us with some degree of comfort.

NST is a global-scale Australian gold producer with world class projects located in highly prospective and low sovereign risk regions of Australia and North America.

NST’s portfolio of high-quality, high-margin underground and open pit gold mines is firmly focused on delivering superior shareholder returns, NST continues to invest in building its asset base through strategic acquisitions and aggressive exploration to extend the mine lives across its world class operations.

With markets looking increasingly fuller we favour NST’s ability to outperform in a sideways or even down market and continue to hold it in the portfolio. 

Looking ahead

Monday 6th September 2021 – Friday 10th September 2021

  • Monday: N/A
  • Tuesday: AU RBA Interest Rate Decision, CN Balance of Trade (AUG)
  • Wednesday: AU NAB Business Confidence (AUG)
  • Thursday: CN Inflation Rate (AUG), US Weekly Jobless Claims
  • Friday: UK Balance of Trade (JUL), GDP (JUL)

Friday 3rd September, 5pm values

 IndexChange%
All Ordinaries 7827+67+0.9%
S&P / ASX 2007523+35+0.5%
Property Trust Index1662+39+2.4%
Utilities Index5964-116-1.9%
Financials Index6753+43+0.6%
Materials Index16570+86+0.5%

Friday 3rd September, closing values

 IndexChange%
U.S. S&P 5004535+26+0.6%
London’s FTSE7138-10-0.1%
Japan’s Nikkei29128+1487+5.4%
Hang Seng25902+494+1.9%
China’s Shanghai3582+60+1.7%

Key dividends

Monday 6th September 2021 – Friday 10th September 2021

  • Monday: Div Ex-Date – Altium Limited (ALU), ASX Limited (ASX), CBAPD (CBAPD), CBAPE (CBAPE), CBAPF (CBAPF), CBAPG (CBAPG), CBAPH (CBAPH), CBAPI (CBAPI), Fortescue Metals Group (FMG), Northern Star (NST), Ramsay Healthcare (RHC), WBCPG (WBCPG)
  • Tuesday: Div Ex-Date – Amcor (AMC), BlueScope Steel Limited (BSL), IOOF Holdings Limited (IFL), Origin Energy (ORG)
    Div Pay-Date – Mineral Resources (MIN)
  • Wednesday: Div Ex-Date – Blackmores Limited (BKL), Brambles Limited (BXB), Medibank Private Limited (MPL), NABPF (NABPF), NABPH (NABPH), Seek Limited (SEK)
    Div Pay-Date – Metrics Master Income Trust (MXT), Metrics Income Opportunities Trust (MOT)
  • Thursday: Div Ex-Date – ANZPG (ANZPG), ANZPH (ANZPH), ANZPI (ANZPI), NABPE (NABPE), Reliance Worldwide (RWC), South32 Limited (S32), WBCPI (WBCPI)
    Div Pay-Date – Domain Holdings Australia (DHG), Dominos Pizza Enterprises Limited (DMP)  
  • Friday: Div Ex-Date – Cleanaway Waste Limited (CWY), Wisetech Global Limited (WTC)
    Div Pay-Date – JB Hi-Fi Limited (JBH), MQGPD (MQGPD), Nickel Mines (NIC), VGI Partners Limited (VGI)

Contact

Mark Johnson – Chairman of Investment Committee(03) 8825 4738
Guy Silbert – Investment Manager(03) 8825 4750

If you would like to discuss your situation, please speak to your adviser or email clientservices@primefinancial.com.au

Mark JohnsonT: (03) 8825 4738Cameron MorcherT: (03) 8825 4737
Livio Caiolfa T: (03) 8825 4748Michelle BromleyT: (03) 8825 4751
Marcus AingerT: (02) 9134 6292Nicole LewisT: (03) 8825 4734
Dylan CresswellT: (03) 8825 4707Nicholas Miller T: (03) 8825 4722
Jarrod Rodda T: (03) 8825 4729Gina McIntoshT: (07) 3557 2557

The information in this article contains general advice and is provided by Primestock Securities Ltd AFSL 239180. That advice has been prepared without taking your personal objectives, financial situation or needs into account. Before acting on this general advice, you should consider the appropriateness of it having regard to your personal objectives, financial situation and needs. You should obtain and read the Product Disclosure Statement (PDS) before making any decision to acquire any financial product referred to in this article. Please refer to the FSG (www.primefinancial.com.au/fsg) for contact information and information about remuneration and associations with product issuers. This information should not be relied upon as a substitute for professional advice, and we encourage you to seek specific advice from your professional adviser before making a decision on the matters discussed in this article. Information in this article is current at the date of this article, and we have no obligation to update or revise it as a result of any change in events, circumstances or conditions upon which it is based.

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