Weekly Wrap 14 August

Bell Direct
August 14, 2020

The Aussie share market rose 1.4% (Mon-Thu) however, momentum is slowing with investors focused on earnings and dividend growth for 2021.

In this week’s wrap, Jessica covers:

  • (0:39) Employment rises more than expected in July. What’s next?
  • (1:13) The U.S. reports: S&P500 a shade off its record high
  • (1:45) Aus earnings season: Banks to see declines & Miners to deliver
  • (2:10) Reporting season wrap so far: CBA, Telstra & Transurban report
  • (3:00) Stock watch: Treasury Wine Estates (ASX:TWE) guzzles up 18%
  • (4:00) Mesoblast (ASX:MSB) falls Mon-Thu, then rockets after FDA vote
  • (5:49) BHP (ASX:BHP), Coles (ASX:COL) and Westpac (ASX:WBC) all set to report next week
Read Transcript

Welcome to the weekly wrap this Friday the 14th of August.

I’m Jessica Amir, a market analyst with Bell Direct.

The Aussie share market rose 1.4% to Thursday, its second weekly gain.

A nice addition considering we really ramped up reporting season and heard from the biggest company on the ASX CBA (ASX:CBA), plus we heard from Transurban (ASX:TCL) and Telstra (ASX:TLS), the 12th and 13th largest companies.

This week we saw the ASX200 hit a two-month high but quickly lost momentum with investors focusing on earnings and dividend growth for 2021.

On the economic side this week, July unemployment numbers came in better than expected.

Unemployment rose to 7.5%, not as bad as the 7.8% forecast.

It comes as a surprise 115,000 people gained jobs in July, beating 40,000 expected, but the real test will be what August numbers will look like as they’ll reflect the new lockdown laws.

Also remember the RBA forecasts unemployment to hit 10% later this year, that’s something to consider.

Meanwhile over in the U.S. this week we saw the U.S. S&P500 come within a whisker of its record all-time high.

What is interesting though in the U.S., of the 74% of the S&P500 companies that have reported quarterly earnings, on average, earnings per share (EPS) has fallen 34% due to COVID-19, that seems bleak but it’s not as bad as the expected earnings per share falls of 58% expected.

But what about Australia?

Well we know Australian Earnings are expected to fall 15% in the 2020 financial year.

The biggest earnings and dividend declines expected in Banks, while Miners are expected to deliver the goods, with dividends not likely to change significantly with marginal improvements this and next financial year.

So what did we see this week amid confession season?

Well CBA (ASX:CBA) delivered a mostly stronger than expected FY20 result and shares gained 1.2% to Thursday.

It was downgraded by Bell Potter from a buy to a hold with a $78 dollar target, while UBS reiterated CBA as a hold with a $72 target.

For our detailed report on CBA, please check out our website.

As for the other top 50 companies, well gray COVID-19 clouds flew over companies like Telstra (ASX:TLS, Transurban (ASX:TCL) and AGL Energy (ASX:AGL), who delivered weaker than expected earnings and dividend outlooks for FY21, but FY20 results were mostly in line with market expectations.

You can catch our detailed reports on Telstra and Transurban on our website as well.

However, the most noteworthy report card this week saw Treasury Wine Estates (ASX:TWE), a global leading wine company pop its share cork guzzling up 18% to become the best performing stock on the ASX200 with TWE hitting a new seven month high.

It comes as TWE announced global demand for its wine is beginning to tip up, particularly in Asia and China.

Treasury Wine also announced heavy cost savings in the years ahead but didn’t give an FY21 earnings number to watch out for.

Citi maintained Treasury Wine as a hold as it forecasts flat FY21 earnings growth, although its FY20 result was a touch below expectations, you could expect TWE to see broker upgrades following its brighter outlook.

UBS reiterated TWE as a hold with a $11.80 share price target, Citi targets $10.90.

On the other side of the market this week, biotechnology company Mesoblast (ASX:MSB) took out the gong following the most in the ASX200, losing 23% before entering into a trading halt.

MSB didn’t report financial results but it did see its biggest share price fall since the COVID-19 crash, erasing four months of gains.

It comes as the FDA ruled its trial results were unclear in treating children with inflammation from bone marrow transplants from bone cancer, however if you look past that, the FDA found that MSB’s product is suitable for human use and that 69.1% percent of the children treated had a positive response.

The FDA has an advisory committee underway which is positive and so far has voted in favour of the product’s efficacy and is due to hand down a decision on Friday the 14th, so keep an eye on that.

And secondly, the FDA is due to hand down its final drug review on the 30th of September, so keep an eye on that as well.

Bell Potter is expecting a positive result from the FDA there.

Now aside from that, Mesoblast is involved in late stage phase 3 trials for a COVID-19 vaccine.

75 of the 90 patients with severe to moderate COVID-19 infections have been taken off ventilators and discharged from hospital, so it’s no wonder why MSB has gained a lot of attention and maintained that 62% share price rise this year.

Bell Potter reiterated MSB as a speculative buy and it’s a top buy for the year in fact, expecting MSB’s shares to grow over 90% to $6.

Now moving to what companies are reporting next week and what’s likely to move markets, given their size on Tuesday, BHP (ASX:BHP) reports along with Coles (ASX:COL) and Westpac (ASX:WBC).

On Wednesday, CSL (ASX:CSL) hands down their results and on Thursday, Wesfarmers (ASX:WES) releases their report card.

And lastly on the economic side of life, we’ll hear from the RBA for the first time in two weeks on Tuesday.

The central bank will hand down minutes from its meeting and provide details about its fresh round of bond buying.

On behalf of everyone here at Bell Direct, have a happy and safe weekend.

I’m Jessica Amir,  see you next week.

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