Afternoon Report / IT stocks lead the charge as Cochlear completes successful raise (COH, AMP)

By Market Matters 26 March 20

IT stocks lead the charge as Cochlear completes successful raise (COH, AMP)

Market Matters Afternoon Report 26th March 2020

WHAT MATTERED TODAY

The ASX rallied for a 3rd straight session today supported by news overnight that the US Senate had passed the biggest stimulus package in history at $US2.2 trillion - it now goes to the Democratic-controlled House, which will most likely pass it Friday. The market has been focussed on 1. Central Banks which have now acted to provide the financial system with liquidity 2. Governments with fiscal measures to support individuals and businesses through this and 3. Stats around the virus which are still very alarming and suggest the worst is still to come on that front. We've had positive news from 1&2, but 3 is still likely to rattle investors further at some point.

The ASX 200 hit a peak at the end of February of 7197, crashed to a 4402 low in the quickest bear market in history, a drop of nearly 40% before closing today at  5113, +711pts / +16% from the depths of despair. While the mkt ended more than 2% higher, we wouldn’t be surprised to see the market cool from here, the question being - what's it now got to look forward to since the US fiscal package has been announced?    

Today there was a decent move out of gold stocks, Northern Star (NST) hit hardest while we saw continued buying in some of the more edgy IT names. EML Payments (EML) had fallen hard, from a high of $5.70 to todays close of $1.92. This is an interesting business and it looks like the sellers are now exhausted, ditto for Afterpay (WPT) which is grinding up from their $8 low.

Source: Bloomberg

Today the ASX 200 added +115pts /+2.3% to close at 5113 - Dow Futures are trading down -187pts/-0.89%

ASX 200 Chart

ASX 200 Chart

CATCHING MY EYE:

Raising Capital: Webjet has now failed to raise equity capital so it looks like they'll turn to private equity which is never a good sign - they'll likely pay a big price in the long run for doing some type of convertible note combined with a smaller deeply discounted equity offer - the total of which would be around $250m. It seems they couldn't get anyone to underwrite the retail side of an equity raise and given they're retail shareholder base is large - about 50%, they couldn't take the risk.

Cochlear (COH) on the other hand had little trouble raising $880m at $140 per share through institutions. JP Morgan ran the deal, we bid into the institutional book however didn’t get an allocation, absolutely donut! The stock went to existing institutional shareholders which is fair but it would have been nice to pick COH up at $140. The stock actually rallied today closing +8% at $182.17. They are seeing  pain across their business with a significant number of deferrals in elective surgeries hurting their earnings, but a quality company at such a discount is a no brainer.  

Retail investors who own the stock will get a chance to buy up to 30k worth at the $140 level - well worth doing.

Cochlear (COH) Chart

AMP Ltd (AMP) +8.33%: had a choppy day today, but came in with a wet sail to close strongly higher. The financial services company walked away from guidance due to the "uncertain environment and resultant challenges in providing accurate forecasts" as a result of the COVID-19. Now one of many to pull guidance for the current year, AMP's announcement was largely expected by the market though with the market already sitting below the guidance given at the half year result 6 weeks ago of "broadly flat on FY19."

Investors did enjoy the update on the sale of the Life business. It was feared that the deal would be another victim of the pandemic, already weakened by regulatory hurdles. Today though, AMP said the sale is on track for a 30 June completion. Certainly a relief for the market. Though still facing a number of issues, completing the deal may help build a bit of momentum in AMP, so one to keep an eye on in to the end of financial year. Their Hybrids AMPPB are worth buying in anticipation of the life sale.

AMP Ltd (AMP) Chart

BROKER MOVES: Citi turned more positive on the casino stocks today

  • G8 Education Cut to Underperform at Macquarie
  • Eclipx Cut to Neutral at Macquarie; PT 49 Australian cents
  • Star Entertainment Raised to Buy at Citi; PT A$2.40
  • Crown Resorts Raised to Buy at Citi; PT A$8.20
  • Transurban Cut to Hold at Morningstar
  • Cromwell Property Cut to Hold at Morningstar
  • REA Group Raised to Overweight at JPMorgan; PT A$88
  • Cochlear Raised to Positive at Evans & Partners Pty Ltd
  • Bendigo & Adelaide Raised to Hold at Jefferies; PT A$5.25
  • Sigma Healthcare Raised to Neutral at Credit Suisse
  • Star Entertainment Raised to Outperform at Credit Suisse
  • Botanix Pharmaceuticals Cut to Speculative Hold at Bell Potter
  • Perenti Cut to Speculative Buy at Hartleys Ltd; PT A$1.53

OUR CALLS

No changes to the portoflios today

Major Movers Today

Have a great night

James, Harry & the Market Matters Team

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