ASX 200 (XJO) Friday – CSL & URW shares in focus

The S&P/ASX 200 (INDEXASX: XJO) is tipped to open lower on Friday according to the Sydney Futures Exchange. ASX shopping centre shares and US big tech are making headlines.

What you missed

Despite an unexpected jump in Victorian COVID-19 cases above 700, the ASX 200 snapped two days of losses to finish 0.7% higher. The benchmark index has now been stuck around the 6,000 point level for two months, as investors rotated out of traditional value sectors, like banks and property, into those better able to deal with the pandemic. At this point, few have the confidence to reverse the rotation, myself included.

CSL Limited (ASX: CSL) continues to stand-out as a long-term buying opportunity, trading some 20% off its April highs ahead of what should be a solid reporting season. The company led the market higher yesterday, adding 1.5%, with the rest of the sector adding 1.4%.

As masks became mandatory across Victoria, shopping mall and property owners were among the hardest hit, with Vicinity Centres Ltd (ASX: VCX) and Scentre Group (ASX: SCG) falling 4% and 3.5% respectively.

Unibail-Rodamco-Westfield under pressure

Unibail-Rodamco-Westfield (ASX: URW), the ASX-listed owner of Westfield shopping centres, offered an insight to the challenge ahead for the industry on Thursday. It announced an 11.3% contraction in retail rental income and 73.2% fall in convention centre rent, resulting in a 28% drop in earnings for the quarter.

Of greatest concern was confirmation that just 28% of rent was collected during the quarter, 3% waived but some 39% due but unpaid, suggesting there is more pain to come. URW’s final dividend was cancelled as the highly leveraged group attempt to come terms with the staggered approach to reopening; shares fell 5.3% yesterday.

Meanwhile, it has been reported that Lendlease (ASX: LLC)’s Australian Prime Property Retail Fund is facing a redemption cliff before the year is out, with management apparently asking its industry fund investors for an extension to the already two-year waiting period for redemptions. The company remains around mid-crisis levels given the ongoing uncertainty and retail exposure.

US markets mixed

The US economy experienced its worst contraction since 1947, collapsing 9.5% in the second quarter for an annualised fall of 32.9%. Unemployment benefits also increased as the second wave continued to bite. The Federal Reserve had already highlighted its intention to continue supporting the economy as COVID-19 cases spiked in the South.

The S&P 500 finished 0.4% lower, while the Nasdaq was higher by the same amount, with many asking how this market strength is possible with such a weak economy. There are two reasons: the inflation that the Fed has been targeting has occurred, but in share prices not the price of goods, whilst for the first time in recent history, there are actually many companies benefitting from this pandemic.

Tech giants crush earnings expectations

Amazon (NASDAQ: AMZN), Apple (NASDAQ: AAPL), Facebook (NASDAQ: FB) and Alphabet (NASDAQ: GOOGL) all reported quarterly earnings after the market closed on Thursday (Friday morning here in Australia).

Shares in Amazon, Apple and Facebook soared more than 5% in after-hours trading. Here’s what the tech giants reported:

  • Facebook revenue exceeded expectations, hitting $18.69 billion for the quarter even as major advertisers reduced spending on the platform;
  • Amazon reported revenue growth of 40% to $88.9 billion, with profit of $5.2 billion for the quarter, albeit with $4.4 billion in COVID-19 related costs, the company also hired 175k new workers;
  • Alphabet revenue fell just 2%, the first time since 2009, but saw positive trends in its cloud business; and
  • Apple posted $59.7 billion in revenue, up 11% year-on-year and beating expectations, with both the products and services segments recording double-digit growth. It also announced a 4-for-1 stock split.

This article was written by Drew Meredith, Financial Adviser and Director of Wattle Partners. To get in contact with Drew, click here to visit the Wattle Partners website.

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Drew Meredith is the author of this post. He may maintain positions in the securities mentioned.

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