Weekly Insights – Dividends, China and Robinhood

Economics Ahead…

Monday

• China: Caixin Manufacturing PMI (JUL)
• US: ISM Manufacturing PMI (JUL)

Tuesday

• Australia: Home Loans (JUN)
• Australia: Building Permits Prel (JUN)
• Australia: RBA Interest Rate Decision

Wednesday

• Australia: Retail Sales Final (JUN)
• Australia: RBA Chart Pack
• China: Caixin Services and Composite PMI (JUL)

Thursday

• Australia: Trade Balance (JUN)

Friday

• Australia: RBA Statement on Monetary Policy
• US: Non-Farm Payrolls (JUL)

Reporting season calendar

What we think…
So far, earnings season kicked off with a bang. Australian miners BHP, RIO and Fortescue Metals each hit record highs helping drive the earnings rebound on the back of higher commodity prices. Rio Tinto (ASX:RIO) stunned investors with a monster profit result and US$9.1 billion dividend, taking its grossed up forward yield to 11.83%. Fortescue Metals (ASX:FMG) also jumping on the iron ore bandwagon, rising higher on their FY update. Mining shares have been by and far the best performers on the ASX so far this year. This week took it to another level. Earnings season continues this week with Credit Corp, REA Corp, BWP Trust and Genworth Mortgage reporting this week. Threatening to derail the good run, is the continuing spread of Covid’s Delta variant, Sydney & Queensland lockdowns and the Reserve Bank’s August monetary policy meeting which has the potential to see a change in the interest rate outlook creating a knock-on effect through the economy.  

Highlights for July

• Copper and gold miner OZ Minerals (ASX:OZL) rose on the back of a massive supply increase in copper coming from the renewable energy and battery sector. Management announced a 22 percent lift in copper production which contributed to a 70% increase in revenue to $986 million.
• A2 Milk (ASX:A2M) continued their difficult start to the financial year with shares falling due to selling pressure as the Chinese Government appears set to crackdown on a number of sectors operating in the country.
• Online furniture retailer Temple & Webster (ASX:TPW) shares rose after the company reporting an 85% increase in revenue to over $326 million for the financial year on the back of a 62% increase in active customers.
• BlueScope Steel (ASX:BSL) has overcome pollution concerns to increase their previous guidance, now expecting $1.72 billion in earnings for the financial year, after the second half beat their original forecast by over 10%. The result was driven by strong demand for steel products in the US and Australia and the persistence of recent higher prices amid the global shortage.
• Both Vicinity Centres (ASX:VCX) and Scentre Group (ASX:SCG) rallied after lockdowns ended and the Victorian Government released another round of business and landlord support.
• Rio Tinto (ASX:RIO) delivering what can only be described as a dividend bonanza. The company announced a 262% increase in their dividend to US$5.61 per share, totalling US$3.76 billion being returned to shareholders. In a smart move, management split the dividend into an ordinary payment of US$3.76 and a special dividend of US$1.85 to ensure expectations of future payments aren’t at this level. Shares outperformed the market with management also announcing a $2.4 billon investment into a Serbian lithium project as they seek to capitalise on battery demand for the economy.
• BHP outbids Twiggy, Spark offer increase, inflation hits 13 year high. The company had received a bid from Twiggy Forrest’s Wyloo Metals in May and represents another pivot to secure a future in the battery metal sector with nickel in particular set to see massive demand in the next decade.
• Private equity firm KKR increased their offer for Spark Infrastructure to $2.95 per share, sending the price 5.4% higher but still at just $2.74. The offer represents a 26% premium but investors best hold on until the share price trades closer to $2.95.
• Australia has followed the rest of the world with inflation rising to 3.8% in the twelve months to June, 0.8% of which came in the preceding quarter. It is abundantly clear that this is transitory inflation, caused primarily by the base or comparative effects from this time last year. For instance, in 2020 childcare costs were zero and energy prices were some 50% lower than today.  This is evidenced by the underlying inflation measure, known as the trimmed mean, which strips out irregular or one off price increases, which registered at just 1.6% for the financial year.
• Shares in technology platform owner IRESS (ASX:IRE) rose after announcing they had received an unsolicited bid for their entire business on the 4th of July. The bidder was funds represented by Equity Funds Management with the price being $15.50 per share. The company, which operates the XPLAN platform used by financial advisers, has a near monopoly of over this software and is apparently facing two bidders down. Even after the rally the share price remains at $14.25, a solid discount to the offer and potential arbitrage for those confident of a deal.
• Staying with takeovers, Boral (ASX:BLD) is now two thirds owned by Seven Group (ASX:SWV) through their nil-premium offer.  Investment bank Macquarie Group (ASX:MQG) offered a market update today, confirming ‘improving trading conditions’ in their first fiscal quarter, with profit contributions ahead of 2020 levels. Their annuity-style businesses being banking and funds management were up only slightly, with the capital markets, mergers and acquisitions division is said to be significantly higher than a year ago. This has been supported by the sale of their UK smart meter portfolio, a positive sign for the all-important exits that allow the release of performance fees.
• E-commerce platform Redbubble (ASX:RBL) continues to struggle to meet expectations its shares falling on Friday and over 17% for the week amid concerns of falling margins.
• Food deliver service Marley Spoon (ASX:MMM) shares tumbled after delivering sales growth of just 10% over the financial year.
• Similarly, shares in utilities provider Origin Energy (ASX:ORG) fell after writing down another $2.2 billion of assets due to continued weakness in electricity prices.
• Property was a rare winner, likely benefitting from weaker than expected ‘core’ inflation with the likes of Vicinity (ASX:VCX) and Scentre Group (ASX:SCG) finishing slightly above water. Crown (ASX:CWN) remains the news for all the wrong reasons its shares falling after paying $61 million in unpaid taxes to the Victorian government.

Ishan Dan

Ishan is an experienced journalist covering The Inside Investor and The Insider Adviser publications.