A month in markets: July 2021

The ASX 200 started the month quietly but managed to reach new all-time highs for the second straight month towards the end. 

The BNPL (buy now, pay later) segment saw some interesting action as giant PayPal sauntered in and announced its entry into the scene with its ‘Pay in 4’ product to its nine million Aussie customers. They’re ten times the size of Afterpay and they want the market to know that. As a first for the industry, they also announced that they wouldn’t be charging any fees for late payments. This comes as a huge blow to major players such as Afterpay and Zip – late fees made up a significant $70 million or so in annual revenue last year for Afterpay – but even more so to some of the junior players in the sector with smaller market share.

At the same time, Apple told the world they’re working on their own BNPL product, ‘Apple Pay Later’. Both Afterpay (ASX:APT) and Zip Co (ASX:Z1P) have tumbled 10% apiece off the back of the combined news. The more competition increases and consumer discounts (such as waived late fees) are applied, you can’t help but think there will be fewer names in the space in the not too distant future. They simply won’t be able to compete.

Retail sales data for the month of May were released and showed consumer spending was better than expected compared to April. The figures haven’t been enough to keep the likes of online retailers such as Kogan (ASX:KGN) from falling again after it rallied 20% in three days, as it reported it had overstocked warehouses, and COVID cases across NSW grew and prolonged lockdowns. It’s basically given back any gains it saw, which shows how leveraged stocks in this space are to the pandemic, and how heavily targeted they are by short term traders.

In mid-July, unemployment figures up to the end of June showed the number of Australians out of work fell to below 5% for the first time since the pandemic began, but as we head into the tail end of the month and with lockdown restrictions worsening in NSW, it’s fairly safe to say this reading is somewhat redundant and that the August/September unemployment readings will be the ones to watch.

Earnings season kicks off next month and traders should be well aware as to when stocks are due to report as missed earnings results can lead to nasty surprises and sharp falls in a company’s share price.

Conversely, earnings seasons can also create some great investment opportunities as the market can overreact to company announcements resulting in unjustified selloffs, followed by swift recoveries.

Openmarkets movers and shakers July 2021

Major M&As in July

Sydney Airports doesn’t get onboard

Sydney Airports (ASX:SYD) received an indicative non-binding takeover offer for $8.25 per share from a consortium including Q Super and IFM Investors. As Clancy Yeats reports in the Sydney Morning Herald, the deal values the infrastructure business at a little over $22 billion which was around a 35% increase from its last traded price before the offer was announced. The board said the bid was opportunistic in the current conditions – so that’s a ‘no’.

Telstra gets full reception

In another super deal, Future Fund, Commonwealth Superannuation Contributor and Sunsuper bought 8,200 mobile towers from Telstra (ASX:TLS) for $2.8 billion, which shareholders will love as the company says they’ll return 50 per cent of the proceeds as dividends. The AFR Street Talk team point out that Optus owner Singtel is courting bids for its towers (behind paywall) from various other suitors as well.

Sparks fly

Spark Infrastructure (ASX:SKI) received a further revised proposal from the Ontario Teachers' Pension Plan Board (“OTPP”) and Kohlberg Kravis Roberts & Co. L.P. (“KKR”), for an all-cash consideration of A$2.95 per stapled security, valuing the company at just under $5.2 billion. As Angela Macdonald-Smith notes in the Australian Financial Review (behind paywall), it's not a done deal yet so watch this space to see if sparks are enough to light the flame for this union.

HelloFresh gobbles up competition

HelloFresh acquired Youfoodz (ASX:YFZ) for $125 million, which saw the stock price almost double overnight. As Sue Mitchell notes in the AFR (behind paywall), despite the 93 cent per share offer being a premium to the previous close price, it crystallises a loss for those who bought into the Youfoodz $70 million IPO in December at $1.50. This comes hot off the back of HelloFresh snapping up Factor75, another prepared food delivery service in the US.

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