× Home Modules Articles Videos Life Events Calculators Quiz Jargon Login
☰ Menu

Weekly market update - 3rd of March 2020 

Written and accurate as at: Mar 03, 2020 Current Stats & Facts

An escalation of concern over the impact of coronavirus saw the local market total return index drop -9.57% last week. Risk aversion reigned, with US 10-year bond yields dropping from 1.47% to 1.14%. Australian 10-year government bonds fell from 0.92% to 0.82%.

Every stock in the ASX100 lost ground last week. While a broad market de-rating weighed across the board, reporting season did have some effect with A2 Milk (A2M, -1.34%) holding up best on the back of a strong result. Meanwhile Reliance Worldwide (RWC, -27.3%) and Link Administration (LNK, -26.8%) were the worst-performing stocks in the ASX 100, as poor results exacerbated the broader sell-off.

Information Technology (-13.5%) was the worst-performing sector. LNK played a role in this, however, the WAAAX stocks also underperformed. Afterpay (APT) gave up -14.9%, Xero (XRO) -15.6% and Wisetech (WTC) -21.7%. WTC is now down -60.7% from its high point in September 2019.

Cyclical sectors such as Energy (-12.0%), Discretionaries (-11.1%) and Materials (-10.6%) underperformed. The traditional defensives of Utilities (-5.7%), Communication Services (-7.4%) and Real Estate (-7.9%) held up best – while still losing ground.

The final week of reporting season did see some notable results.

Rio Tinto (RIO, -10.7%) delivered in-line with the market’s expectation in terms of earnings. Management maintained its recently lowered guidance on production, which reflects weather-related outages in the Pilbarra. Costs were up in the copper and iron ore portfolios. The key factor was a lower-than-expected dividend, while RIO also disappointed market segments looking for another special dividend. The miners have increasingly become a major source of dividend income in the past few years. While this helps provide a degree of stock support, it also raises the risk of disappointment when the market is uncertain over the outlook for the dividend.

Bluescope Steel (BSL, -13.4%) delivered a good half but, like so many other companies, now faces an increasingly uncertain outlook given the effect of coronavirus. BSL faces headwinds in terms of volumes – given a reduction in China production activity – but also on steel spreads as the price of coal and iron ore has held up relatively well in relation to the steel price.

Flight Centre (FLT, -17.4%) was another which delivered a reasonable half given a soft domestic environment, with revenue growth of 11%. However, this was swamped by the cautious outlook, with management indicating the full-year effect from coronavirus could be up to $200 million.

Plumbing supplies maker Reliance Worldwide (RWC, -27.3%) came under pressure as profits fell 20% for the half, even as revenue remained flat. It is facing stiff competition in the US where retailers have begun to offer their own private label versions of RWC products, putting pressure on pricing and margins.

Ramsay Health Care (RHC, -13.5%) is at an interesting juncture. The result demonstrated trends are improving in its key overseas markets. Tariff trends are now positive in France, while it is starting to see an increase in volumes in the UK – following a tough period – which may now provide scope to improve on price. While the result may have put these issues to bed, the focus is now on Australia. Group revenue ex-Europe grew at 4.8%, and there are signs that it has gone through the worst in terms of declining volumes. It has also contracted with Bupa, removing some uncertainty over pricing. However, it does remain locked in negotiation with Medibank, having come off contract in 1HFY20. This will be a key area to watch in coming months, although RHC is well-positioned in these negotiations given its strong market position.

Elsewhere in healthcare, Healius (HLS, +3.8%) delivered an uninspiring result. Performance of its GP clinics was disappointing, although there was some offset from better margins in its pathology division. Here, though, the focus remains on the takeover offer from private equity.

Afterpay’s (APT, -14.9%) result delivered strong gains in terms of revenue (up more than 100%) and customer additions (up more than 134%). However, it also demonstrated the amount APT has to spend in order to drive business growth, with earnings growth going backwards.

Woolworth’s (WOW, -10.7%) continued to drive like-for-like sales growth, however, the rate moderated to be back in line with its peers. This suggests that while promotions can help supermarkets drive short-term gains in share, neither possesses a structural advantage in terms of sales growth. WOW has re-rated to a historical premium to the sector in recent months, helped by its perception as the highest quality stock in the sector as well as the potential franking credit distribution that could come with the spin-off of its liquor business.

Finally, Seek’s (SEK, -10.1%) result confirmed the domestic job market remains tough, although management did a good job in pulling levers on the price to generate positive revenue growth. The key question remains its ability to change its pricing structure to gain greater value in coming halves, without affecting volumes. Its Chinese subsidiary, Zhaopin, is facing a cyclical headwind of a slower job market – even prior to the Covi-19 impact. Its core business faces this ongoing headwind, although there is some offset from ancillary revenues in the Chinese business.

You may also be interested in...

no related content

Follow us

View Terms and conditions