Trade Talks | G8 Education Jumps

27 August 2020

Global markets were mixed overnight (US S&P 500 Index +0.4%) in quiet trade. 

The US market was higher on the back of positive developments around US and China trade negotiations, and fresh progress in the medical battle against covid-19. Of the major sectors in the S&P 500, six ended the session higher, with communication services enjoying the largest percentage gain and energy falling by the most. The big technology names continued to rise, led by Facebook which was up +3.5%, albeit  Apple slipped ahead of its 4 to 1 stock split.

Closer to home, an upbeat session on the NZX was cut short due to internet connectivity issues.

G8 Education (GEM:ASX)
Childcare operator G8 Education Limited (GEM) shares were up +10% yesterday, recovering Monday's losses a day after the market digested a weak result for the first half of 2020.

GEM reported a net loss of $239m, which includes a non cash-impairment charge of $237m which was flagged earlier due to the impacts of covid-19. Accordingly revenue and earnings were heavily impacted by low occupation rates due to covid-19 but were mitigated by government jobkeeper assistance during the lockdown period, as well as free childcare support package prior to help occupancy rates recover. The $301m capital raise does put GEM in a stable financial position to weather further near-term uncertainty up until December 2021.

Despite the challenges we believe most are largely priced in and stock with our High-Risk BUY rating given the potential for a strong (but partial) turnaround under normal conditions and the nature of G8's service being viewed more as an essential service.  

Australia & New Zealand Market Movers

The Australian market continued to climb higher on Tuesday (ASX 200 Index +0.5%), following a positive lead by Wall street, and optimism around a covid-19 treatment.

Afterpay rose another +11.8% yesterday as the market appears upbeat about its potential performance ahead of its result later this week.   
The big four Australian banks performed strongly, leading the market higher  as investors now try to look forward into 2021 as a potential rebound period. Property companies also gained ground, with Scentre up +4.5% despite booking an interim loss of $3.6 billion, brought lower by hefty write-downs on its malls portfolio.
Vitamin maker Blackmores dropped -5.6% after it suffered a -66% slide in net profit to $18.1 million in financial 2020, and it said it will not pay a final dividend.

Despite the short trading day New Zealand shares were up  (NZX 50 Index +0.6%) yesterday following a strong lead by US markets and vaccine optimism. 

Tourism Holdings again led the market, up +6.8% as it is viewed as benefiting a lot from a vaccine particularly in the US.
Outside of the NZX50, NZME stormed higher up +45%, after delivering a better than expected result, driven by strong cost cutting, which helped lift first half earnings as well as a reintroduction of its dividend next year.


3 Things Markets Will be Watching this Week

  1. ​​​​​​​​​​​​​​​COVID-19 related news-flow remains key, with second wave and lockdown headlines, while US Congress debate what an extension of stimulus will look like.
  2. Investors will be looking for guidance from the world’s Central Bankers as they meet (virtually) at the Jackson Hole symposium
  3. Locally, it is another big week of earnings ahead. Companies of note reporting include: Fortescue, Chorus, Ansell, Stockland, Meridian, Spark NZ, Ramsay Health Care, Woolworths, Air NZ, Boral, NEXTDC and Port of Tauranga.
Global markets were mixed overnight (US S&P 500 Index +0.4%) in quiet trade.

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