Weekly review: share market closes down after a choppy week

Share market closes down ASX weekly report
WEEKLY MARKET REPORT

After a busy week of profit results and market confessions and updates, the Australian share market closed lower as the big banks continued to battle the negative effects coming out of the Hayne Royal Commission.

The ASX 200 Index fell 0.8% or 49.8 points, closing the week at 6,335.8 points as weakness in the big miners due to lower base metal prices also played a part in dragging the market lower.

BHP (ASX: BHP) slid 1.8% to $36.94, while Rio Tinto (ASX: RIO) fell 3.3% to $94.43.

The fall in the Australian dollar also played a part with the stronger US dollar depressing most mineral prices, particularly, oil, which fell to its weakest levels in a month.

Lower oil causes pain

Crude oil has dipped to US$63.28 per barrel, however is still up a healthy 39% for 2019.

This week’s oil stocks were hit hard with Woodside Petroleum (ASX: WPL) down 0.9% to $34.93 and Santos (ASX: STO) down 2.3% to $6.96.

News out of the US was also a little bleaker, with weak manufacturing data overcoming some of the earlier buzz from some strong profit reports, particularly from technology companies.

Banks mixed but still some winners

There are some weaker local factors coming into play too with many traders anticipating the Reserve Bank will be forced to cut official interest rates next week on the back of  weak economic growth and disappearing inflation.

The big banks were mixed after ANZ (ASX: ANZ) and National Australia Bank (ASX: NAB) reported their half-year results, with ANZ maintaining its dividend and NAB biting the bullet and cutting its shareholder payout.

ANZ shares were up $0.01 to $27.41 and NAB closed the week flat at $25.67, while shares in Westpac (ASX: WBC), which reports on Monday, fell 1.1% to $27.44.

Shares in investment bank Macquarie (ASX: MQG) fell sharply on Friday after it reported its annual results.

Macquarie recorded a strong increase in profits and a higher dividend, but investors were not impressed with a weaker forecast, forcing its shares down 5.3% to $128.81.

It wasn’t all bad news though with ResMed (ASX: RMD) putting in a very solid week, up an impressive 9.9% to $16.26 on stronger revenue, while the all-conquering Afterpay Touch (ASX: APT) shot up 16% for the week to $27.65 per share after closing a funding deal.

Kidman Resources (ASX: KDR) received a boost following a $776 million takeover bid by Wesfarmers (ASX: WES), effectively valuing the lithium explorers stock price at $1.90 per share.

The bid comes less than two months after Wesfarmers made a $1.5 billion unsolicited grab for rare earths miner Lynas Corporation (ASX: LYC).

Aussie dollar dips below 70c

Chinese PMI data for April came in weak, which had a knock on effect for the Australian dollar due to the close dependence of the Australian economy on China.

The dollar spiked lower on Friday to fall through the 70c technical barrier and hit 69.8c, opening up for more bearish moves to come.

Australian dollar AUD US below 70 cents
The Australian dollar showing signs of weakness.

However, some analysts have a bullish outlook for the Aussie dollar, claiming the ease in trade tensions between the US and China will provide the catalyst needed.

Analysts at Tempus forecast 74c by year’s end, while Bank of America is forecasting 78c. Goldman Sachs also sees gains on the horizon.

But, a rate cut from the Reserve Bank could see a spanner thrown in the works for those predictions.

Federal Reserve steady on rates

Despite US president Donald Trump’s best efforts to see rates cut, the US Federal Reserve has left rates on hold.

Since Trump took office in January of 2017, the Fed has hiked rates seven times from 0.75% to the current 2.5%.

For the rest of 2019 it is likely that the Fed will leave rates on hold and could even cut them should economic growth slow.

It’s a similar case here in Australia with the Reserve Bank looking at a potential rate cut, however saw pressure somewhat ease recently with jobs numbers coming out stronger than expected.

Small cap stock action

The Small Ords index ended in the red with a 0.41% drop to close out the week on 2,847.5 points.

Small Ords vs ASX 200 May 2019
ASX 200 vs Small Ords

Among the companies making headlines this week were:

PainChek (ASX: PCK)

Earlier this week, PainChek received news it would be handed a $5 million grant from the Australian Government to trial its pain recognition technology in residential aged care centres.

With the grant, PainChek’s smart phone pain assessment and monitoring technology will be licenced to 1,000 residential aged care providers over 12 months.

Currently, 62 aged care facilities are using the technology giving 4,000 residents access.

PainChek chief executive officer Philip Daffas said the grant could assist with more widespread and faster adoption of the company’s technology. He added the trial across the 1,000 aged care homes would also help refine how the app is integrated into daily clinical care within the aged care setting.

Havilah Resources (ASX: HAV)

OneSteel Manufacturing Pty Ltd (trading as SIMEC Mining) has offered a $100 million cash injection to Havilah Resources.

The funding arrangement will underpin a strategic partnership between Havilah and the GFG Alliance, of which, OneSteel is a member.

Havilah will use the funds to advance its work programs for its iron ore assets and copper prospects in South Australia.

The funding will be provided via a series of equity placements in Havilah over three years. If all equity placements are made, GFG will own a 51% stake in Havilah.

Whitehawk (ASX: WHK)

It was a busy week for cybersecurity advisory company WhiteHawk which secured two US Government contracts.

On Wednesday, WhiteHawk announced it had been awarded a subcontractor role on a $2.8 billion US Government project.

In the first year, the contract is expected to generate up to $850,000 to WhiteHawk with subsequent years to bring in up to $4.25 million annually.

On Friday, WhiteHawk reported it had collared another subcontractor role to a Virginia-headquartered company to provide technology integration services including enterprise IT, cyber, software, advanced analytics, simulation and training to US agencies. It is anticipated the contract will bring WhiteHawk up to US$300,000 (A$428,000) annually.

Vmoto (ASX: VMT)

Two-wheel electric vehicle manufacturer and seller Vmoto was another small cap with a busy week after it announced its March quarter sales had accelerated worldwide, with international electric scooter sales up 80% for the period compared to the March 2018 quarter.

Shoring up this growth was an 85% increase in electric scooter sales into Europe for the quarter compared to the December period. Additionally, sales into Europe were 275% higher than the Q1 2018.

Then, on Thursday, Vmoto reported it was launching an electric scooter CUX special Ducati edition under a licencing deal with world-renowned Ducati.

With Ducati’s support, Vmoto will promote the CUX special Ducati edition to its existing worldwide distribution network.

Respiri (ASX: RSH)

Respiratory health technology provider Respiri plans to expand into India under a joint venture with MedAchievers Pvt Ltd.

According to Respiri, the duo has clearly defined a market engagement strategy and is targeting first sales within the country by November this year.

The companies have identified 200 tier one and tier two private hospitals to target initially, with MedAchievers already having an existing strong relationship with these health care campuses.

One of Respiri’s first products to be sold will be wheezo, with Respiri chief executive officer Mario Gattino claiming the joint venture has the potential to be “transformational” for the company.

BMG Resources (ASX: BMG)

New lithium brine explorer BMG Resources is preparing to kick off an initial drilling campaign at the Salar West project in South America once a joint venture has been formalised.

BMG has identified a strong conductive unit across the project’s tenements after reviewing geophysical survey data.

Drilling has been planned to begin this month, with completion and results anticipated before the end of June.

“We enter the June quarter ready to execute our plans to realise the potential of our projects in the world’s best lithium district and look forward to delivering a strong period of positive news for investors,” BMG managing director Bruce McCracken said.

Swick Mining Services (ASX: SWK)

In a week swamped with quarterly announcements, Swick Mining Services’ strong performance for the period stood out with its drilling business posting a 58% increasing in EBITDA to $7.3 million from $4.6 million in the previous corresponding period.

Swick’s business revenue lifted 7% to $35.1 million for the quarter – up from $32.5 million in 2018.

During Q1 2019, Swick’s cash from operations rose 77% to $7 million compared to $4 million the previous year.

Swick managing director Kent Swick attributed the strong performance to shifting drill rigs onto better-performing contracts or new projects, which resulted in reduced costs and ensured each contract was profitable on a standalone basis.

WestStar Industrial (ASX: WSI)

WestStar Industrial’s engineering subsidiary SIMPEC Pty Ltd has won a $10 million contract to provide electrical and associated works to Fortescue Metals Group’s Eliwana iron ore mine camp.

The contract is SIMPEC’s largest single contract to-date and the company will supply and install all electrical, communications and dry fire systems across the mine’s 800-room camp, which is about 90km from Tom Price in WA’s Pilbara.

SIMPEC will begin at Eliwana in June and expects to take about nine-months to complete the work.

This latest contract boosts the value of WestStar’s contracts for the 2019 financial year to $43 million.

IPOs this week

Small Caps readers who want to view upcoming IPOs or see the performance of stocks that have listed in 2019 can now do so.

The latest company to make its way onto the ASX this week was:

Pengana Private Equity Trust ASX PE1 IPO

Pengana Private Equity Trust (ASX: PE1)

Funds management group Pengana Private Equity Trust began trading on the ASX on Tuesday after raising more than $205 million in its IPO via the issue of 164 million shares at $1.25 each.

Through its investment strategy, Sydney-based Pengana offers investors exposure to a diversified global private equity portfolio with select allocation to private credit and opportunistic investments.

“This is the first time that Australian retail investors have been able to access global private equity via a listed vehicle,” Pengana Capital Group chief executive officer Russel Pillemer explained.

“Combined with positive research coverage and wide-scale platform access, this provides investors and advisers with convenient access to invest in this exciting investment opportunity which has previously only been accessible to large sophisticated investors,” Mr Pillemer added.

Pengana closed out its first week on the ASX flat at $1.25.

The week ahead

In the coming week there is one event that stands head and shoulders above all others with the Reserve Bank board’s May meeting on Tuesday set to change the tone on money and share markets.

A decision to keep rates on hold will hardly be seen as convincing proof that there aren’t more rate cuts to come later in the year while a cut will reinforce the idea that Australian growth is definitely weaker.

There are some other economic signposts to look out for with figures to be released for retail and international trade.

It will also be worth watching numbers on consumer sentiment, job vacancies, inflation and construction while internationally markets will be watching inflation numbers in China and the US, as the two countries continue to do battle on trade with meetings due in Washington DC this week.

This week’s top stocks

John is a highly experienced business journalist and formerly chief business writer for the Herald Sun. He has covered Federal politics in Canberra, was Los Angeles Bureau chief for News Limited and was also chief of staff for the Herald Sun. He has covered a wide range of small and large cap ASX stocks and has a special interest in mining, technology and biotech.