Weekly review: May Day turns to Mayday as COVID-19 economic damage is revealed
WEEKLY MARKET REPORT
April may have been a glorious month for the ASX 200 but May is turning out to be anything but with the first trading day of the new month alone stripping a whisker above 5% off the share market.
A sea of red greeted investors on the first day of the month as the real-world economic effects of the COVID-19 pandemic overcame the momentum of an impressive 25.4% recovery since the low of 23 March and an 8.8% rise in April alone – the best month for years.
Rather than cementing April’s gains, investors took profits off the table and hit the exits, cutting 276 points or 5.01% off the ASX 200 to close at 5245.9 points.
Red ink covers every sector
It was literally a red-letter day for every single sector on the market but particularly for energy stocks, which lost an impressive 6.8%, with financial stocks not far behind, shedding 5.6%.
The profit taking after a very strong month in April is not particularly unexpected but there was also a realisation that the economic and company numbers were going to get particularly nasty in the next couple of months as the full horror of COVID-19’s economic damage was revealed.
US figures showed a 7.5% collapse in consumer spending and an amazing 3.8 million seasonally adjusted unemployment claims in the last month – proving that the employment damage has spread beyond the initial industries closed by the virus and taking the number of people claiming benefits to 30.3 million since late March.
That means almost one in every five US workers have lost their job in just over a month.
Amazon shows online retailers still firing
The one bright point was that Amazon’s quarterly sales showed that online retailers were picking up some of the slack, although a lack of guidance and sliding iPhone sales led to a poor reaction to Apple’s results.
Locally, there is plenty of uncertainty about how quickly the economy will be opened up, tempering the otherwise positive news about new infections having slowed in Australia.
Banks slide lower
The banking sector was particularly weak with all four big banks posting losing between 3% and 6%.
ANZ’s (ASX: ANZ) decision to postpone its dividend saw the stock crumble by 6.8% to $15.75 while NAB (ASX: NAB) went ex-dividend and fell 3.1% to $16.14.
Commonwealth (ASX: CBA) shares were crunched by 6.1% to $58.84 and Westpac (ASX: WBC) was also off sharply, down 5.8% to $15.34.
There were a few rare signs of light amid a sea of red with ResMed (ASX: RMD) up a skinny 3.25% after some good quarterly results which saw revenue up by 16% to $769.5 million and profits 39% higher, partly due to strong demand for ventilators and sleep apnea products.
Appliance maker Fisher & Paykel (ASX: FPH) also saw an increase for its respiratory products due to the pandemic and its shares rose by 5.5%.
The only other gainers were vitamin maker Blackmores (ASX: NKL), up 1% and funeral home and cemetery operator, Invocare (ASX: IVC) which rose 0.5%.
At the other end of the spectrum, ship builder Austal (ASX: ASB) slumped an alarming 19.9% after it was revealed that it lost a four-way bid worth up to US$5.5 billion for building Guided-Missile Frigates for the US Navy.
Small cap stock action
The Small Ords index closed up 3.5% to 2315.2 points for the week, despite falling 3.75% on Friday.
ASX 200 vs Small Ords
Small cap companies making headlines this week were:
The GO2 People (ASX: GO2)
Despite COVID-19 challenges, The GO2 People achieved positive results during the March quarter due to a focus on paring back costs.
The company posted operational cash flow of $728,000 for the period bringing its year-to-day figure to $2.48 million.
Customer receipts for the March quarter totalled $7.9 million with GO2 People claiming its businesses have adapted well to the COVID-19 challenges.
Shoring up the company’s operations was its training division, which developed its first online training course during the period.
The online course has already begun to generate revenue and will be followed by other courses that are currently in development.
However, GO2 People noted a lack of available flights from Perth to regional WA had created a bottleneck scenario for companies servicing the state’s mining sector.
The company said it was continuing to fill job orders, slower than expected deployment would likely impact its April revenue.
GTI Resources (ASX: GTR)
With the uranium price finally on the rise again, Perth-based GTI Resources revealed it will begin a new exploration program at its Jeffrey uranium project in Utah.
In the upcoming campaign, GTI will build on previous high-grade assays of 1.39% uranium oxide, 2.46% uranium oxide, 0.12% uranium oxide and 3.89% vanadium oxide.
Follow up channel sampling within the project’s historic workings confirmed the previous field test results.
GTI has now pinpointed more than 20 historical drill holes to be tested further via down hole logging.
The company holds several projects in the state which are located in what the company describes as the “prolific” Colorado Plateau province, which hosts hundreds of abandoned uranium mines.
Galan Lithium (ASX: GLN)
Lithium brine explorer Galan Lithium has secured prospective land next to its Hombre Muerto West project in Argentina’s Lithium Triangle.
The company has acquired 100% of Deceo III for US$30,000, with the tenement located next to the project’s high-grade Pata Pila prospect.
The Hombre Muerto West project hosts an inferred resource of 1.08Mt lithium carbonate equivalent at 946mg/l lithium.
Deceo III is only 100m east of the 719m drill hole that was used in this maiden resource.
“This strategic 100% project acquisition by Galan evidences our intentions to consolidate a significant continuous ground holding (currently about 14km) at Hombre Muerto West,” Galan managing director JP Vargas de la Vega said.
In addition to Hombre Muerto West, Galan is advancing the Candelas project, which also lies on the Hombre Muerto salar in the region.
Candelas hosts 684,850t of contained lithium carbonate equivalent.
XCD Energy (ASX: XCD) and 88 Energy (ASX: 88E)
XCD Energy’s board has advised shareholders take no action after 88 Energy lobbed an unsolicited takeover bid for the junior Alaskan oil explorer.
88 Energy has offered 1.67 new shares for every one XCD share held plus 0.5 88 Energy shares for every XCD quoted option.
The offer equates to $0.01 per XCD share which is a 100% premium to XCD’s closing price on Friday 24 April.
XCD has pegged up 790sq km of acreage in Alaska’s North Slope and has a prospective resource of 1.6 billion barrels.
The company scooped up a further four leases late last year.
Meanwhile, 88 Energy controls 1,011sq km in the region and has stated a combined entity would have enhanced strategic, commercial, technical and financial strength.
Also this week, energy giant ConocoPhillips confirmed it had encountered hydrocarbons from the one well it has drilled on its Harpoon exploration prospect, which is interpreted to be directly on trend and analogous to XCD Energy’s Harrier Prospect.
Respiri (ASX: RSH)
eHealth SaaS company Respiri is looking to launch an integrated telehealth service for asthma patients in partnership with Australian start-up Practice Innovators International.
Under the discussions, Practice Innovators will integrate Respiri’s wheezo monitoring platfrom into its GPNow telehealth platfrom.
Both companies are committed to entering a joint development agreement before the end of the current quarter.
This is expected to be followed by joint field trials in the September quarter, with a view to launching the integrated AsthmaCare Telehealth Service in the December quarter of this year.
Respiri chief executive officer and managing director Marjan Mikel said a binding agreement would help deliver better respiratory care to some of Australia’s most needy people with plans to expand into South East Asia.
Bunji Corporation (ASX: BCL) and Pure Foods Tasmania (ASX: PFT)
Bunji Corporation soon to be renamed Pure Foods Tasmania has successfully raised $3.5 million in an IPO via the issue of 17.5 million shares at $0.20 each.
The name change will be made official once the company’s listing code changes to PFT on Tuesday 5 May.
Funds raised in the offer will be invested in growing Pure Foods’ existing businesses with a strategy to acquire synergist or complementary food and beverage businesses in Tasmania.
Despite the current COVID-19 situation, Pure Foods managing director Michael Cooper said the company was in “very good shape” with a “promising outlook”.
The company’s two main businesses Tasmanian Pate and Woodbridge Smokehouse continue to perform strongly.
An increase in online purchases has contributed to the company’s performance via a deal enabling Bruny Island Cheese to sell Woodbridge products via its own portal.
The week ahead
There is a very busy week ahead with the main local events being the Reserve Bank Board meeting on Tuesday and the bank’s quarterly statement on monetary policy.
Bleak figures are expected for a range of economic indicators from job advertisements and inflation through to consumer sentiment and new car sales.
A similar prospect of weak numbers is predicted for offshore releases including factory orders, international trade, consumer credit, employment and services in the US and in China for exports and imports and services.
We should also get some news on the extent and timetable of COVID-19 restrictions being eased in Australia which will hopefully provide a slightly better idea of how long the recovery from the pandemic might take.