19 July 2021 | Weekly Snapshot

Did you know?

The value of Australasian mergers and acquisitions for the calendar year to date has hit $148B. This is 2.6x the five year average and is already above the $134B record set back in 2011.

Market Movements

Australian Share Market (ASX200) – Up 1.1% last week thanks to a strong run from the mining stocks with long term iron ore price expectations continuing to increase. FMG was +8% and BHP +4.8% for the week and uncertainty around US inflation helped lift gold and gold shares. Local unemployment dropped to its lowest levels in a decade lifting confidence. Takeover bids for API by Wesfarmers and Spark Infrastructure also helped lift prices and sentiment.

US Share Market (S&P 500) – Down 0.97% after setting record highs on Monday as interest rates dropped despite stronger inflation data. This was the first negative week in four with the previous week’s strength in Nasdaq and tech stocks posting their worst week since May. Reporting season picks up this week with 76 of the S+P500 companies delivering results. Citigroup and Bank of America results last week started this off on a positive note.

Portfolio Movements

Apple (AAPL. NAS) has extended its record setting rally for the 4th day in a row thanks largely to an announcement around them seeking a 20% increase in iPhone production from suppliers, taking 2021 levels to 90 M of next generation iPhones. Apple is also working on a “buy now pay later” payment plan for Apple Pay, like Afterpay and PayPal which will continue to bolster its ecosystem. Apple has rallied roughly 17% over the last month and is on the brink of surpassing the $2.5 trillion market capitalization mark. JPMorgan added them to their “Top Pick” list with a $175 target which would equate to a $2.8T market cap on their growing installed base, tech leadership and the transformation of their services business.

Wesfarmers (WES.ASX) has announced a cash bid of $687M to buy API, the owner of Priceline Pharmacies (which operates as a franchise model to pharmacists), over Chemist Warehouse (privately owned). API is one of three major pharma distribution companies in Australia. WES has been looking at the healthcare sector for many years and believes there is plenty of growth in health and wellbeing. The 20% premium to the share price is still perceived as a low offer and WES knows that it can add big value from its distribution chain, retail experience, digital expertise and product development. Wesfarmers has been sitting patiently on $1B waiting to swoop on bargains but taking over API will only result in increasing earnings by 1.9% at this point. It’s more about the long-term value WES is looking to unlock through their size and synergies that makes this an attractive deal for them.

Bank of America (BAC.NYSE) posted 2nd quarter earnings of $9.22B up from $3.53B a year earlier more than doubling their profit. This equated to $1.03 a share beating 77c estimates. Shares were down 2.5% on the night after rallying 31% this year against the 16% increase in the S+P500. Consumer spending has surpassed pre-pandemic levels, deposit growth was strong and loan levels are growing, which encouraged the bank to release $2.2B of reserves it had set aside during the depths of coronavirus. Revenue was -4% from a year earlier due to a 6% drop in net interest income. Commodity, fixed interest and currency trading revenues dropped by 38% whilst equity revenue increased 33%. Importantly loan growth jumped 11% y/y +2% from the previous quarter as the economy recovers.

The Week Ahead

Domestically, a much quieter week in Australia with retail trade and manufacturing PMI figures.
Internationally, it is only marginally busier in the US with building permits, housing starts, jobless claims and PMI figures. Japan releases inflation figures followed up by their balance of trade results later in the week. The UK releases retail sales figures coinciding with Freedom Day (July 19) which sees the economy coming out of a year of on-off lockdowns. This will be closely followed given rising daily infection rates and to its impact on the economy.

Saward Dawson Wealth Advisors Pty Ltd, a Corporate Authorised Representative of Akambo Pty Ltd t/a Accountants Private Advice

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