Afternoon Report / ASX puts on 2% to kick off the week (FLT, RHC)

By Market Matters 25 May 20

ASX puts on 2% to kick off the week (FLT, RHC)

Market Matters Afternoon Report 25th May 2020

WHAT MATTERED TODAY

A good session to kick off the week in Oz with the index putting on +2%. No trade in the US tonight given Memorial Day holiday although US Futures were trading through our time zone today and they were positive throughout.

IT stocks led the charge today with the buy now pay later stocks doing particularly well. The Treasurer’s comments this morning that the government has not ruled out offering more support to some sectors of the economy now they’re suddenly $60bn better off helping. More support to tourism and travel + hospitality is a positive for the credit quality of the BNPL stocks while its also a positive for the operators themselves, Flight Centre (FLT) and Webjet (WEB) up 15% a piece today.  

Today the ASX 200 added +118pts / +2.16% to close at 5615 - Dow Futures are trading up +129pts/0.53%

ASX 200 Chart

ASX 200 Chart

CATCHING MY EYE:

Direct From The Desk: Wrap up of todays trade

Travel Stocks: the two big winners in the top 200 today were Webjet (WEB) and Flight Centre (FLT) both jumping over 15% in the session. The turnaround in travel exposure has been swift, but it still comes ahead of an earnings rebound. States are looking to open up boards, and chatter surrounding a Aus-NZ travel bubble grows every day so investors are becoming more confident recreational and business travel will return ahead of schedule.

Buying the sector is an interesting call option on COVID – a bet that the market remains overly pessimistic around the pace at which restrictions will ease. We have a close eye on a number of related stocks on top of today’s two best – Corporate Travel (CTD), Qantas (QAN), IDP Education (IEL) as well as Sydney Airport (SYD) which we own in the Income Portfolio.

Flight Centre (FLT) Chart

Ramsay Healthcare (RHC) +3.45%: announced the results of the SPP today, with more than half of eligible shareholders applying for shares Ramsay opted to upscale the offer by an additional $100m. A total of $695m was applied for, with allocations being scaled based on the holding as at the 21st of April when the deal opened. An interesting approach from the Ramsay board here, not one often seen in SPP offers. Usually applicants are scaled based on their bid amount rather than holding and throws a spanner in the works for those holding a handful of shares hoping for a capital raise to come along.

It also could mean RHC will see less selling pressure once the shares are allotted – with smaller holders receiving a relative allocation, it may mean less need to reweight portfolios. We own Ramsay in the growth portfolio, picking up shares at a discount through the SP is great, but we like the medium trend in hospital exposure as people return to elective surgeries and emergency departments. We remain bullish.

Ramsay Healthcare (RHC) Chart

BROKER MOVES:

  • Tabcorp Rated New Sell at Citi; PT A$2.80
  • TPG Telecom Raised to Add at Morgans Financial Limited
  • oOh!media Raised to Buy at Morningstar
  • Ramelius Raised to Add at Morgans Financial Limited; PT A$1.93

OUR CALLS

No changes

Major Movers Today

Have a great night

James, Harry & the Market Matters Team

Disclosure

Market Matters may hold stocks mentioned in this report. Subscribers can view a full list of holdings on the website by clicking here. Positions are updated each Friday, or after the session when positions are traded.

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