ASX 200 (XJO) Wednesday – what to make of Sydney Airport’s cap raising

The S&P/ASX 200 (ASX: XJO) is expected to edge higher when the market opens on Wednesday despite weak trading in the US overnight. Here’s what’s making news.

Sydney Airport to raise $2 billion

It was another busy day as reporting season ramped up, the ASX 200 finishing 0.5% higher as signs of slowing Victorian COVID-19 cases boosted National Australia Bank Ltd (ASX: NAB), rising 2.4%.

Sydney Airport Holdings Ltd (ASX: SYD) finally capitulated, going cap in hand to investors seeking $2 billion to ‘strengthen its balance sheet’ as the impacts of the pandemic look like extending beyond 2021. No dividend will be paid in 2020. The offer is at a discount of just 13% ($4.56 per share) and I wouldn’t be surprised if retail investors stay away as they did with Qantas Airways Limited (ASX: QAN) last month. I think SYD is one to avoid, particularly given the IATA has predicted it won’t be until 2024 that travel returns to normal.

James Hardie Industries plc (ASX: JHX) led the market higher, adding 6.8% despite announcing an 89% fall in quarterly profit to a paltry US$9.4 million. Investors were surprised by JHX’s market share gains as the company managed to avoid shutdowns in the US; management guided towards a strong recovery with a $330 – 390 million profit for 2021.

Challenger facing an existential crisis

Stem-cell research company Mesoblast Limited (ASX: MSB), who has an application in to the US FDA for a potential COVID-19 treatment (not vaccine), tanked 30.1% on Tuesday, as briefing notes for its upcoming review did not reflect positively on its hopes for approval this week.

Annuity seller Challenger Ltd (ASX: CGF) also disappointed investors, falling 7.6% after writing down its Life annuity business by $750 million; a combination of weaker investment returns and higher capital requirements due to lower interest rates are hitting the company’s bottom line. Net profit was down 13% to $344 million but fell to a statutory loss of $416 million after the write-down. Life and annuity sales in Japan were a particular highlight, the unit growing 13%, as was specialist fixed income and credit manager Fidante Partners, which saw $3.8 billion in net inflows.

In an income starved world, Computershare Ltd (ASX: CPU) managed to maintain its dividend despite announcing a 2.3% fall in revenue and 3.7% fall in earnings.

Overseas markets mixed

US markets fell into the close, with the S&P 500 off 0.7% after nearing all-time highs during the session. As earnings season nears its close, investors are turning back to economic results, with the comments suggesting more stimulus is a long way off hitting confidence.

President Trump continued his one-man re-election campaign, flagging a potential reduction in capital gains tax by introducing an Australian-like inflation adjustment.

The news was positive in Europe with markets cheering a jump in Chinese automobile sales, +16.4% in July, supporting BMW (ETR: BMW) which headed 5.8% higher. Vladimir Putin approved the first COVID-19 vaccine in the world, Russia’s own, after testing on just 76 people; only time will tell if it is the cure the market is seeking.

On a lighter note, readers of my Unconventional Wisdom newsletter may remember that Tom King of Nanuk Asset Management, a sustainable technology-focused global equity fund, highlighted the potential benefits of feeding seaweed to cows in order to reduce emissions; well Graincorp Ltd (ASX: GNC) and Twiggy Forrest just signed a deal with the CSIRO to commercialise the product.

This article was written by Drew Meredith, Financial Adviser and Director of Wattle Partners. He may maintain positions in the securities mentioned. 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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