Global markets were higher on Friday as the market rebound continued in full swing with the US markets experiencing a second week of gains.
All sectors finished higher as the US government issued guidelines toward restarting the economy. There have been a number of optimistic reports in the race to find a coronavirus treatment, including researchers at Oxford conducting clinical trials on a vaccine saying it could be available by September (compared to more conservative expectations of a vaccine available in 2021). Gilead shares rallied in the US after a report that a group of patients were “seeing rapid recoveries in fever and respiratory symptoms" from their covid-19 treatment, which could be fast-tracked for FDA approval as early as May.
As we mentioned last week, the spotlight will be on corporate profit announcements this week, with some big names reporting in the US, including Amazon and Netflix. We still expect near-term volatility, and believe this market rally is premature given the large hit global economies will have to deal with in the near term.
In other news, China pledged stronger policies, including rate cuts, after the pandemic pushed the economy into its first GDP contraction in decades (March quarter GDP was -6% year on year).
Tourism Holdings (THL:NZX)
Tourism Holdings (THL) remains under extreme pressure as covid-19 has brought tourism to a complete halt. Since hitting lows in March, THL shares have manged a partial recovery. THL have provided some light that they are taking active steps to mitigate the cash burn during this unprecedented period.
THL announced they have sold down a portion of its stake in Togo technology venture (at cost) to free up some cash and focus on its core RV business locally, with a number of cost control measures to reduce cash burn, including saving ~60% of employee costs. THL’s rental business has been deemed an essential service to utilise part of their fleet (about 10%) in providing a motorhome covid-19 isolation services in NZ, Australia and the US. The Kiwi experience and the Waitomo group operations have been temporarily closed.
At the current juncture THL are in very challenging position but we would not be panic selling down here. We believe THL will be able to partially weather the covid-19 dilemma given lower level of cash burn than previously anticipated. Due to the challenges we would not be buying into THL with fresh money as the near-term outlook remains bleak – without any certainty on when tourism will re-start.
We have a HOLD Rating on THL.
Members can login to read our latest report on THL.
Australia & New Zealand Market Movers
The Australian market was higher on Friday (ASX +2%) following global moves.
The CEO of Xero has said been in the press ruling out any reduction to subscription costs for small businesses in distress. Noting: "We thought a lot about this and we are pretty confident that as subscription businesses go, we offer incredibly flexible terms to our customers.”
Also, there have been reports that Facebook and Google will be forced to pay Australian media companies for publishing their news stories, under a world-first mandatory code of conduct.
Australia’s Prime Minister rejected tax increases on Friday, including the introduction of a coronavirus levy or increasing the rate of GST. Instead, the government will focus on tax incentives to drive business investment, a paring back of environmental approvals, and an overhaul of industrial relations. Options reportedly under consideration include company tax cuts or a fully-fledged business investment allowance.
The NZ market finished an already strong week with an extra surge (NZX 50 +2.9%). Tourism Holdings and SkyCity Entertainment Group notched up double-digit gains. Vista Group International advanced after raising $65 million of capital from shareholders to put the cinema software company in a stronger position.
The press is reporting an internal review has begun at Vodafone NZ, which will likely lead to redundancies. Senior managers are reportedly taking a 20% pay cut while a salary and hiring freeze has been implemented.
Michael Hill reported quarterly group revenue down 11.9% (same store sales -11.2%), with monthly cash burn sitting around A$2-3m.
Delegats also provided an update on Friday noting that volumes for the 2020 Harvest were +7% (off a 10% decline in 2019). No formal guidance update was provided.
3 Things Markets Will be Watching this Week
- Coronavirus related news-flow remains key in terms of market moves.
- US corporate earnings will be in focus with some big names reporting in the US, including Amazon and Netflix.
- Capital raising announcements by companies are growing as companies ask for cash from investors in this uncertain period.
Have a Great Day,