Weekly review: growing pandemic numbers see Aussie market lose ground

Pandemic numbers Aussie market Victoria COVID-19 ASX
WEEKLY MARKET REPORT

The announcement that Victoria had 288 new COVID-19 cases in a single day was enough to help the Australian share market lose a further $10.8 billion on Friday in a week that saw the market droop by 2.4%.

There were other factors as well such as renewed US-China tensions that saw the Chinese markets fall from a five-year high and caused US futures to sell off.

In the end there was too little in the way of positive news anywhere to counteract the COVID-19 worries as Melbourne began a six-week lockdown, with the traditional defensive sectors of consumer staples, health care, and property the only ones to rise on Friday.

It wasn’t just the lift in Victoria’s COVID-19 active cases to 3397 that kept the market muted, with rapidly rising cases in the US and their potential to cause economic damage also troubling markets.

Banks largely lower as dividends disappear

Commonwealth Bank (ASX: CBA) was the only one of the Big Four to finish ahead for the day, adding 21c or 0.3% to $70.63 despite speculation that it will postpone its final dividend when its full year results are announced on August 12.

All of the banks have been under pressure from regulator the Australian Prudential Regulation Authority (APRA) to defer dividends to keep their balance sheets as strong as possible as they face a welter of loan repayment deferrals due to the pandemic.

Overall, the financials were down 0.7% and some of the only light came from a few defensive heavyweights including blood products and vaccines group CSL (ASX: CSL) which rose 0.6% to $282.37, retailer Woolworths (ASX: WOW) which rose 0.8% to $38.51 and ResMed (ASX: RMD) which rose 1% to $27.86.

Tech stocks hit a record before wilting

Even the hard charging technology sector disappointed as Afterpay (ASX: APT), Appen (ASX: APX) and accounting software supplier Xero (ASX: XRO) all hit record highs before dropping later in the day, leaving the sector down 0.8% for the day but still up 1.4% for the week.

Another buy-now pay-later provider ZipCo (ASX: Z1P) rallied 8% to a new all-time, having now more than doubled in price in 2020.

Small cap stock action

The Small Ords index fell 1.12% this week to close on 2631.8 points.

July 2020 ASX 200 small ords chart
ASX 200 vs Small Ords

Small cap companies making headlines this week were:

AD1 Holdings (ASX: AD1)

The Victorian Government has extended AD1 Holdings’ existing recruitment technology services agreement for up to a further three years.

AD1 will continue hosting and maintaining its employment technology platform services to the government up to June 2023.

According to AD1 chief executive officer Prashant Chandra, the contract extension, combined with other major managed service contracts, locks in almost 97% of its employment platform subscription business revenue in multi-year contracts.

The company is also in late-stage discussions regarding new contracts for its career platform and utilities software products.

Sezzle (ASX: SZL)

Buy now pay later company Sezzle has continued to experience solid growth despite COVID-19, with the company on track to generate more than US$1 billion (A$1.4 billion) in annual merchant sales by the end of 2020.

During the June quarter, Sezzle achieve its best three months of merchant sales growth – recording more than US$188 million (A$272 million) in underlying merchant sales for the period – up 58% on the March quarter and 349% on the previous corresponding quarter.

The company’s fees derived from Merchant were US$10.6 million for the quarter – up almost 400% on the June 2019 period.

“Our strong performance in Q2 is reflective of an improving consumer profile combined with [an] accelerated adoption of e-commerce due to the pandemic,” Sezzle chief executive officer Charlie Youakim said.

“Our performance reaffirms our product’s utility to consumers looking for a smarter way to budget their personal finances and the overall market shift to e-commerce.”

On Friday, Sezzle launched an $86.3 million capital raising to accelerate its growth strategy.

Incannex Healthcare (ASX: IHL)

Incannex Healthcare has teamed up with Melbourne’s The Alfred Hospital to undertake a phase 2b clinical trail evaluating the effect of Incannex’s medicinal cannabis-based drug IHL-42X on obstructive sleep apnoea sufferers.

In the primary endpoint from the trial, Incannex is looking to see an improvement in the apnoea hypopnea index, which is measured overnight.

The trial will also evaluate secondary outcomes including a reduction in oxygen desaturation index; daytime somnolence measured by the Epworth Sleepiness Scale; and improvement in mood and well-being as measured psychological and mental health surveys.

If the trial is successful, Incannex will seek to sell IHL-42X under Australia’s Special Access Scheme alongside its cannabinoid oils and CBD inhaler.

Taking into account COVID-19, each patient in the trial will have its own room at the hospital – adhering to social distancing rules.

Praemium (ASX: PPS) and Powerwrap (ASX: PWL)

In a deal set to create one of Australia’s largest independent investment administration platform providers, Praemium will acquire wealth management business Powerwrap for $55.6 million.

The companies executed a bid implementation agreement where Praemium, which already owns 15.1% of Powerwrap, will secure the remaining shares in Powerwrap at $0.2644 each – equating to a value of $55.6 million.

This price represents a 51.1% premium to Powerwrap’s last closing price prior to the announcement and an 82.3% premium on Powerwrap’s three-month volume weighted average price of $0.145.

Based on Powerwrap’s six-month VWAP of$0.111, the offer represents a 138.4% premium.

Once the tie-up has been completed, the merged entity will have funds under administration valued at $27 billion.

Splitit (ASX: SPT)

Another BNPL stock to benefit from the COVID-19 pandemic is Splitit, which reported a record June quarter.

For the period, Splitit’s merchant sales reached US$65.4 million – up 176% on the March quarter and 260% higher than the previous corresponding period.

Revenue for the period was 460% higher than Q2 2019 at $2.4 million.

Splitit has attributed the growth to the addition of new large merchants, with engaged merchants doubled to over 1,000 compared to the same time last year.

Consumers are making better use of their existing credit to preserve cash, while demand from higher value merchants is ramping up, supported by the accelerated shift towards e-commerce as a result of COVID-19,” Splitit chief executive officer Brad Paterson said.

WAM Active (ASX: WAA) and Keybridge Capital (ASX: KBC)

WAM Active has upped the ante in its attempt to acquire Keybridge Capital after ASIC granted it relief to pursue its all cash bid of $0.069 per share.

This latest play for Keybridge replaces an off-market bid in January that valued Keybridge at $0.065.

In the latest offer of $0.069, Keybridge is valued at a 29% premium to its unaudited after-tax net tangible asset (NTA) backing as at 29 February 2020 of $0.054, the last NTA disclosed by Keybridge prior to the bidder’s statement.

WAM noted this bid took into account Keybridge’s “continued erosion” of shareholder value, “excessive” operating expenses, significant corporate governance issues particularly relating to its non-disclosure of a proposed acquisition, lack of liquidity and its controversial board composition.

Biotron (ASX: BIT)

Drug developer Biotron’s lead candidate BIT225 has been shown to assist the body’s immune response to HIV while also creating an anti-viral effect.

BIT225 works by inhibiting viral protein Vpu, which helps the body’s immune system in recognising HIV and trigger its natural defence processes to fight the virus.

This latest data was presented at the 23rd International AIDS Conference.

“The latest results provide key information on how BIT225 directly modifies immune responses to HIV-1 infection,” Biotron managing director Dr Michelle Miller explained.

“It helps explain the immune changes that we saw in the phase 2 clinical trial and gives us even more confidence in our product,” Dr Miller added.

Nyrada (ASX: NYR)

Another biotech with promising results is Nyrada with its PCSK9 inhibitor drug, which has been developed to treat high cholesterol.

Pre-clinical results have indicated the potential for Nyrada to formulate the drug into a single pill treatment for hypercholesterolemia to replace expensive ongoing injections.

The company has trialled PCSK9 on healthy donor human lymphocytes (white blood cells).

When the human body has too much bad cholesterol it can accumulate on artery walls and restrict blood flow – resulting in potential heart attack or stroke.

Nyrada claims PCSK9 is a naturally produced protein that can counter this effect.

The company’s chief executive officer James Bonnar added the drug works as well as the two market-leading monoclonal PSCK9 antibodies in a human cell model, which is a “huge achievement”.

“It represents a big step forward in our mission to develop the first-ever small molecule PCSK9 inhibitor to treat high cholesterol and provide a compelling cost-competitive and convenient treatment alternative to Repatha and Praluent.”

The week ahead

As you would expect given the primacy of the pandemic, its effect should be evident in a host of statistical releases both here and overseas.

In the coming week, the June labour force (employment) report is sure to generate its share of headlines with consumer and business confidence surveys also being useful indicators for investors of how the Melbourne lockdown is hitting the economy.

Even the normally staid Bureau of Statistics (ABS) releases on tourism and migration data for May should show the dramatic extent of the slowdown in travel.

On Thursday the June labour force data should see the jobless rate increase from the already 19 year high of 7.1%.

Overseas we will see that start of the earnings results for the US banks, with some of the bigger ones to look forward to being Citigroup and JPMorgan.

Chinese economic growth (GDP) numbers are out on Thursday and during the week there is a forest of US data including retail sales, housing starts, the monthly budget deficit, inflation, unemployment and consumer confidence, to name a few.

Both the Chinese and US numbers should show the impact of re-openings after COVID-19 closures but may also show the beginnings of a further slowdown due to breakouts in Beijing and many US states.

This week’s top stocks

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