Relief Rally | Summerset Update

8 March 2020

Global markets surged higher overnight, as investor sentiment flipped as stewards of the world’s largest economies said they would work together to offset any impact from the spreading coronavirus. After one of the worst trading weeks in recent history, the S&P 500 rose +4.6% on Monday after news that a group of seven finance ministers and central bankers will hold a teleconference today to discuss how to respond to the outbreak. 

Given global markets were hit heavily with 5-6 days of straight losses a relief rally is not unusual, with investors grabbing onto positive news around central bank support. It is still too early to say we are in a recovery mode yet, and we would still wait for positive news flow regarding coronavirus as a preferred catalyst. The virus is still spreading globally with new cases reported in New York City, Brussels and Berlin, and jumps in new hot spots Italy, Iran and South Korea.


Stock in Focus: Summerset (SUM:NZ / SNZ.ASX)

Shares in retirement village operator Summerset were lower despite delivering a solid result for the 2019 financial year, due to guidance being weaker than expected.  Summerset delivered an underlying net profit after tax of $106.2 million (which excludes unrealised valuation gains in the fair value of investment property, which was up 8% from the previous year) due to strong margins on resales benefiting from good unit price appreciation over the tenor of occupancy.

Summerset anticipate no growth in underlying profit for 2020, due to higher care wages, and weaker development margins (returning down to medium term averages), with a return to underlying profit growth in 2021 with a ramp up in development activity.  Summerset held an investor presentation yesterday adding current demand could weaken due to the coronavirus outbreak, if retirees are opting to stay home as opposed to moving into retirement villages in fears of catching the virus – which could create some near-term weakness.

We currently have a BUY rating on Summerset.
Members should look out for a full update on Summerset to be released in our weekly report.


Australia & New Zealand Market Movers

The Australian market fell yesterday (ASX 200 down -0.77%), taking the total fall since record highs reached on February 20th to over -10%.  The Australian market plummeted in early trade down as much as -3% but partially recovered. The Reserve Bank of Australia (RBA) is now also expected to cut rates at least a quarter percentage point at its monthly meeting Today.

The expectations of policy stimulus saw the oil price post a strong gain, as a result Australian oil and gas companies edged higher – Santos rose, and Woodside Petroleum advanced, but keeping in mind the sector has been hit heavily. The financial sector posted the biggest falls on Monday, with National Australia Bank falling -2.5%, ANZ down -2%, and Commonwealth Bank sliding -1.6% as potential rate cuts have a negative impact on bank net interest margins.

The NZ market (NZX50) ended Monday down -1.4%, and like the Australian market fell heavily in early trade and recovered slightly in the afternoon. The market was again led lower by the tourism sector, with Air NZ dropping -7.9% after the company reported that international passenger numbers had been hit by coronavirus and it offered a thousand domestic airfares at just $9 as part of an effort to boost domestic travel. Auckland International Airport and Tourism Holdings both fell as the government extended its travel restrictions for another week and added that travellers from northern Italy and South Korea would be required to self-isolate for 14 days.
A few stocks managed some healthy gains (after a tough week) Ebos Group and Spark rose as favoured blue-chips were picked up at a relative discount given they both posted solid results and are likely to benefit from local rate cuts – which appear more likely now.


3 Things Markets Will be Watching this Week

  1. ​​​​​​Coronavirus news flow will continue to dominate investors’ attention in the week ahead.
  2. The Reserve Bank of Australia meets on Tuesday amidst increasing expectations they will take the opportunity to cut rates.
  3. Closely watched US economic data is released at the end of the week.

Have a Great Day,


Global markets surged higher overnight, as investor sentiment flipped as stewards of the world’s largest economies said they would work together to offset any impact from the spreading coronavirus

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