US Stocks Surge on Election Results | Pushpay Disappoints

5 November 2020

Global markets surged overnight (S&P 500 Index +2.2%) while the Nasdaq Technology index was amazingly up almost +4%. Expectations heading into the election were that a tight race would cause a period of uncertainty and potentially result in civil unrest.

However, markets surged overnight with the bullish thesis based around the view that a narrow victory, coupled with split legislation makes it unlikely for Biden tax hikes to be passed & technology antitrust reform becomes tougher to legislate. It also means massive fiscal stimulus package becomes more challenging, although some aid remains likely. Results so far suggest Republicans will likely retain control of the Senate, and Democrats the House of Representatives, which would likely impede the passage of legislation no matter who wins the Presidency.

In terms of the Presidency, Trump has performed much better than polls suggested, winning the “tossup states” such as Florida, Ohio, and Texas. Given the election is close, it may be days before we have a definitive result – although Biden is now the clear favourite. Further, there is the potential for re-counts and legal action, which means we could be in for a period of US political uncertainty for some time to come. In this context, volatility from here could well be a buying opportunity, in our view.


Pushpay (PPH:NZX / PPH:ASX)
Pushpay (PPH) shares fell sharply yesterday even though the company said first-half profit doubled (to US$13.4 million (NZ$19.6m), from US$6.5m last year) and increased its full year earnings guidance.

PPH reported what we saw as a solid 1st half 2020 result, but despite the anticipated upgrade in guidance we recognise investor concerns around future front book growth (overall new customers were flat on the prior reporting period, primarily given customer churn in the Community Church Builder side of the business).

During COVID-19 total US giving across churches has remained robust while digital penetration has reached record highs. Going forward, we see a greater focus on acquisitions with PPH indicating they will look to “buy” market share, especially as they look to have saturated the very large mega-church end of the church market.

Separately, the announcement that Peter Huljich would resign as a board director at the end of the year – the Huljich family owns approx. 15% of Pushpay’s shares and investors are likely anticipating that stock may soon be sold into the market – creating an “overhang” on the shares.

Clearly PPH has hit a speedbump in its customer growth, but we remain positive on the company as a top-quality software as a service business and maintain our BUY rating. We will release a full update in our weekly report.


Australia & New Zealand Market Movers

The Australian market slipped yesterday in a volatile session (ASX 200 Index -0.1%). Three of Australia’s major banks have slashed the interest on fixed home loans, with some lending products now attracting a rate of less than 2 per cent. Commonwealth Bank, Westpac and NAB have taken a knife to lending rates following the Reserve Bank’s decision on Tuesday to cut the cash rate.

In stock specific news, Crown Resorts shares were lower as it has been told the company is not suitable to hold the licence for the soon-to-be-opened casino in Sydney's Barangaroo. The Independent Liquor and Gaming Authority has been examining the conduct of Crown in its current casinos in Melbourne and Perth, including its international VIP gaming operations. In his summary, Counsel Assisting the inquiry Adam Bell today told the hearing he believed Crown was not suitable to hold the licence. Commissioner Patricia Bergin is expected to give her final decision early next year.

The New Zealand market made gains yesterday (NZX 50 Index +0.6%) as trader sentiment was swayed by the United States election.

In stock news, Z Energy shares were slightly higher as it reported a first-half year loss of $58 million from a profit of $28m last year, after it reduced prices to counter a slump in demand for fuel during the Covid-19 lockdown. However, chief executive Mike Bennetts said that following a capital raise in June, the business has performed above expectations as alert levels have not lasted as long nor been as severe as expected. “We remain alert to the potential of additional and ongoing Covid-19 outbreaks like that seen in August, but believe we are otherwise well-placed to benefit from the economic recovery in domestic tourism and commercial activity driving volume and market share increases,” Bennetts said. Z Energy’s market share was increasing and the second half of this financial year would be materially different to the first half, he said.


3 Things Markets Will be Watching this Week

  1. ​​​​​​​​​​​​​​All eyes this week will be on the US election, with results set to start coming through around lunchtime on Wednesday (Australian time).
  2. ​​​​​​​​​​​​​​​COVID-19 news is back at the top of headlines with social distancing measures re-introduced in Europe.
  3. It will be another big week of US earnings ahead with 132 S&P 500 companies due to report including Alibaba Group, Wynn Resorts, and Berkshire Hathaway. Regionally, Westpac, CSR, Pushpay, Z Energy, Trustpower, Goodman Group and News Corp all report earnings.


Markets surged overnight with the bullish thesis based around the view that a narrow US election victory, coupled with split legislation makes it unlikely for Biden tax hikes to be passed & technology antitrust reform becomes tougher to legislate.

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