Never let a good crisis go to waste (PMV, CSR, KGN)
WHAT MATTERED TODAY
Risk on yesterday, risk off today as sellers remerged, particularly towards the sectors that have seen recent buying namely energy & real estate. Strong comments from Premier Investments (PMV) around rents one catalyst, more on that below however suffice to say there will be a lot of tenants trying to make the most of this current crisis, attempting to lock in more favourable (ongoing) terms, Lew the first of many I suspect.
The market opened down marginally this morning however sellers built throughout the day before a low of -85pts just after lunch - some tentative buying into the close saw the index closes back up above 5400. US Futures chopped around for the day with a negative bias while Asian market were mostly lower, Japan the only mkt to keep its head above water (just)
News out this afternoon that Wuhan will test its entire population (11 million people) after 6 cases were found while in NSW, we had no new of COVID-19 cases today.
I’ve had my first day back in the office today in around 7 weeks and the city remains fairly sparse, traffic still low and cafés still pretty grim, although I’m told today was the busiest day yet.
Overall, the ASX 200 fell -58pts / -1.07% today to close at 5403 - Dow Futures are trading down -197pts/-0.79%.
ASX 200 Chart
ASX 200 Chart
CATCHING MY EYE:
Soloman Lew & Premier Investments: The biggest retail tenant in Australia (brands including Smiggle, Peter Alexander, The Just Group, Jay Jays, Just Jeans and more) gave a pretty aggressive shot across the bow of retail landlords today, essentially saying Premier will pay what they think is fair and that number is something like 6% of gross in store sales.
PMV is in the enviable negotiating position of 1. Scale & 2. A large proportion of their lease book at or near expiry 3. They have a decent online presence. The approach was outlined today when they gave a trading update saying that global sales were down 74% in 6 weeks to May 6, although that included online sales, stripping that out sales were down 99% given the raft of store closures.
They say you should never let a good crisis go to waste and PMV are certainly having a very good crack at this with retail landlords in the cross hairs.
Premium Investments (PMV) Chart
CSR +10.06%: Out with full year results today that were better than the mkts downbeat expectations. They delivered underlying net profit for the full year of $125m versus consensus of $120m, however I saw a few brokers more bearish than that – Citi for instance was at $111m. Still, the $125m for the year was a ~30% decline on FY19 and expectations for FY21 are also fairly soft – expecting further declines of circa 13% although the company didn’t offer guidance. They also cut the final dividend + pulled the share buyback. CSR have no debt with ample liquidity, helped by another $200m funding facility announced today. This is a cyclical stock / sector, and while headwinds remain, CSR has the balance sheet to see it through. A good cyclical turnaround story for those with a 1-2 year view.
CSR Chart
Kogan.com (KGN) +5.88%: the online retailer shot to a near 2 year high today thanks to strong trade over the COVID_19 pandemic. Kogan added more than 7.5% to active customers in April, now with just shy of 2 million customers using the site. Sales were up 100%, and gross profit an even more impressive 150% for the month. Year to date adj. EBITDA is 40% ahead of last year as shoppers were forced online to satisfy the spending habits. While the growth is unsustainable, it is likely that a chunk of the new customers will continue to shop on Kogan.
Along with the business update, the company has proposed a long term share option incentive for founders Ruslan and CFO David Shafer. The two are the largest shareholders in KGN already – Ruslan holding 22% and David 8%. The offer relies on the executives hanging around until the FY23 report is handed down. The two sent the share price tumbling two years ago when they tried to offload a total of 10m shares, but they were only able to get 6m away. In any case, the stocks has done spectacularly well from the March lows and now trades on 41x, a big number.
Kogan.com (KGN) Chart
BROKER MOVES:
· Macquarie Group Cut to Hold at Morningstar
· Mineral Resources Cut to Hold at Morningstar
· Soul Pattinson Reinstated Hold at Morgans Financial Limited
· Suncorp Raised to Add at Morgans Financial Limited; PT A$10.44
· Scentre Group Cut to Underperform at Jefferies; PT A$1.93
· Appen Cut to Hold at Bell Potter; PT A$30
· Pendal Group Cut to Hold at Morgans Financial Limited
· Macquarie Group Cut to Hold at Shaw and Partners; PT A$110
OUR CALLS
No changes to portfolios today.
Major Movers Today
Have a great night
James, Harry & the Market Matters Team
Disclosure
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