HK Tensions See Late Drop | Caltex Rebrands

1 June 2020

​Global markets were mixed overnight as the US market sold off late in the day (S&P 500 -0.2%) following news that President Trump will make an announcement regarding Hong Kong today. Investors fear that the White House will revoke Hong Kong's special trade status, further inflaming relations with China. This comes after China’s National People’s Congress formally approved the draft national security law for Hong Kong. Separately, White House economic advisor Larry Kudlow said the Phase-One trade deal between the two countries was still on “for the moment”.  

​At the same time, European stocks climbed amid optimism over economies reopening and a European Union fiscal stimulus plan. 

US Market (S&P 500):


Caltex Australia received shareholder approval to change its name to Ampol Limited, with a new ticker code of ALD, in a return back to the iconic company-owned brand which had a deep Australian heritage and expertise.

Ampol’s shares were trading at elevated levels prior to covid-19 due to a takeover offer from Canadian convenience store operator Alimentation Couche-Tard, along with another offer from EG group, which were both initially rejected and seen as undervaluing the company (by the board). As the covid-19 pandemic continued to escalate both were not in a position to pursue further given economic uncertainty. Ampol’s 2020 trading update showed fuels and infrastructure business started to struggle significantly, largely due to an 80-90% drop in jet fuel demand as well as a massive slump in refining margins, while retail fuel volumes for 2020 are down -16% from last year.

We had a negative view on the retail fuel market prior to covid-19 as Ampol (Caltex) struggled through 2019, due to weaker economic activity. While covid-19 is set to make things even worse especially with the restrictive measures in place causing the Australian economy to be in a near full lock down clamping down on economic activity temporarily. Now that restrictions start to ease economic activity is starting to commence but for the fuel industry will likely not be near pre-covid-19 levels anytime soon, meaning a slow recovery for their retail businesses and  fuels and infrastructure business given international flights are still cancelled and are likely to remain subdued for some time. While ALD have announced cost cutting initiatives and have a healthy balance sheet, we think the medium-term outlook remains bleak.

We currently have a HOLD on Ampol and will release a full update in our weekly report.


Australia & New Zealand Market Movers

The Australian market rallied on Thursday (ASX 200 Index +1.3%) with the big four banks playing a leading role for a third straight session as investors respond to an improved outlook for the local economy.
Trade this week has been dominated by demand for ownership in Australia's lenders with the S&P/ASX 200 Banks index climbing a massive 16.5% in the last three sessions. By contrast, over the whole of last year the industry index rose 3%. WiseTech shares fell sharply after the logistics technology company told investors obligations connected to a number of businesses it has bought have been revised.

The New Zealand market sold off yesterday (NZX 50 -1.7%) as Asian markets were lower amid growing fears of a confrontation between the United States and China. Sky ​Television​ led the​ market lower, dropping ​-​15​% as the pay-TV operator is in the process of raising $37.8 million at 12 cents per share from retail investors as part of a $157 million capital raising.​ On the flipside, Tourism Holdings rallied +11% on speculation the trans-Tasman bubble could be opened as early as July.
​Goodman Property Trust fell after its annual result failed to meet the expectations of investors who had priced the stock for perfection​, a company which hardly sold-off during the recent market turmoil. ​
Outside the NZX50, honey producer Comvita announced a $50 million capital raise at $2.50 per share, a 34.4​% discount from ​where it last traded at ​$3.81​. The funds will be used ​to repay debt and position itself to take advantage of future growth opportunities.


3 Things Markets Will be Watching this Week

  1. ​​Covid-19 and US-China trade tensions are likely to once again dominate headlines.
  2. 1st quarter GDP, Consumer confidence and housing data (new and pending home sales) in the US dominates the data flow this week.
  3. Locally, earnings are due from Mainfreight, Goodman Property, Sanford, Infratil, Gentrack, Tilt Renewables and Napier Port.


Have a Great Day,


Investors fear that the White House will revoke Hong Kong's special trade status, further inflaming relations with China.

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