ASX 200 to fall + 2 stocks targeting massive capital returns

ASX 200 futures are trading 11 points lower, down -0.15% as of 8:20 am AEDT.

S&P 500 pulls back on Friday but finishes the week up 1.65%, Powell signals a pause amid tighter financial conditions, valuations for megacap US tech stocks surge amid AI craze, German producer prices unexpectedly rise in April and a closer look at two capital return events from PointsBet and A2B, which yield a one off as much as 30-80%.

Let's dive in.

S&P 500 SESSION CHART

MARKETS

• S&P 500 eases from Thursday's year-to-date high but still up 1.65% last week
• Powell said tighter financial conditions may mean little upside to interest rate path but reiterated commitment to inflation target
• Cash at money market funds hits fresh record highs (Bloomberg)
• Yields rise as bond traders lose faith in likelihood of rate cuts(Bloomberg)
• Hedge funds raise ultra-bearish bets on oil, flags US recession angst (Bloomberg)
• BofA strategist says sell US stocks as tech and AI bubble forming (Bloomberg)
• Apple, Microsoft, Google, Amazon, Nvidia, Meta and Tesla are up 61% year-to-date and trading at PEs of 30 vs. 17 for the rest of the S&P 500
• Fed officials split over pause or hike in June (Bloomberg)
• European natural gas futures fall below €30 for the first time since Jun-21 (Bloomberg)

STOCKS

• Morgan Stanley chief James Gorman to step down within a year (FT)
• Foot Locker posts double miss, shares dip 27% (CNBC)
• Deere raise full-year profit outlook on healthy equipment demand (Reuters)
• Occidental Petroleum rallied after Buffett’s Berkshire boosted its stake to 24.4% (CNBC)

Earnings

The blended earnings growth rate for first quarter S&P 500 EPS currently sits at -2.2% compared to the -6.7% expected at the beginning of earnings season. Of the 95% of S&P 500 companies that have posted earnings, 78% have beaten earnings expectations, above the 73% one-year average and 77% five-year average.

ECONOMY

• German producer prices post first monthly increase since Sep 2022 (Reuters)
• UK GfK survey shows consumer confidence still on the rise (London Times)
• White House official says "steady progress" in being made in US debt ceiling talks (Reuters)
  
  

Deeper Dive: Capital Returns

When a company sells their assets, it can opt to return proceeds back to shareholders. This is often the case when it has nothing better to do with all the surplus cash. A capital return can be fascinating for many reasons:

• Did the stock fluctuate on the asset sale/capital return announcement?
• What did the yield look like when the stock rallied/sold off?
• What does the business look like post sale?

In today's Deeper Dive, we'll take a closer look at two companies that are selling their assets, with plans to return proceeds back to shareholders.

Last Monday, PointsBet (ASX: PBH) announced plans to sell its US business for US$150 million (A$222 million). Shareholders will vote on the proposed transaction at a shareholder meeting in June but the plan is to return net sale proceeds back to shareholders.

The Board estimates this distribution of capital to be approximately $1.07 to $1.10 per share. Here are a few interesting observations about the asset sale:

• Since its listing in June 2019, PointsBet has raised over $1.2 billion and spend $600 million on marketing in the US

• PointsBet shares fell as much as 30% in the two days after the announcement

• The stock hit a low of $1.28 on Tuesday, 16 May

• The low point would reflect a yield of 85% ($1.085 divided by $1.280)

• The stock closed at $1.545 on Friday or a 20% bounce from Tuesday lows

A2B (ASX: A2B) is probably best known for operating the 13CABS business. It recently sold its property on O'Riordan Street in Sydney for $78 million. Net proceeds, after costs and repayment of debt, are expected to be approximately $73 million and the board plans to return those proceeds as a fully franked dividend 'by the end of 2023'.

• Given it's current market cap of $183 million, this implies a payout yield of approximately 40%
• The company has been unprofitable between FY19 to FY22
• The half-year FY23 reflected a turnaround for earnings, with net profits coming in at $3.7 million compared to a $6.7 million loss in the previous period