Global markets surged overnight as the US markets (S&P 500) jumped +7% on signs that the lockdowns are working with the number of deaths in New York dropping. Recent hot spots Italy, France and Spain all reported a fall in death rates and new cases over the weekend. This comes as the US is set to prepare for its worst week in regards to peak cases, and the market has reacted surprisingly strongly to any piece of positive news.
While a welcome rally, we are still not out of the volatility yet and investors should stage into the market with caution.
Auckland International Airport (AIA:NZX / AIA:ASX)
Auckland International Airport shares were put into a trading halt yesterday, as it looks to raise $1.2 billion from an institutional placement and share purchase plan. While having a reasonably robust balance sheet and predicted low level of cash burn, AIA are preparing for a "worst-case" scenario of keeping borders closed and assuming local travel is minimal until December 2021, while also providing rental concessions (particularly at international terminals).
This capital is a prudent measure, to maintain a solid balance sheet and stay within debt covenants, as well as allowing for some planned capital expenditure work to be completed. AIA has also reduced operating costs from $190m to just $10m – i.e. $10m a month.
Our base case is for a semi normal return domestic travel (which accounts for almost half of total passenger numbers) as soon as possible, with gradual opening of international markets (at least 12 months away) depending on covid-19 risks, with trans Tasman and Pacific routes likely to open first.
We have upgraded AIA to a High-Risk BUY.
Members should look out for a full update (taking into account the capital raise) on AIA to be released in our weekly report.
Australia & New Zealand Market Movers
The Australian market (ASX 200 +4.3%) had a strong day of trade yesterday which saw all sectors make gains, with the market now up +16% from its seven-year low on March 23, but still down 26% from it's all-time high in February.
The energy sector rose after president Donal trump threatened to impose traffics on US imports of crude oil from Saudi Arabia and Russia if a deal to cut supply and support prices wasn't reached.
CSL led the market higher, up +5.2%, announcing it has joined forces with Japanese rival Takeda to develop a covid-19 plasma treatment that uses antibodies from recovered patients. The therapy is being developed from scratch and could theoretically be on the market ahead of vaccines.
The NZ market fell on Monday (NZX 50 -1.7%) as Auckland International Airport was put into a trading halt to allow for a $1 billion placement. The rest of the market fell, possibly as investors sold down some holdings to take part in the placement.
The tourism sector was hit hard as AIA prepares for a longer (than anticipated) period of no inbound travel from outside travelers, as well as slower than anticipated recovery. While the property sector was another poor performer with concerns they might be next to potentially raise capital with concerns around tenant rents and renewals given the prolonged lock down.
3 Things Markets Will be Watching this Week
- Coronavirus related news-flow remains key in terms of market moves.
- Measures by central banks & governments globally in response to coronavirus.
- Capital raising announcements by companies are growing as companies ask for cash from investors in this uncertain period.
Have a Great Day,