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S&P/ASX 200 morning report – MYR, NCK & RMD shares in focus

The S&P/ASX 200 (INDEXASX: XJO) is expected to edge lower when the market opens this morning according to ASX futures. Here’s what you need to know as we close out the first week of August.

ASX share market recap

The ASX 200 finished another 0.7% higher on Thursday with BHP Group Ltd (ASX: BHP) contributing close to 40% of the gain alone, after rallying another 4.9% as iron ore prices hit US$114 per tonne.

With daily press conferences becoming the norm, yesterday was a gloomy one as the Federal Government flagged a $12 billion hit to the Australian economy and expected spike in inflation to 10% due to Victoria’s severe lockdown measures.

Myer Holdings Ltd (ASX: MYR) offered a rare bright spot, with the now $180 million company announcing it had negotiated a waiver of its debt covenants and 12 month extension on the maturing $360 million loan. As highlighted regularly in this column, the world is changing quickly, with those companies carrying legacy issues like branch and store networks and large workforces likely to be lucky to survive 2020 intact.

Nick Scali pops, ResMed dives

Nick Scali Ltd (ASX: NCK) continued the recent trend of e-commerce powered retailers usurping the incumbents. The Nick Scali share price rallied 14.5% after announcing sales had increased 9% on 2019 to $293 million, although net profit remained flat at $42.1 million as store closures hit margins. The company announced a 12.5% increase in its dividend moving to a 90% payout ratio. Despite the strong result, I’m personally wary of such a high percentage of profit being paid out for a fast-growing company and suggest investors remain wary.

ResMed Inc. (ASX: RMD) offered investors a unique insight into why buying the companies that are benefitting from the immediate conditions may not always pay dividends in the long-term. RMD shares dropped 7.4% despite seeing huge growth in the sale of ventilators but a weakening of recent growth in its core sleep apnoea machines.

Going global

The S&P 500 delivered a fifth straight day of gains, finishing 0.6% higher, whilst the Nasdaq was up 1.0% as Apple Inc. (NASDAQ: AAPL) hit another all-time record, finishing up 3.5%. This should convert to a positive lead for the Australian market, driven by three key factors: lower than expected unemployment claims of 1.18 million, positive news on another round of Government stimulus and a report from Goldman Sachs Inc. (NYSE:GS) suggesting markets are not prepared for the increasing probability of a vaccine being available in November.

The UK market was pushed lower by Glencore plc (LON: GLEN) who announced a dividend cut and weaker than expected results. On the positive side, people are still chasing Pokemon; Nintendo (TYO: 7974) reported a 428% increase in quarterly profit, 108% increase in sales amid a boom in gaming as the world is stuck in lockdown.

This article was written by Drew Meredith, Financial Adviser and Director of Wattle Partners. 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.