Woodside goes global; Afterpay falls behind on profits: What we learned this week
Albanese stumbles at the opening gate and team transitory catches a break.
Pendal says no
A week after landing in Sydney from his Boston base, Pendal chief executive Nick Good joined the rest of the board in rejecting Perpetual’s $6.23 per share offer on Tuesday. Why? Nestled beneath guff like “Pendal has some of most respected investment talent in the world” and “compelling global distribution footprint” was the kicker: “the indicative proposal… is materially below Pendal’s underlying standalone value.” Up the offer, please, in other words. The board followed up by announcing a $100 million on-market buyback. Markets are finding their footing. Shares fell, then rose, then fell again to end the day down 0.4%. They ended the week down 1.1%.
Buyers remorse at Block?
Was Australia’s biggest deal a little too big? That’s the question looming over Block (née Square) after its new acquisition Afterpay reported losses quadrupled to $345 million in the final quarter of 2021 due to rising marketing costs and more provisioning for bad debts. Cost of sales accelerated faster than total income, growing 65% and 55%, respectively. The stumble come as the sector deals with more competition, a slowing economy and unwelcome attention from regulators and consumer critics.
Albo’s gaffe
Politicians and journalists duelled over the data in Australian Bureau of Statistics press releases this week. Opposition leader Anthony Albanese wrongly guessed the unemployment rate was 5.4% on Monday. He was a year off the right answer and lent credence to the Coalition’s line that they are better economic managers. But the next polly was ready for the press’ gotcha questions. Asked by a bold journalist for the wage growth figures two days later, Greens leader Adam Bandt responded with “Google it, mate”. We’ll leave it to you to decide the facts and figures politicians should have at their fingertips.
Are we there yet?
‘Team Transitory’ caught a break this week after US inflation data showed some prices retreated in March. Buried beneath the grim 8.5% annual increase (the biggest since 1981) was a 0.3% month-on-month rise in “core inflation” – a figure which strips out food and energy. It rose less than expected and fell relative to February’s 0.5% due to easing prices for used cars. But tough times are ahead: Oil prices are rising again and supply disruptions loom as hundreds of ships loiter outside Covid-19 shuttered Chinese ports.
JPMorgan saves for a rainy day
America’s largest lender set aside US$902 million for potential losses as it flagged the risk of fallout from Russia’s war in Ukraine and higher inflation. Speaking on Wednesday, chief executive Jamie Dimon talked up the US economy but sees “significant geopolitical and economic challenges ahead due to high inflation, supply-chain issues and the war in Ukraine.” The bank reported a first-quarter 42% drop in profit.
Woodside looks beyond the ASX
Barring an unexpected shareholder smackdown, Woodside will merge with BHP’s petroleum business on 1 June. The all-stock deal will see just over 900 million new Woodside shares distributed to BHP shareholders. To encourage overseas owners to stick around, Woodside is pursuing dual listings in New York and London. If new shareholders were to rush for the exit at the same time it could weigh on Woodside’s otherwise buoyant stock price. The company is set to debut overseas on 1 June.
Central banks tighten the screws
A raft of interest rate-related updates hit markets this week. It’s best digested in bullet points:
- The Reserve Bank of New Zealand hiked rates by 0.5% on Wednesday, the biggest jump in 22 years.
- Canada’s central bank followed suit hours later. It raised rates by the same amount to 1% and announced it would start winding down its balance sheet.
- Across the Atlantic, inflation in the UK rose past expectations to hit 7% year-on-year in March. Expect another rate hike when the Bank of England meets in May.
- A parade of US Federal Reserve officials spoke to media this week flagging higher rates and an accelerated wind-down of the Fed’s US$9 trillion balance sheet.
ASX lifts through wall of worry: Market recap
Australian shares edged higher in a shortened trading week ahead of the four-day Easter break.
The S&P/ASX 200 rose 0.5% for the week. Resources, energy and utilities sectors led gains, up between 1.4% and 1.9%, as crude oil prices punched back above US$100 after having dipped below the level on Monday.
Healthcare and information technology stocks weighed on the index, down 0.7% and 0.5%, respectively.
The local sharemarket powered through a raft of pessimistic economic signals weighing on global equity markets. Early in the week, Chinese economic data suggested growth was slowing in the world’s largest exporter and manufacturer. A climb in oil prices from Tuesday renewed fears higher energy costs could sap growth and stoke inflation.
US inflation data released on Wednesday showed March prices rose at their fastest rate since 1981.
Investors remain laser focussed on whether central banks can lower inflation without crashing the economy, says Stephen Miller, an adviser at GSFM funds management.
“Will they be able to pull off the high wire act that enables them to bring inflation under control without pushing the economy into a recession? There’s still a big question around ir,” he says. “That’s why we’re seeing this volatility in global equity markets and the ASX”.
Locally, Bank of Queensland shares fell 6.6% on Thursday after its half-yearly results revealed a lower-than-expected dividend payout.
Fintech heavyweight Z1P fell 13.7% this week as Afterpay’s disappointing quarterly results ricocheted through the sector.
Shares in EML Payments jumped 10.5% on Wednesday after reports the company had been in talks with private equity group Bain Capital over a takeover. The talks have now ended. Shares ended the week up 3.6%.
Blue chip moves this week
- Magellan Financial Group ↓ 3.4%
- Telstra ↑ 0.4%
- AGL ↑ 2.4%
- Supermarkets: Woolworths ↑ 1.4% / Coles flat
- Resources: Rio Tinto ↑ 1.2% / BHP ↑ 1.0% / Fortescue metals ↓ 1.3%
- Big Banks: NAB ↑ 1.2% / Westpac ↑ 0.1% / CBA ↑ 1.1%/ ANZ ↓ 0.1%
What we’re watching next week
- Tuesday: Reserve Bank March meeting minutes. Watch for discussions over the rate hike timeline.
- Wednesday: Tesla releases Q1 earnings.
- Friday: Monthly update on global manufacturing and services production. Watch for signs of a growth slowdowns.