Global markets were higher overnight as the US market (S&P 500 +1.7%) rose to its highest point in the last two-months as investors again bet on a swift economic recovery from covid-19 driven lock downs and the potential for more stimulus measures from the Federal Reserve. Gains were generally broad based with tech giants Amazon and Facebook both hitting new all-time highs as investors cheered the company's new e-commerce platform – Facebook Shops, while Amazon continues to benefit from from consumers ordering online.
Given the recent recovery the market is pricing in a bounce back in the economy a lot sooner than may be possible, and we remain wary at current valuations (for most companies). We expect volatility to remain while restrictions are still in place and medium-term effects of unemployment are yet to be determined. These factors appear to be overlooked by large stimulus packages and the strong performance of few large companies which now dominate their respective markets.
Fletcher Building (FBU:NZX / FBU:ASX)
Shares in Building and Construction company Fletcher Building (FBU) were down -2.9% after providing a trading update and reshuffle of its organisation as it takes measures to respond to the impacts of covid-19.
For the month of April, with no revenue across most of their New Zealand operations during the Level 4 lock down and Australia revenues running at around 90% of pre-Covid-19 expectations, the Group recorded an operating earnings (EBIT) loss for April (unaudited and prior to significant items) of approximately $55 million, which consisted of a $55m million loss in New Zealand and an approximately break even result in Australia.
Fletcher has seen a slow and gradual ramp up in activity from level 3, but extra safety precautions have prevented a return to normal business operations and looking forward they expect a ~20% reduction in activity over the near-term as the economic impacts of covid-19 take a toll on the sector, forcing Fletchers to cut 1,500 jobs (or ~10% of its staff).
We believe most of this negativity has been priced in and remain BUY rated on FBU, with a high risk caveat.
Australia & New Zealand Market Movers
The Australian market (ASX 200 Index +0.2%) was basically flat on Wednesday. The beaten down banking sector helped offset a sell off in blue chip mining stocks and pharmaceutical giant CSL which eased back slightly after a strong couple of days.
TPG Telecom will split in two, with the larger company merging with Vodafone Hutchison Australia at the end of June and the smaller Singaporean operation listing as a separate ASX-listed company to be called Tuas. Australian Agriculture Co was up 3.3% after saying it swung to $31.3 million statutory profit for the 2020 financial from a year-earlier $148 million loss, a result buoyed by increased values of land and its herd of some 346,000 head of cattle.
The New Zealand market was flat yesterday (NZX 50 -0.02%) as investors tread cautiously when faced up to the realities of the ongoing economic crisis. Argosy Property saw the day’s biggest gain up +6.5% after announcing a fourth-quarter dividend of 1.5875 cents will be paid June 24 bringing the full-year pay-out to 6.35 cents.
Z Energy fell lower as it announced weak volume data for week to 17 May (compared to pre-covid-19), however being up from the week earlier thanks including level 2 activity. Air NZ is also set to cut more than 1,300 crew jobs, across all routes total job cuts at around 3,750 staff of 30% of its workforce.
3 Things Markets Will be Watching this Week
- Covid-19 and lock-down news-flow remains key in terms of market moves.
- China-US tensions. The National People's Congress meeting in China will commence on Friday. The meeting is the Chinese Government's platform to outline its economic growth targets and management plan for the year ahead.
- Locally, earnings are due from James Hardie, Aristocrat, Property for Industry and Argosy Property.
Have a Great Day,