Third Wave Hiccup | Lynas Update

26 April 2021

Global markets were lower overnight (S&P 500 index -0.7%) with US stocks slipping for a second day in a row, as strong corporate earnings failed to boost markets which are at record-highs after an amazing 13-month run. We think some profit taking is to be expected as markets generally looked overbought given the surge in April so far.

European markets dropped sharply, as virus concerns outweighed a solid corporate earnings season. Small caps were worse hit followed by tech with risk unwind. 
Sentiment was subdued on the back of a third wave of covid-19 which is causing uncertainty and delaying a return to normality. The US extended its 'do not travel' warnings to 80% of countries which saw US airliners descend – Jetblue (-5.3%), American Airlines (-5.2%), and United Airlines (9.5%) was hardest hit after its revenue and earnings both missed market expectations. Johnson & Johnson (+2.9%), Procter & Gamble (+1.4%), and IBM (+4.4%) traded higher after their earnings report beat expectations. 

In breaking news, Netflix was down as much as -10% after-hours as its quarterly result missed estimates.  

Lynas Corporation (LYC:ASX)

Lynas (LYC) shares fell -8.4% yesterday after shipment delays caused by the Suez canal spoiled what could have been a strong third quarter for their 2021 financial year (ending 31 March 2021). Operationally Lynas performed well with total rare earth production of 4,463 tonnes. NdPr (neodymium-praseodymium) production was 1,359 tonnes, as they increased production rates – as well as benefiting from strong commodity pricing.

Given the strong run Lynas has had over the last 12 months, a pull back like this is to be expected even with minor unflattering news with much of its valuation linked towards positive sentiment.

We continue to remain positive on Lynas underlying business as it has strong growth potential (with the forecast upcoming surge in production and demand for EV's), while there are risks associated with commodity pricing and increased production from other miners, with China being the major threat.  We remain BUY rated with high risk caveat as we believe LYC provides an attractive risk return profile over the long-term, but its recently inflated valuation and sensitivity to commodity prices means its share price will be volatile and we encourage investors to take advantage on any further dips.

Members should keep an eye out of our weekly with a full report on Lynas


Australia & New Zealand Market Movers

The Australian market (ASX 200 index -0.7%) fell yesterday with most major sectors traded in the red, as local investors took profit with the market near all-times highs.

Major miners fell despite the price of iron edging higher. Rio Tinto (-0.5%) fell even after its flagship iron division made its best start to the year shipping 77.9 million tonnes from Western Australia for the first quarter. Sydney Airport fell (-1.6%) even after reporting domestic passengers for the month of March were double from February as domestic borders remained open.  

Woolworths slid (-0.9%) while announcing it was increasing its ownership stake in Quantium (Australia's oldest and largest data business) from 47% to 75%, costing $223m.

The New Zealand market (NZX 50 index -0.7%) fell on Tuesday, reversing Monday's gains with a weak lead from Wall street, and on a cautious tone heading into local inflation data due today.

Yield stocks were generally weaker, led by Port of Napier(-4.2%) and Argosy (-3.9%). Most of the gentailers were also weaker with the two clean energy stocks Contact (-3.2%) and Meridian (-2.4%) down on heavy volumes as BlackRock sold a majority of its position. Genesis Energy bucked the trend up +1.5% after releasing their quarterly performance result, with higher coal and hydro generation offset by a shortage in gas production which  at current prices is set to increase earnings.   
Spark (+2.4%) and Ryman (+2.0%) were the few to make a gain, recovering slightly from recent selling. 

3 Things Markets will be Watching this Week

  1. Corporate earnings season gets into full swing this week with around 80 S&P500 companies reporting, including Netflix, IBM and American Airlines. 
  2. Highlights globally include the ECB’s latest interest rate call.
  3. In Australia, Wesfarmers will host an Investor Briefing while a number of quarterly updates are due including BHP, Northern Star, Challenger, Sydney Airport, Oz Minerals, AMP, Evolution Mining, Santos, Brambles and Woodside.


European markets dropped sharply, as virus concerns outweighed a solid corporate earnings season. Small caps were worse hit followed by tech with risk unwind. 

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