Global stocks were mixed overnight, with US markets (S&P 500 index +0.1%) edging higher to close out the best 6-months since 1988, up a massive +16% (measured by the S&P 500 index). Closer to home, the Aussie market experienced a +9% gain over the same period, while the NZ market was the outlier, losing -5% over the fist 6-months of 2021.
Despite strong housing data being released overnight, markets were subdued as concerns around inflation, equity valuations and the continual spread of the more contagious covid-19 variant weighed on sentiment. Investors are also likely waiting for the much anticipated US jobs report due on Friday. Energy and Industrials were the best performing sectors, while Real Estate and Communications were the laggards. In stock specific news, Chinese based ride sharing app Didi was up +3.3% on its IPO day as it listed raising $4.4 billion in fresh capital.
European Stocks (Stoxx 600 index +0.8%) were weaker overnight to end the half up +13%. The weak session was led by weaker than expected GDP data from the UK down -1.6% for the second quarter, and business investment falling -10.7% due to enduring lockdown measures. France has dropped almost all its remaining coronavirus restrictions, despite having only a third of its citizens fully vaccinated and amid warnings a delta-fuelled “fourth wave” could arrive during the northern summer.
Telstra Corp (TLS:ASX)
Telstra (TLS) shares jumped +4.4% yesterday, after the telecom-giant announced it had sold a 49% share of its Infraco Tower' business for $2.8 billion to a consortium comprising of the Future Fund, Commonwealth Superannuation Corporation and Sunsuper. The transaction valuation was undertaken at a premium valuation – at an EV/EBITDA multiple of 28x (the asset value of the business divided by the operating profit generated) and shows how in demand high-quality infrastructure assets are right now.
The transaction is expected to be completed in the first quarter of the 2022 financial year with 50% of the proceeds to be returned back to shareholders in the form of share buy-back. The remaining cash is to be used to reduce debt to maintain balance sheet strength and flexibility.
We welcome the sale as it was part of our positive investment thesis on Telstra. We remain BUY rated on Telstra as it offers investors a ~4.4% dividend (which is attractive on the Australian Market) plus there is added upside from the share buyback.
Australia & New Zealand Market Movers
The Australian market dipped slightly yesterday (ASX 200 index -0.1%) but has still recorded a +24% return for the 12months of the Australian Financial year, the best annual financial year return return in 34 years.
On a quite day of trade, tech shares were weaker as investors took profit. The major miners were generally stronger followed by consumer staples / grocery stocks – as they continue to operate normally amidst Australia's lockdown.
AGL Energy shares fell -10% after announcing the demerger of of its coal business, and that earnings would fall towards the lower end of its guidance. Nuix plunged -13.0% after it announced ASIC is investigating how the data analytics company conducted its IPO last year.
The New Zealand market was up on Wednesday (NZX 50 index +0.3%), ending the first half of the year down -5%.
Fonterra Shareholder Funds was the best performer on the day up +5.1%, as the stock recovers from its restructure news, and was helped by encouraging dairy update with milk production form May last year was up +7.6% and exports rising +19.8%.
Kathmandu shares were up +3.2% re bounding from its previous session sell-off as analysts expect the now bigger retailer will offset weaker Aussie winter performance with its Rip Curl business in Northern hemisphere.
Sky TV shares were higher again yesterday (+1.8%) as investors digest an encouraging investor day update.
3 Things Markets will be Watching this Week
- Key events this week include US monthly nonfarm payrolls data, the latest US ISM Manufacturing print, an inflation CPI print for the Eurozone.
- In Australia, covid-19 related developments are back in focus with recent lock downs and heavy restrictions.
- In NZ, Sky TV will be holding an Investor Day, and AGM's are scheduled for Argosy and Arvida.