Weekly review: Aussie market overcomes headwinds for memorable start to 2020
WEEKLY MARKET REPORT
Headwinds continue to build up for the Australian share market but it has remained resilient in the face of China’s worsening coronavirus outbreak and our local bushfire crisis.
After suffering its first weekly loss this year of 1%, the share market is still up a healthy 5% for January, its strongest start to a year since 2012 and not too far off the strongest start since 1994.
On Friday the ASX 200 rose 8.8 points, or 0.1%, to 7017.2 points.
That is a great effort given the slew of gloomy news as the number of confirmed cases of corona virus rose close to 10,000, with the death toll now 213 people.
Coronavirus hits stocks that depend on China
That news has been particularly tough for airlines and other stocks that are exposed to Chinese consumers, tourists and students.
There is every sign that the coronavirus has some way to run as well with the US and Japan now warning citizens to avoid travel to China.
The World Health Organisation has also labelled the outbreak a global health emergency but has so far stopped short of recommending Chinese travel bans.
If the outbreak follows the pattern set by SARS, it will only be after the number of new cases begins to fall that the share market begins to get more confident that the outbreak is under control.
Amazon sets the scene for continuing tech boom
Still, there was plenty of optimism on the Australian market on Friday with a strong quarterly earnings report from Amazon causing a rebound on Wall Street and a significant 1.7% boost to the Australian IT sector on Friday which once again set a new record high.
Technology wasn’t the only sector having a strong day with healthcare and consumer staples also recording gains of 0.7%.
Investors love Link acquisition
One of the keys to the stronger performance was the acquisition of Pepper European Servicing by Australian shareholder services company Link Administration Holdings (ASX: LNK).
Investors loved the details of the acquisition which will see Link pay out about $266 million and a contingent cash payment of up to $56 million for Pepper, with the transaction expected to be double digit accretive to earnings.
There should also be a further 5% to 6% accretion from efficiency benefits over the medium term as greater scale in major markets improves operating margins.
Investors send Link shares up through double digits on the news and they had settled by the close at a 9.7% rise to $6.81.
Other stocks impress as well
There were other positive stocks with shares in GUD Holdings (ASX: GUD) climbing 7.2% to $12.02 after releasing well received half yearly results.
Avita Medical (ASX: AVH) also rose 5.5% to $0.675 after a positive trading update while ship builder Austal (ASX: ASB) gained 5.4% to $3.93 after some positive research coverage from broker Citi.
Ironically one of the down stocks on Friday was polymer skin company Polynovo (ASX: PNV) which fell 5.1% to $2.80.
Despite having a poor day, Polynovo has been a market hero in January, rising by an impressive 43% on positive news for its CSIRO-developed wound products.
Other down stocks on Friday included Gold Road Resources (ASX: GOR) which fell 5% to $1.42 while Adelaide Brighton (ASX: ABL) fell 3.5 % after a broker downgrade.
Brexit: UK leaves the EU
The United Kingdom has finally left the European Union after 47 years of being a member, marking one of the biggest political and economic shifts in modern European history.
The departure on 31 January was 3.5 years in the making following a democratic vote from the British people back in 23 June 2016, which say 51.9% of the people vote for Brexit.
The UK will remain a member of the European single market until the end of 2020.
Small cap stock action
The Small Ords index took a hit this week dropping 1.62% to close on 2995.5 points, however is up 3.28% from the beginning of the year.
ASX 200 vs Small Ords
Small cap companies making headlines this week were:
PTB Group (ASX: PTB)
As part of its plan to expand into the US aviation market, PTB Group has agreed to acquire Prime Turbines for US$21 million (A$31.3 million) and aviation spare parts from provider CT Aerospace for US$8.5 million (A$12.66 million).
Based in the US, Prime Turbines is an independent aircraft engine maintenance, repair and overhaul company.
“Prime is well known to PTB and its 30-plus years of expertise on major turboprop and turboshaft engine platforms fits seamlessly into PTB’s existing US based core competency,” PTB chief executive officer and managing director Stephen Smith explained.
PTB will also purchase around US$8.5 million worth of inventory from CT Aerospace, with this specific acquisition to be funded via a five-year zero interest amortising loan from the vendor.
Zoono Group (ASX: ZNO)
With fear building as the novel coronavirus spreads worldwide, Zoono Group revealed it expected its Z71 Microbe Shield surface sanitiser and GermFree24 hand sanitiser to be effective against the virus.
As a result, it has ramped up production of its key ingredients for the products and sent them to a German laboratory for testing against the new strain.
The Z71 Microbe Shield surface sanitiser was previously tested in 2014 against the bovine coronavirus, which found it was 99.99% effective against the pathogen within five minutes.
“Given the successful test results in 2014 and since, Zoono is very confident that both products will have a level of efficacy against the current strain of the coronavirus similar to that achieved previously,” the company stated.
BetMakers Technology Group (ASX: BET)
BetMakers Technology Group will provide technology, data and services for Australian racing identity Tom Waterhouse’s new companies: tomwaterhouse.com betting app and Waterhouse global pricing and trading desk.
The tomwaterhouse.com betting app is expected to be launched to 80,000 members and will offer access to Australian bookmarkers and deliver “the best price(s) in the Australian wagering market”.
Meanwhile, the Waterhouse global pricing and trading desk is a business to business trading services solution for wagering operators looking to outsource their operations.
BetMakers will receive revenue from both products under a shared arrangement with the Waterhouse Group.
Oklo Resources (ASX: OKU)
West Mali gold explorer Oklo resources has impressed investors again with ongoing high-grade and thick intersections at its Dandoko project.
Oklo managing director described the latest results as “game changing” for the company.
The results have now confirmed a new high-grade gold zone to the north of the SK1 target within the project’s Seko prospect.
Better assays were 55m at 7.65g/t gold from 54m, including 2m at 98.75g/t gold from 80m; 51m at 4.28g/t gold from 63m, including 12m at 7.19g/t gold from 75m; and 31m at 7.12g/t gold from 30m, including 17m at 12.63g/t gold from 38m.
Homestay Care (ASX: HSC)
Aged Care & Housing Group (ACH Group) has awarded Homestay Care with a tender to upgrade technology at nine residential care sites in South Australia.
Homestay Care is now charged with installation, service and providing maintenance for the Essence APAC multi-site cloud portal.
The technology will also include Essence’s Smart Care Call platform, which includes voice-activated nurse call stations that enable two-way communication for each resident area.
The platform also works with activity sensors to provide “proactive data analysis, as well as human monitoring, to determine residents’ routines and detect anomalies”.
Since mid-2019, HomeStay has been Essence’s exclusive reseller across Australia, New Zealand and Singapore.
Auteco Minerals (ASX: AUT)
Auteco Minerals is moving into one of Canada’s gold mining districts after agreeing to acquire up to 80% of the high-grade brownfield Pickle Crow project in Ontario.
The project hosts a historic mine that produced 1.5Moz gold at 16g/t gold before it was closed in 1966.
Once due diligence has been completed, Auteco will make a second C$50,000 payment to TSX-listed First Mining Gold Corp and issue it with 25 million shares at $0.008 each.
To lock in its first 51% interest in the project, Auteco will spend C$5 million on exploration over three years including C$750,000 in the first 12 months.
Auteco will then issue First Mining with a further 100 million shares. A further two stages are involved in securing 80% of the asset and will involve C$4 million in cash payments and an additional C$5 million on exploration.
Impression Healthcare (ASX: IHL)
Medicinal cannabis focused Impression Healthcare is gearing up to begin a clinical trial using its IHL-42X drug to treat obstructive sleep apnoea.
The company has now received all relevant permits enabling it to proceed with its planned 1b/2b clinical trial, which is due to begin sometime between April and June this year.
First patients have already been sourced for the trial which will be based at Melbourne’s Austin Hospital.
Impression has begun development of its IHL-42X with a qualified pharmaceutical chemist.
During the December quarter, Impression also advanced its other treatments, including making “significant progress” with its IHL-216A drug for treating traumatic brain injury and concussion.
The company has also filed a patent over IHL-216A for use as a neuroprotective agent to be administered post-head trauma.
BPH Energy (ASX: BPH)
BPH Energy had positive news this week for two of its investee companies: Patagonia Genetics and Advent Energy.
Under a joint venture agreement, Impact NRS subsidiary Bio-Sciences Pharma will evaluate 94 of Patagonia’s cannabis cultivars via an 18-month study.
Israel-based Bio-Sciences Pharma will focus on how each of the 100 active cannabis compounds interact within the cannabis plant.
A certificate of analysis will be established for each cultivar and once the study has been completed, Patagonia and Bio-Sciences Pharma will look at co-commercialising any cultivars of interest.
Meanwhile, BPH’s 22%-owned Advent Energy subsidiary has submitted an application with the National Offshore Petroleum Titles Administrator to drill the Baleen target within its 85%-owned PEP11 project in the offshore Sydney Basin.
Argonaut Resources (ASX: ARE)
Copper explorer Argonaut Resources is a step closer to drilling its Murdie project near BHP’s Oak Dam discovery in South Australia.
The South Australian Government has now granted Argonaut operational approval for deep exploration drilling and ground gravity surveys across the project.
A remaining approval under the SA Aboriginal Heritage Act is required before drilling can get underway, with Argonaut anticipating this application will be considered in April.
Argonaut chief executive officer Lindsay Owler noted the project hosts numerous gravity targets that are analogous to BHP’s Oak Dam.
ASX floats this week
Small Caps readers who want to view upcoming IPOs or see the performance of stocks that have listed in 2020 can now do so.
The latest company to make its way onto the ASX this week was:
Cobre (ASX: CBE)
Cobre made its ASX debut on Friday after raising $10 million in its oversubscribed IPO via the issue of 50 million shares at $0.20 each.
The IPO generated a lot of interest from existing and new investors including institutions and high net worth investors.
The company wasted no time on listing, with an initial drill program to begin immediately across its Perrinvale project in WA.
A maiden 1,000m reverse circulation drilling program was undertaken in June 2019 and intersected high-grade volcanogenic massive sulphide base metal and gold mineralisation at depth.
Better results were from the Schwabe prospect and comprised 5m at 9.75% copper, 3.2g/t gold, 34g/t silver and 3.1% zinc from 50m.
IPO proceeds will be used towards exploration ($7.5 million), working capital and offer expenses.
On its first day on the ASX, Cobre opened at $0.23 before rising to an intraday high of $0.265. The company then dipped slightly to end its first week at $0.25 – a 25% premium to its offer price.
The week ahead
It is an unusually busy week for economic announcements but the really big one for the week will be the return of the Reserve Bank from its “summer holiday”.
While any change to official interest rates on Tuesday would be a surprise, the RBA is managing a wide range of issues that are impacting the economy and so there will be a close watch on even a “hold” announcement.
Range of factors on the RBA radar
Some of those factors include some improving economic statistics around jobs and inflation and also the bushfire crisis which is far from over and the coronavirus outbreak.
Some of the many much-awaited statistics for the week include home prices, retail sales, international trade, building approvals, motor vehicle sales and purchasing manager indexes.
They start flowing strongly on Monday with the CoreLogic releases the Home Value Index which is expected to add around a 1% national rise for January after strong rises in the major markets of Sydney and Melbourne.
Other Monday data include building approvals, job advertisements, inflation and manufacturing activity gauges, while the ANZ and Roy Morgan consumer sentiment index on Tuesday is expected to show how the bushfires have impacted consumers.
Dr Lowe’s prescription
On Wednesday the market will be listening to Reserve Bank Governor Philip Lowe deliver a speech at the National Press Club in Sydney.
On the same day new vehicle sales will probably show a continuation of sliding sales while on Thursday the December quarter real (inflation-adjusted) retail trade data should show if the surge in Black Friday online sales continued all the way through to Boxing Day.
Profits will remain a key to share market direction
Offshore there is plenty of action as well with China private sector purchasing manager indexes, industrial profits and international trade data are all released competing for attention with US statistics on jobs, factory and international trade.
One of the vital ingredients of the January rally – US profit reports – will continue to be important well into February while Australia will start to produce some results of its own during February which will be vital if the current market rise is to be sustained and expanded.