Growth hunt is sparking a tech IPO rush
When Warren Buffett invests in his first IPO since 1956 and makes a $1 billion paper profit on the first day of trade, you know something fascinating is happening on global capital markets.
Buffett’s gain on his stake in US tech firm Snowflake, which saw its shares double when it listed on Wednesday night, is emblematic of Wall Street’s IPO boom, where the number of firms that have listed so far in 2020 (223, raising $US88 billion) has already zoomed past 2019’s floats (211, raising $US62.5 billion).
There’s something similar but very different happening in Australia, where about $10 billion of floats are planned by the end of the year. Four companies floated this week, the largest of which was TV captioning group Ai-Media, which listed with a market value of $177 million.
While there are few big IPOs on the starting blocks – data analytics firm Nuix and the Dalrymple Bay coal terminal, both of which will be valued about $1.5 billion, and law firm HWL Ebsworth – Australia’s is mainly a float rush writ small, as an army of largely tech-focused companies try to leap through the IPO window.
These include Adore Beauty, BikeExchange, Plenti (formally known as RateSetter), non-bank lender Harmoney, online lender Lendi, and Drug development outfit Clarity Pharmaceuticals.
Read Chanticleer’s full analysis of upcoming IPOs here.
ASX snaps four week losing streak
The Australian sharemarket barely snapped a four week losing streak despite the market edging lower on on Friday.
The S&P/ASX200 Index rose 0.1 per cent for the week even as the benchmark fell 18.7 points, or 0.3 per cent, to 5864.5 points on Friday.
After a short burst higher in the morning, the market spent most of the session tracking sideways as weakness in banks offset gains among iron ore miners.
BHP gained 1.3 per cent, Rio Tinto added 1.3 per cent and Fortescue Metals Group rose 1 per cent.
Among the banks, Commonwealth Bank lost 1 per cent and Westpac shed 1 per cent.
Among other blue chips, CSL fell 1.1 per cent, Macquarie added 2.5 per cent and Wesfarmers fell 1.6 per cent.
The technology sector snapped a two week losing streak. The S&P/ASX All Technology Index rose 1.8 per cent over the week after climbing 0.8 per cent on Friday.
Afterpay rallied 2.7 per cent on Friday, while Xero rose 1.6 per cent
Among the best performers in the S&P/ASX200 Index over the week were Perseus Mining (up 14.2 per cent), Northern Star Resources (11.8 per cent) and Silver Lake (up 11.1 per cent).
What’s up with the market going down?
Sharemarkets are meant to discount the future but they may have done too good a job of it.
Despite a shock fall in unemployment, lower COVID-19 cases, rising iron ore prices and the prospect of more stimulus in next month’s budget, the Australian sharemarket is on track for its weakest month since March – which marked the height of the pandemic scare.
Powered by record low interest rates, investors have piled into high flying technology stocks and other faster-growing companies.
But the momentum that drove a 30 per cent-plus rally from its March lows has petered out as investors question the durability of lofty valuations.
The S&P/ASX 200 Index down 3 per cent in September, with technology stocks pacing the decline. Afterpay, which was worth about $26 billion in late August is now valued at just over $21 billion.
“Mainly it’s been tech stocks coming off because it’s been such a big play in the market in the last few months,” said AMP Capital portfolio manager Dermot Ryan. “The tech valuations are writing cheques the businesses just won’t be able to cash.”
Read more about the outlook for the Australian sharemarket here.
Credit Suisse tips strong growth for Kogan
Broker Credit Suisse has upgraded its profit forecasts for online retailer Kogan.com after it reported adding a record 152,000 new customers in August. It now has 2.46 million active customers as shoppers turn to home delivery for household goods in response to coronavirus-related lockdowns.
The broker noted Kogan’s 165 per cent gross profit growth over July and August 2020 is materially ahead of gross sales climbing 117 per cent as Kogan benefits from better margins and less discounting due to soaring consumer demand. In financial 2020 including the lockdown months of March through June, Kogan’s gross profit climbed 23 per cent to 25.4 per cent versus 20.7 per cent in the prior financial year.
Credit Suisse said Kogan’s expansion of its marketplace that lets third parties sell via its website is likely driving sales higher even if Kogan is offering sellers incentives to use its marketplace. Kogan’s newly-acquired furniture retailer Matt Blatt is also likely to contribute to sales growth, according to the broker.
For financial 2021 Credit Suisse is tipping Kogan’s dividends to grow 66 per cent to 35.2 cents on earnings up 71 per cent to 47 cents per share. The broker has a neutral rating and $21.33 valuation on shares.
Alan Joyce takes home $1.7m in COVID-19-hit year
Qantas boss Alan Joyce’s take-home pay fell across the pandemic-hit 2020 financial year by more than three-quarters to $1.7 million.
The chief executive, who once topped the charts as the highest-paid chief executive in Australia, has deferred until August 2021 his long-term incentive payment of 343,500 shares with board approval.
The LTIP period stretches back to 2017.
Meanwhile, Mr Joyce’s direct reports will have their LTIP vested at 50 per cent.
This payment comes despite a 30 per cent fall in the Qantas share price over the financial year. However, Qantas says it has still outperformed other ASX-listed airlines over the past three years.
Read more about Qantas’ executive remuneration here.
Have we passed ‘peak Fed’?
Investors are cooling on tech stocks, with the sector down sharply in the first few weeks of September, a period where investor have also started to question if central bank policy is approaching limits.
The ASX technology index is down more than 7 per cent since the start of the month. Similarly, the US FAANG index is down more than 9 per cent in September. FAANG includes Facebook, Amazon, Apple, Netflix and Google owner Alphabet.
Those losses follow very strong gains for technology stocks around the world since the middle of March as investors looked to the sector for growth as the global economy sagged.
Investors have been very keen on the technology sector in part as they expected interest rates to stay at very low levels for years, not just in Australia but in other major developed markets, including the US, as well.
That depends on central bankers. The Federal Reserve wrapped up its two-day policy meeting this week and the US central bank indicated that interest rates won’t rise until the end of 2023 at the earliest.
Last month, the Federal Reserve said that it would target average inflation of 2 per cent, which will see the world’s most powerful central bank allowing the economy to run hotter at times to compensate for periods when it is struggling below target.
Instead of taking comfort from the prospect of rates remaining at very low levels for the next few years, investors sold out of shares more broadly and again shunned the technology sector.
Perpetual Investments’ head of multi-asset investment strategy Matthew Sherwood said that investors were underwhelmed by the lack of details in the Fed’s updated guidance and disappointed that the central bank didn’t expand its already massive quantitative easing programme.
This, Mr Sherwood, “sparked growing fears of peak monetary policy.” He is in agreement with that thinking, saying “we would argue that the policy quiver from these institutions is empty.”
“After decades of rate cuts and balance sheet expansion, the major central banks are now reaching the limits of their current toolkits,” said Paul O’Connor, head of multi-asset at Janus Henderson. “Most of the big monetary artillery has already been deployed in the battle against deflation.”
“If growth or inflation do disappoint in the future, fiscal policy will have to take more responsibility for reviving macroeconomic momentum than it has done in recent decades,” Mr O’Connor said. “The era of monetary policy dominance and investor fascination with central banks is coming to an end.”
How the RBA will power Australia’s rebound
Another week passes and yet another bank has upgraded its housing outlook in line with our heterodox March forecast for a zero to 5 per cent decline in the six months after the COVID-19 shock followed by 10 per cent to 20 per cent capital gains.
Last week CBA sensationally dumped its call for 10 per cent peak-to-trough declines in favour of a 6 per cent drop which it says will be superseded by healthy capital gains running at a 6 per cent annual pace in the second half of 2021.
On Thursday Westpac’s Bill Evans and his offsider Matthew Hassan joined the party, slashing their projection for 10 per cent home value losses to a “mild” five per cent correction. They then expect prices to climb by a stonking 15 per cent over the next two years. ANZ and NAB’s economists should similarly fold soon.
“To date our view has been for a 10 per cent fall in prices from the peak in April 2020 through to June next year,” Evans and Hassan wrote on Thursday.
“We now expect many capital city markets to be more resilient with a national fall of 5 per cent between April and June next year. For the near term, our revised view means prices nationally are now only expected to fall a further 2.3 per cent (prices having already declined 2.7 per cent since April).
Read Christopher Joye’s full column here.
Whitehaven slams Market Forces’ resolutions
Whitehaven Coal has urged its shareholders to vote against resolutions put forward by Market Forces.
The climate activists, which represent 0.003 per cent of voting shares, have called for a plan that demonstrates how the miner will wind up its production assets and operations in a manner consistent with the Paris Agreement.
“The suggestion that the Paris Agreement requires Whitehaven to wind up its production assets and operations is a misrepresentation,” the company says.
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“The Paris Agreement does not dictate how emissions reductions should be achieved. For example, in Japan, Whitehaven’s key export market, high quality coal remains part of the Government’s Nationally Determined Contribution to achieve its emissions reduction ambitions.”
Whitehaven says it has no intention of shutting down its mining operations.
The $2.3trn investment trend that’s already here
One of the challenges for investors trying to peer through the wreckage left by COVID-19 is working out which behavioural changes forced by the pandemic will remain after the virus is gone.
There’s widespread agreement the acceleration of digital trends will stick, be that in e-commerce, payments, or the use of cloud software. Determining the scars COVID-19 might leave on commercial property is much harder.
Will demand for office space be lower than it is now, or higher, given we’re unlikely to be packed into desks like battery hens in the foreseeable future?
But there is one trend that investors can latch on to with some certainty – a green stimulus boom.
A global piece of research led by Credit Suisse’s Australian-based ESG expert, Phineas Glover, has found governments around the world have already committed $US1.7 trillion ($2.3 trillion) to measures across renewable energy, energy efficiency, electrification and transport infrastructure.
And that may only be the beginning.
Read Chanticleer’s full analysis here.
St Barbara revises production profile
St Barbara has been forced to revise its production profile after a “fall of ground” at its Gwalia gold mine.
The miner estimates that approximately 8,000 ounces slated for production in in the September quarter will now be delivered as part of December quarter production.
Full year production guidance for the 2021 financial year for Gwalia is maintained at between 175,000 ounces and 190,000 ounces.
The fall of ground occurred at the Gwalia underground mine on 8 September 2020, after a large firing triggered a number of