As it happened: Best close for ASX in 11 months; BHP and Rio soar

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As it happened: Best close for ASX in 11 months; BHP and Rio soar

That’s it from us today folks. Thanks for reading along with us at Markets Live.

Alex Druce and Lucy Battersby will be back in the morning to see what Wall Street did overnight. See you then.

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Listed accommodation provider Ingenia Communities has been boosted by a rise in demand for holiday parks as people are forced to stay within their own borders due to the COVID pandemic.

The group, which owns holiday parks has also repaid $1.7 million of JobKeeper support, after having received $5.1 million from the government during the six months ending December 31, 2020.

Ingenia Holidays’ White Albatross holiday park at Nambucca Heads on the NSW North Coast.Credit:

For the half, Ingenia reported a statutory profit of $32.5 million, up 38 per cent on the prior year. Group revenue was up 4 per cent to $122 million and earnings before interest and tax was up 25 per cent to $40.3 million.

INA chief executive Simon Owen said operating cash flow of $59.7 million was up 110 per cent on the previous corresponding period, driven by increased holidays holdings and positive working capital cashflows associated with reduced inventory levels.

Due to travel restrictions, people opted to spend holidays closer to home and holidays parks, were again keenly sought-after over the school holidays and lead-up to Christmas last year.

Ingenia achieved 128 new home settlements in the first half which add about $1.1 million in rental income annually.

A half-year distribution of 5¢ per stapled security has been declared and is expected to be paid on 25 March 2021.

“The strong profit result was particularly pleasing as it demonstrated how well the group had positioned itself to benefit from the opening up of key markets and the overall relaxing of COVID-19 restrictions,” Mr Owen said.

“The core residential rental business demonstrated resilience, with no interruption to rent collection. Record occupancy across Ingenia Gardens and a growing rental base across the group’s lifestyle business bolstered the group’s stable cash flows.”

He said Ingenia’s Holidays business is experiencing strong demand and forward bookings are up 22 per cent for the remainder of this financial year, providing a positive outlook for holiday parks across our key markets of NSW Queensland and Victoria.

Australian shares climbed again on Tuesday after BHP declared a record-high interim dividend, oil prices leapt and the Reserve Bank insisted interest rates would not rise for several years.

Earnings season continued to surprise on the upside, with consumer-facing companies such as Collins Food and Adairs announcing they would repay JobKeeper supplements thanks to surprisingly good results.

The ASX 200 finished 0.7 per cent higher at 6917.3, its best since February 25 last year. Credit:Louie Douvis

But exporters like Tassal continued to struggle after COVID-19 linked travel restrictions reduced salmon transportation options.

The S&P/ASX 200 ended a strong session up 0.7 per cent at 6917.3 points, its best since February 25 last year.

Futures were pointing to strong gains overnight in the US, where southern states reported cold snaps that saw spot prices for electricity and natural gas rise sharply. West Texas Intermediate crude broke through $US60 per barrel for the first time in 13 months.

The local energy sector out-performed the market, up 2.1 per cent, followed by industrials and healthcare. Consumer discretionary dragged as sector heavyweights Wesfarmers and Dominos dropped 1.1 per cent and 1.8 per cent respectively.

OANDA’s senior market analyst in Asia Pacific, Jeffrey Halley, said the RBA’s minutes from its February meeting confirmed interest rates were likely to stay at emergency lows, despite rising bond yields.

Low rates have been fuelling global stock market gains because the returns were higher than other assets. Japan’s stock market has been trading at 30-year highs this week.

“The panic of a return to 70’s style inflation is overdone, inflation has been missing in action for the last 20 years and will remain so in a globalised economy,″⁣ Mr Halley wrote in a note to clients.

“Nevertheless, if the US 10-year (bond) grinds towards 2 per cent in the next few months, it will give the Dollar sell-off and the equity rally food for thought.”

“Although not showing quite the same momentum as yesterday, a combination of dovish central banks, and the ever-present US stimulus and vaccine hopes have kept equity markets in business as usual mode. With the data calendar ultra-light, only a headline surprise could threaten the buy everything narrative in the near-term.”

On the ASX, BHP added 2.7 per cent and Rio Tinto 3 per cent, while Transurban gained 4.4 per cent.

A shock announcement from Fortescue Metals Group in the afternoon saw its shares suddenly drop before closing 3 per cent lower at $23.70. Three executives resigned on Tuesday afternoon as the company reviewed the $US2.6 billion Iron Bridge magnetite project in the Pilbara.

Commonwealth Bank went ex-dividend, but the other three banks closed higher.

The buy now, pay later sub-sector saw Zip Co gain 10 per cent to $13.92. And signs of global economic recovery in Sims Metal Group’s half-year results saw its shares gain 7.4 per cent to $13.75.

But bad news in results pushed Domain Group down 3 per cent after it flagged rising costs, and GWA Group finished down 8.1 per cent.

The Australian sharemarket continues to rise, closing above 6900 for the first time since last February in a 0.7 per cent rise on Tuesday.

The benchmark index added 48.4 points to close at an 11-month peak of 6917.3. Miners BHP and Rio Tinto were strong, while biotech CSL and the major lenders Westpac, NAB and ANZ all rose.

Chinese indices are still on a break for Lunar New Year, but the Nikkei was up 1.9 per cent and the Hang Seng was up 1.4 per cent. Futures point to strong gains, up 0.7 per cent, when Wall Street opens after a long weekend.

Federal Labor MP Andrew Leigh has urged Auto parts manufacturer ARB Corp to urged to hand back the $10 million it received in JobKeeper after it doubled first-half profit to $54 million and hiked its interim dividend by 56 per cent to 29 cents.

ARB’s sales for the six month period rose 22 per cent to $283 million, while profit before tax of $72.1 million was at the top end of the company’s earnings guidance flagged in January.

On Tuesday the company said it would also be paying out $23.45 million on April 23 in the form of a fully-franked 29 cent per share dividend.

This is after receiving $9.6 million in JobKeeper subsidies during the half.

ARB told investors the dividend was actually lower than its historical payout ratio, because it was reserving some cash to invest in the future growth of the business and support Australian jobs.

The company said it had also factored in JobKeeper when lowering the payout ratio to 43 per cent, down from the historic payout ratio of between 53 and 58 per cent over the past five years.

“ARB’s investment includes significant research and development, store expansion, major capital expenditure and new manufacturing equipment, all of which are vitally important to increasing manufacturing capacity, facilitating export growth and supporting employment in Australia,” the company said.

Mr Leigh wasn’t convinced.

“Time to back it up and repay the JobKeeper,” he tweeted. “If your profits are rising, you don’t need taxpayer handouts.“

Shares in ARB were down 4.9 per cent to $37.20 by 3pm AEDT, but have still gained 20 per cent in 2021 so far.

Mr Leigh also called on linen seller Adairs to repay the full $10m in JobKeeper it received, having paid back $6 million today after notching a strong profit.

He also noted that online advertiserDomain enjoyed increased profits to $19 million for the half year with the assistance of $6 million from JobKeeper, while Ingenia, ELMO and Virtus Health also made a profit while accepting JobKeeper.

KFC and Taco Bell operator Collins Foods announced today it would return the $1.8 million it claimed for its now-defunct Sizzler Australia operations, noting it was the only division within the business eligible for the stipend.

Other companies to return Jobkeeper are Nick Scali, Toyota Australia, Iluka Resources, Domino’s Pizza and Super Retail Group.

Three Fortescue Metals executives have resigned as the company continues its review of the $US2.6 billion Iron Bridge magnetite project in the Pilbara.

The company last month announced a review after flagging a potential cost and time blowout on the project it is building with Taiwan firm Formosa and China’s Baosteel.

Fortescue Metals chief executive Elizabeth Gaines will forego all incentive payments this financial year.Credit:Janie Barrett

Greg Lilleyman, Fortescue’s chief operating officer, has resigned from his position with immediate effect, while Don Hyma, director projects, and Manie McDonald, director Iron Bridge have also resigned from the business.

Derek Brown, currently general manager Solomon, has been appointed as acting director projects with the support of Fortescue’s senior projects team.

Fortescue Chief Executive Officer Elizabeth Gaines said a review of the project had shown the company had lost sight of its critical focus on “values and culture”.

“Since Fortescue was established, our values, above all else, have driven our behaviours and our decisions. Today, it is that culture and our values which have come to the fore as we announce these difficult changes,” Ms Gaines said.

Shares in the firm plunged 4.8 per cent lower to $23.24 on the news, having been ahead for most of the day.

Both Ian Wells, Chief Financial Officer, and Ms Gaines, will forego all incentive payments this financial year.

“We take this opportunity to reset the company’s focus on our culture and values which defines us and makes Fortescue a truly great company.

The detailed review underway for the Iron Bridge Magnetite project is continuing and an update is expected to be provided with the release of Fortescue’s half-year financial result on Thursday.

The energy sector is out-performing the rest of the ASX200 today, up 1.8 per cent compared to a 0.5 per cent gain across the board. The next best performing sector is materials, up 1.6 per cent.

Within energy Woodside Petroleum is up 2.3 per cent to $25.81, Origin is up 4 per cent to $4.56, and Santos is up 1.7 per cent to $7.02.

Texas’ energy supply system has been disrupted by the coldest temperatures for decades.Credit:Bloomberg

The gains coincide with price rises for oil and gas. A cold snap in the United States has sent natural gas spot prices up from $US3.73 per million metric British thermal units (MMBtu) last Wednesday to $US6 on Friday.

West Texas crude is up 1.3 per cent overnight to $US60.26, the first time it has been over $US60 since January 2020. Brent crude got over $US60 a few weeks ago and was up 0.5 per cent overnight to $US63.62.

The US shale oil producers need oil to sell at around $US65 to $US70 per barrel to make a profit, according to Macquarie Business School’s Lurion De Mello. But prices depend on whether the OPEC+ group, especially Saudi Arabia, can maintain production cuts introduced in November. OPEC’s next meeting is scheduled for 4 March.

“This time they really stuck to the production cut and I think the supply side effect is really coming through to higher prices,” Dr De Mello told Markets Live.

“If they see the US increasing their own out-put, OPEC and OPEC+ will probably increase their supply, putting downward pressure on prices.”

“(But) if the increase in supply in done in very small increments then I guess the price will remain a bit high. But it also depends on the impact of the virus, especially in the UK.”

Zip Co’s management is unaware of any specific news that could be fuelling a remarkable trading surge, suggesting investor enthusiasm for the wider buy now, pay later sector has helped it hit new record highs today.

Market operator ASX Ltd asked Zip Co this morning to explain why its share price could have added another 15 per cent to a new record peak of $14.53, despite an apparent lack of news.

This morning’s rise followed on from Monday’s 16.9 per cent leap for the day-trader favourite, and a 24 per cent gain across last week.

“The Company is not aware of any information concerning it that has not been announced to the market which, if known by some in the market, could explain the recent trading in its securities,” Zip Co said in a statement this afternoon

“The Company notes that there has been significant interest in the Buy Now Pay Later (“BNPL”) market generally.“

Zip could not shed any extra light on why trading volumes may also have surged in the past few sessions, beyond January’s positive trading update and a successful share purchase plan late last year.

Today, there have already been 34.9 million Zip shares traded despite major Asian markets being closed, well up on the two-week daily average volume of 20.8 million, and easily trumping the three-month daily average of 12.2 million.

Trading volumes have been elevated since last Monday. The $8 billion Zip Co has nearly doubled in value this month and is well on the way to tripling in value in 2021.

The company has been on the march since it reported strong second-quarter growth back in January.
Last week there were reports that Zip was scouting investors in the US, and was open to issuing American Depository Receipts.

Zip – co-founded by Larry Diamond and Peter Gray – was last 7.9 per cent higher on the ASX at $13.68. Mr Diamond is the company’s biggest shareholder with a 10.1 per cent stake that was worth more than $810 million this morning. Zip Co reports its first-half results next Thursday on 25 February.

KFC and Taco Bell operator Collins Foods has become the latest business to repay its JobKeeper subsidies to the federal government.

The company announced today it would return the $1.8 million it claimed for its now-defunct Sizzler Australia operations, noting it was the only division within the business eligible for the stipend.

Sizzler’s nine remaining restaurants in Australia saw their sales plunge following the pandemic as its all-you-can-eat buffet model was not conducive to social distancing and broader hygiene requirements.

The sneeze guards were no match for the COVID-19 pandemic. Credit:Edwina Pickles

After continuing to operate at a loss for much of the year, Collins decided to axe the brand entirely in October 2020, closing the nine restaurants and citing “insurmountable obstacles” for the company locally.

After closing the brand, Collins decided it would cease claiming JobKeeper, instead opting to ‘top up’ staff pay themselves.

Chief executive Drew O’Malley said the company had claimed JobKeeper in order to keep Sizzler’s 600 staff employed, but decided to return the payment as an act of goodwill.

“Our additional decision, announced today, to return the initial $1.8 million in JobKeeper payments as outlined in our half-yearly results, is an extension of this approach, and in line with one of our corporate values of ‘positive impact’,” he said.

“We were also pleased to be able to redeploy over 90 Sizzler employees into our KFC and Taco Bell restaurants. We are fortunate that our other restaurant brands in Australia, KFC and Taco Bell, have successfully navigated this difficult period.”

Reserve Bank board members are starting to raise concerns about how low interest rates are feeding into higher house prices while revealing businesses are extending pay freezes that could weigh on national wage growth for years.

Minutes of the bank’s February board meeting, at which the RBA announced an extension to its government debt-buying program while keeping interest rates at a record low of 0.1 per cent, also show growing expectations the slowdown in Australian population growth is likely to be a major economic headwind.

The minutes show the board members are expecting it to take years for wages growth to get anywhere close to a “normal” level.

“Firms had responded quickly in the early stages of the pandemic by delaying wage increases, imposing wage freezes and, in some cases, applying temporary wage cuts,” the minutes show.

Read Shane Wright’s full story here.

Bloomberg’s Michael Wilson notes the minutes also reveal the lower rates and quantitative easing have not been enough to lower the Australian dollar against an even weaker US dollar. The Aussie dollar is at US78¢ today, up from US76¢ on the day of the meeting. The Aussie is also used as a proxy for economic growth in Asia and rising commodity prices.

And Shaw and Partners senior investment advisor Craig Sydney told Markets Live that Australian ten-year bonds are up to yields of 1.33 per cent, the highest since March 2020.

“When that happens and you see rates start to rise you see a fall off in other bond-proxy stocks,” Mr Sydney said.

“There is a risk that they (the RBA) have got it wrong and inflation starts to come into our system given all the stimulus. If you start to see inflationary pressures they will be forced to lift rates, even if only marginally just to send a message.″⁣

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