The Match Out: ASX closes higher for the day and week, Virgin Money trips up, Have a great weekend all

James Gerrish

Market Matters

A choppy start to the week ended with three solid sessions of gains for the ASX. Today it was the Communications sector leading the charge, while the IT stocks lagged. For the week, the market added 1.17% with all sectors except Energy and IT booking gains.

  • The ASX 200 finished up +28pts/+0.39% today at 7456.
  • Communications +1.65% thanks largely to a 1.2% gain by Telstra (ASX: TLS) while the IT sector fell 1.64%.
  • The RBA’s latest statement on monetary policy said it expects a rapid economic recovery and has lifted its GDP forecast to 3% over 2021, then 5.5% for 2022, before returning to around 2.5% in 2023. The bank said the board’s central scenario is the first cash rate increase to occur in 2024, though it said a move in 2023 could be warranted if conditions changed. They reckon a rate hike in 2022 is not on the cards.
  • That hasn’t stopped the banks from starting to hike rates, CBA following Westpac in lifting their fixed rate offers.
  • Shareholders in Square (SQ US) have approved the takeover of Afterpay (ASX: APT), while the ACCC won’t intervene. APT closed today at $117.50, down around 5.53% and is simply trading in lockstep with SQ.
  • REA Group (ASX: REA) +5.58% had a good quarterly trading update today, revenue up 22% in the first quarter, the buoyant real-estate market underpinning gains.
  • Link Administration (ASX: LNK) +8.55% received a conditional, non-binding indicative takeover proposal from The Carlyle Group at around $5.38, which represents a 24.2% premium to the last close. The stock was trading at a big discount to the bid, given the vast majority of PE bids have failed in recent times. LNK closed on Friday at $4.70.
  • Virgin Money (ASX: VUK) -11.27% was whacked on a trading update that flagged more restructuring charges. The digital transformation sounds good but costs money, with more detail on that below.
  • Northern Star (ASX: NST) +6.31% a stock we highlighted in the morning note today, NST had a very solid session and looks very strong technically. The rest of the Gold sector rallied today.
  • Gold held onto gains in Asia today which is rare , closing at around $US1796.
  • January Iron Ore Futures were down around 2.5% in Asia.
  • Asian markets were lower, Nikkei -0.80%, Hong Kong -0.95% & China off -0.24%.
  • US Futures are flat.

ASX 200

Virgin Money (ASX: VUK) $3.15

VUK -11.27%: Provided a trading update overnight and the stock was whacked on the market today. Firstly, the rationale to own VUK was about relative valuation and its cost out program that would ultimately drive returns. This rationale has been tested recently, management now focuses more on digital transformation. That costs money now for (hopefully) returns in the future. This trading update talked about that the process, outlined yet more restructuring charges that have been a very consistent theme for VUK in the past few years, then went on to sell the dream of outer years. While we believe in the strategy that was outlined, the market clearly has little confidence in management’s ability to deliver it. Instead, today’s focus was on costs rather than the benefits. We own VUK in our Growth Portoflio and while we are not adding to positions here, we view today’s price action as excessive.

MM is holding VUK in our Flagship Growth Portfolio.

Virgin Money

Sectors this week (Source: Bloomberg)

Stocks this week (Source Bloomberg)

Broker moves

  • Butn Rated New Speculative Buy at Canaccord

  • Domain Holdings Cut to Neutral at Credit Suisse; PT A$5.70

  • Immutep Rated New Overweight at Wilsons; PT 91 Australian cents

  • Cromwell Property Raised to Overweight at JPMorgan

  • Xero Cut to Hold at Jefferies; PT A$150.08

  • Clinuvel Cut to Hold at Jefferies; PT A$36.80

Major movers today

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James Gerrish
Portfolio Manager
Market Matters

James is Portfolio Manager & Primary Author at Market Matters, a daily investment report with over 2500 subscribers that offers real market insight. He is also Senior Portfolio Manager within Shaw and Partners heading up a team that manages...

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