From Jonathan Bayes, consultant Chief Investment Officer, Bentleys Wealth Advisors
SEPTEMBER A CRUCIAL MONTH
Last week we reported on the continued stretching for equity market valuations, but most particularly those in the large-cap U.S technology space.
We highlighted the increasingly concentrated nature of US equity indices with 65% of the NASDAQ comprised of the big-8 tech names.
This coming month will prove the first significant test of the recent share price strength with share-splits from Tesla (TSLA) and Apple (AAPL) to be effected tonight, Monday 31st, and then in 3 weeks, TSLA will hold its much heralded ‘Battery Day’ on September 22nd.
The TSLA market value has risen 5x in the past year with the cumulative gain of over US$300bn (over 3 CSL’s!) so understandably many see the Batter Day on the 22nd September as being crucial in justifying and sustaining the staggering rise.
Beyond TSLA, investors will be keenly focussed on news-flow out of Oxford on the relative success of their market-leading COVID-19 vaccine.
Having led their peers in terms of commencing human phase 3 trials in mid-April, the Oxford group will be in a position to release the first data covering over 6mths worth of observations which is the minimum time frame of study the US FDA have deemed necessary before the regulator would consider emergency approval of any effective vaccine.
Expectations surrounding the trial remain high with the leading expert remarking in the press of her confidence in the vaccine’s efficacy, though little has been spoken or discussed insofar as side effects or the duration of immunity provided.
It is quite plausible that investors are left disappointed by the announcement on the realisation that the vaccine might not prove the panacea it had been hyped to be, nor that it would be made widely available to the general public until well into 2021.
IOOF TO ACQUIRE MLC
This morning IFL announced plans to acquire Sydney-based competing wealth manager MLC from National Australia Bank (NAB) for $1.44bn.
The acquisition will effectively double the value of IFL and will be funded by a $1bn+ capital raising.
IFL have long coveted the MLC business and the combined entity will become the country’s leading wealth management operation by funds under administration with over $500bn and by number of advisors, dwarfing AMP by almost 30%.
IFL expect to generate some $150m in pre-tax synergies by the June 2024 financial year which would add 20% to post-raise EPS, putting the stock on somewhere between 7x and 8x 3 year forward earnings.
Whilst we await details on the $400m+ institutional raising at $3.50, we think investors will likely strongly support the deal there given low valuation and IFL’s long track record of successful deal integration.
CORPORATE RESULTS UPDATE
Of the remaining results to impact portfolio’s last week we were impressed by those delivered by both NextDC (NXT) and Spark Infrastructure (SKI).
NXT 2020 results were largely in-line with market forecasts and 2021 guidance was similarly so, however with the rash of contract announcements made in the past 6 months rapidly filling NXT capacity, its highly likely that the coming 6-12 months will see expectations slowly upgraded.
NXT has been a major beneficiary of the ‘work-from-home’ shift post-COVID-19 with organisations fast-tracking their work streams into the cloud.
Whilst the stock is the most expensive data centre operator globally, it is hard to fault its current momentum and we remain very comfortable with the stock near term.
In the case of SKI, results were reasonably sound and importantly the company reiterated guidance for 13.5c per share in 2021 which is a 6%+ yield.
Encouragingly perhaps was the belief from management that it could participate in the aggressive growth plans of NSW electricity transmission network Transgrid in which it owns a 10% stake without tapping shareholders for equity.
Falling interest rates have impacted the regulated returns allowed from its key Victorian and South Australian electricity distribution assets, but this is entirely included in guidance and market expectations and we still think SKI should reach $2.40+ as a target price.
LOOKING AHEAD
| Monday | Results – IOOF (IFL), AU Private Sector Credit (JULY), US Dallas Fed Manufacturing Index (AUG) |
| Tuesday | AU ANZ Weekly Confidence, AU AIG Manufacturing Index (AUG), CBA Manufacturing Index (AUG), AU Building Approvals (JULY), AU RBA Meeting, CH Caixin PMI (AUG), US Markit Manufacturing Index (AUG), US ISM Manufacturing (AUG) |
| Wednesday | AU GDP (Q2), US ADP Employment (AUG) |
| Thursday | AU AIG Construction Index (AUG), CBA Services Index (AUG), AU Trade Balance (JULY), US Weekly Jobless Claims, US Weekly Consumer Confidence, US Markit Services Index (AUG) |
| Friday | AU AIG Services Index (AUG), US Employment Report (AUG) |
As is usual, since we are at the start of the month, we should see the typical data deluge on August activity with the major focus being on US employment figures due Friday as well as the various sectoral readings on service, manufacturing and construction activity both here and abroad.
Monday evening trade in the United States sees the Tesla (TSLA) and Apple (AAPL) share prices trade post their 5 for 1 and 4 for 1 split’s respectively.
September will be a very important month for share-market investors given the ongoing countdown to the November 3rd United States election, but also too, the equally heavily anticipated news on progress of the Oxford COVID-19 phase 3 trials and the much-hyped ‘Battery Day’ from Tesla on September 22nd.
Friday 5pm values
| Index | Change | % | |
| All Ordinaries | 6260 | -10 | -0.2% |
| S&P / ASX 200 | 6073 | -38 | -0.6% |
| Property Trust Index | 1292 | +17 | +1.3% |
| Utilities Index | 7092 | -356 | -4.7% |
| Financials Index | 4794 | +18 | +0.4% |
| Materials Index | 14155 | -222 | -1.6% |
Friday closing values
| Index | Change | % | |
| U.S. S&P 500 | 3508 | +111 | +3.2% |
| London’s FTSE | 5963 | -38 | -0.6% |
| Japan’s Nikkei | 22882 | -38 | -0.2% |
| Hang Seng | 25422 | +309 | +1.2% |
| China’s Shanghai | 3404 | +24 | +0.7% |
Key dividends
| Date | |
| Mon 31 August | Div Ex-Date – Ansell (ANN), Fortescue (FMG), Metrics (MXT/MOT) |
| Tue 1 September | Div Ex-Date – Link (LNK), Worley (WOR), Woolworths (WOW), Super Cheap Auto (SUL)Div Pay-Date – QANTAS (QAN) |
| Wed 2 September | Div Ex-Date – Amcor (AMC), Medibank (MPL), Treasury Wines (TWE) |
| Thu 3 September | Div Ex-Date – BHP (BHP), Platinum (PTM), Spark (SKI) |
| Fri 4 September | n/a |
–
Tuesday 1 September 2020, 11am
For more information on the above please contact Bentleys Wealth Advisors directly or on +61 2 9220 0700.
This information is general in nature and is provided by Bentleys Wealth Advisors. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decision based on this information.
