Morning Bell 20 July

Jessica Amir
July 20, 2020

Aussie shares are set for a flat start this week, following a mixed session on Wall Street last Friday, where the Nasdaq and S&P500 rose 0.3% each, while the Dow fell 0.2%.

With NSW eyeing another lockdown and Victoria in the thick of theirs, attention this week will be turned to Federal economic stimulus. We know the government plans to increase its support to small and medium businesses, giving access to cheap and part-guaranteed loans of $1 million from 1 October, an increase from $250,000.

What to watch this week:
– The RBA Governor on Tuesday will give a speech, and you’d expect bond buying or quantitative easing to be brought up.
– Thursday’s economic statement – revealing record debt and huge deficit forecasts, driven by massive increases in spending, and falls in revenue. We’ll also get details of the further economic stimulus.

Trading ideas:
– A.P. Eagers (ASX:APE) – UBS initiated coverage of the automotive retailer, giving it a buy rating and price target of $7.90. On Friday it closed 0.5% up at $6.19. APE is the largest dealership group in Australia (with over 11% of new car market share) offering new and used vehicles, servicing, spare parts and financing service.
– Integrated Research (ASX:IRI) – Bell Potter has downgraded the software provider from a buy to a hold with a $4.25 target. On Friday it rose 4.4% to $4.00, and it’s collectively gained about 20% this year. Bell Potter forecasts high single digit percentage growth in revenue and low double digit percentage growth in NPAT in both FY21 and FY22.
– Service Stream (ASX:SSM) – Bell Potter also downgraded the engineering infrastructure company from a buy to a hold with a $2.05 target. On Friday it closed 1.3% lower at $1.86. Bell Potter expects there to be about 9% upside in the stock but then expects things could dampen due to operational pressures from COVID-19 restrictions.

 

 

Read Transcript

Good Morning, thanks for your company on Monday the 20th

of July.

I’m Jessica Amir with Bell Direct, well the Aussie share market is eyeing a flat start to the week following a mixed session on wall street on Friday where the Nasdaq and the S&P500 rose 0.3% each, while the Dow fell 0.2%.

Across the week the S&P500 and the Dow rose while the Nasdaq fell, weighed by Netflix’s disappointing result.

Now that shift was quite telling as investors are shifting their focus away from growth tech stocks moving to defensive investments so you could expect more tech profits to be trimmed and put elsewhere.

And locally New South Wales is eyeing another lockdown and Victoria is in the thick of theirs so attention this week will be turned to federal economic stimulus.

We know the government plans to increase support to small and medium businesses giving access to cheap and part-guaranteed loans of up to $1,000,000 from the first of October, that’s an increase from $250,000.

Now, this is all part of the second $66 billion stimulus package that’ll be revamped fleshed out and expanded in Thursday’s economic statement.

So that’s definitely something to watch.

Elsewhere, on the commodity front, the oil price trades exactly where it did on Friday US$40.59 a barrel.

The gold price meantime has pushed ahead with the flight to safety pushing the commodity up to US$1,811 an ounce.

The iron ore price last traded at US$107.22, 11-month high neighbourhood.

Now what else to watch for on Tuesday, the RBA governor will give a speech, and you’d expect bond buying or quantitative easing to be the talk of the town to stoke more fire into the economics belly.

The same day the RBA minutes will be released from their meeting earlier this month.

And on Thursday the big thing to watch is the economic statement revealing record debt, huge deficit forecasts driven by massive increase in spending because of economic stimulus and falls in revenue.

We’ll also get the details of all that economic stimulus that we discussed a little earlier.

Now, to three trading ideas.

Well firstly, UBS initiated coverage of automotive retailer A.P. Eagers (ASX:APE) giving it a buy rating and price target of $7.90.

On Friday A.P. Eagers closed 0.5 %higher at $6.19.

Now, A.P. Eagers for those that don’t know is Australia’s largest dealership group with over 11% of the new car market share offering new and used vehicles servicing spare parts and financing as well.

UBS expects the car market will consolidate, but A.P. Eagers car sales per dealership will increase.

Secondly, software provider integrated research, IRI, was downgraded by Bell Potter from a buy

to a hold with a $4.25 target.

On Friday IRI rose 4.4 % to $4.00 and it’s collectively gained about 20% so far this year.

Bell Potter forecasts high single digit percentage growth in revenue and low double digit percentage growth in net profit after tax for FY21 and FY22.

And thirdly, Bell Potter downgraded engineering infrastructure company Service Stream Limited (ASX:SSM)  from a buy down to a hold with a $2.05 target.

On Friday, Service Stream Limited closed 1.3 %lower to $1.86 after handing down results not quite what the market expected with NBN results not quite cutting the mustard.

Now Bell Potter expects there to be about 9% upside in the stock and then things could dampen due to operational pressures from Covid-19, plus expects NBN network build to slow.

I’m Jessica Amir, with Bell Direct.

Happy trading, please stay safe.

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