Global markets sold off on Friday with Wall Street ending lower as continuing trade tensions pulled industrial and tech shares down.
Closer to home, there was a hugely unexpected result in Australia's federal election over the weekend with the Liberal-National coalition winning and returning to power. We would expect a boost to investor sentiment today, with key winners likely including property related companies, oil & gas businesses and airlines.
Stock in Focus: TPG Telecom (TPM:ASX)
TPG saw its shares tumble after the Australian Competition and Consumer Commission (ACCC) blocked the proposed merger between the listed telco and Vodafone – a surprise decision with many commentators expecting the merger would be passed. TPG and Vodafone will appeal the ACCC’s decision however, but if unsuccessful it is unlikely TPG will roll out its own Aussie mobile network due to complications with upgrading their existing infrastructure since the banning of Huawei in Australia.
The major risk facing TPG is regulatory approval by ACCC for the merger to go through. In our opinion the current share price over values TPG’s business on a price to earnings multiple of 18x with the lack of growth with its existing business and prevailing headwinds impacting its core business. TPG shares could easily sink lower if their appeal to overturn the ACCC decision is rejected.
Meanwhile, Telstra shares have been on a solid run, partly attributed to the TPG news which likely points to less intense industry competition.
We currently have a HOLD recommendation on TPG.
Australia & New Zealand Market Movers
The Australian share market (ASX 200 index +0.59%) rose on the last trading day before the Federal election despite the heavyweight financial sector dropping out of the broad rally. ANZ shares tumbled as New Zealand's central bank (RBNZ) calls out 'persistent failure'. The Reserve Bank of New Zealand has condemned ANZ New Zealand for failures and revoked its ability to assess its own capital requirements — forcing it to hold an extra $NZ277 million in capital (increasing its minimum capital by 60%).
The mining sector had another strong session as iron ore prices leapt higher again pushing Rio Tinto shares through the landmark $100 level, in the wake of reports of low inventories and record steel production in China and fresh supply concerns from Brazil.
The New Zealand market was a touch higher on Friday (NZX 50 index +0.04%) in quiet trading, as investors prepare for a flurry of earnings next week. In stock news, Genesis Energy and Tilt Renewables have signed a 20-year supply agreement, laying the foundation for the construction of a 31-turbine wind farm in Waverley, South Taranaki.
However, the focus was Infratil which saw its shares halted from trade as it announced it plans to sell about 100 million new shares at $4 each to help fund its $1.0 billion it needs to purchase its stake in Vodafone New Zealand. Infratils first tranche of a $400 million capital raising is a $100 million placement to institutional investors at $4 a share. The company is then going to raise $300 million in a 1-for-7.46 rights issue at the same price. The new shares will also be entitled to the 11-cent final dividend declared as part of the annual result which looked in line with prior guidance.
3 Things Markets Will be Watching this Week
- Mini reporting season across Australasia sees a number of Aussie & Kiwi stocks make earnings announcements next week.
- Trade War headlines between the US & China are likely to remain in focus.
- Minutes from the last RBA meeting are released on Tuesday.
Have a Great Day,