Global markets were broadly in the green overnight (S&P 500 index +0.9%) as Joe Biden began to take charge as US President and Netflix buoyed technology stock sentiment.
Netflix shares surged +17% after. Netflix surged more than 13% after a jump in subscribers surprised many – reporting 8.5m new subscribers in the last quarter (versus 2.2m the quarter before). Importantly, Netflix said it will no longer need to borrow billions of dollars to finance its TV shows and movies and it will be cashflow positive after 2021.
Investors remain optimistic that federal spending under President Joe Biden will revive growth and bolster corporate earnings. Janet Yellen could be sworn in as Treasury Secretary as soon as tomorrow. As we discussed previously, she is a cheerleader for a big fiscal stimulus, arguing that the extremely low level of interest rates provided justification for the incoming administration’s plans to “go big” with its proposed $1.9 trillion fiscal stimulus package.
Water filtration business DEM saw its shares jump yesterday as the company hit a key milestone of becoming cash flow positive. As we highlighted in our initiation of coverage report, we believe this will be a key inflexion point for the business as it continues to mature and grow.
Highlights for the 2020 quarter included positive quarterly operating cashflow of +$544k, with record quarterly cash receipts of $5.6m, up 53% vs September Quarter. This translated to record full-calendar year 2020 cash receipts of ~$16m, up 36% versus 2019. DEM continues to transition its business model, with ~58% recurring revenues in the 2020 calendar year, up from ~38% in 2018.
At the same time, DEM has a strong balance sheet, with $5.4 million cash and term deposits as at 31 December 2020, which could be used for bolt-on acquisitions and/or fund new projects. For the year ahead, DEM already has ~$3m of contracted cash receipts from equipment sales carried over into 2021 and ~$10m of recurring cash receipts.
CEO, Andreas Kroell said “Record order intake during the second half of CY2020 and our growing recurring revenues provide sufficient confidence in continued growth in CY2021, despite challenging global conditions due to the Covid-19 pandemic. Our unique portfolio of hollow-fibre membrane technologies has gained a strong place in the market, which will generate further organic growth opportunities for De.mem”.
We are pleased with this announcement and remain BUY rated. We will release a full update for members in our next weekly report.
Australia & New Zealand Market Movers
The Australian market was higher yesterday (ASX 200 index +0.4%) buoyed by gains in the miners as well as tech stocks such as Afterpay.
BHP shares rose +0.9% after the miner completed its most productive six months on record, shipping 144.1 million tonnes of the steel-making ingredient into hot demand from China. That achievement means BHP was running at close to its long-targeted 290 million tonne-per-year rate, and would exceed the top end of its guidance range if the performance were repeated in the next six months.
Ansell shares rallied 3.6% to $36.67 after the surgical gloves and protective medical suits maker said it expects first-half organic growth of more than 20% and unaudited earnings per share in the range of 81¢ to 84¢, a lift of between 62% to 68% on the year-earlier period.
The New Zealand market rose yesterday (NZX 50 index +1.1%) as the markets largest stock by index weight, Fisher & Paykel Healthcare, jumped 5.7%, although on a lighter than usual volume.
Shares in Z Energy rose 1.6% after the fuel retailer reaffirmed its guidance. Z Energy's 3rd quarter retail fuel volumes and shop sales were strong, but not enough to offset a decline in retail margins. A stronger New Zealand dollar also helped offset higher crude oil costs, it said.
Personal lender Harmoney shares surged 7.5% after it reported 2% more loans had been issued in the six months ended December than originally forecast. Strong second quarter demand saw New Zealand loans increase 44% to $62 million and Australian loans 69% to $27m, bringing the total current loan book to $469m.
3 Things Markets will be Watching this Week
- The week ahead is a busy one with Biden’s inauguration on Wednesday (US time) a focal point.
- There are also a number of central bank decisions including the European Central Bank and the Bank of Japan.
- Quarterly US earnings season is underway, with the week ahead dominated by financials. Key results include: Netflix, Procter & Gamble, United Air, Bank of America, Morgan Stanley, Goldman and Gilead.