Barclay’s bull or Pearce take? Red-hot IPOs, and how to trade the wild weather thematic

Each Friday, corporate advisory firm Barclay Pearce highlights the key trading themes of the week, along with which companies and sectors Stockhead readers should be keeping their eye on.

Trading highlights

Hot IPOs

IPO activity has remained strong in the March quarter of this year after a big surge in Q4 2020.

And two more listings got markets talking this week — manganese play Firebird Metals (ASX:FRB) and tech platform Airtasker (ASX:ART).

After raising IPO capital last week at 20c, FRB shares closed yesterday above 70c to chalk up an early gain of around 250 per cent.

Barclay Pearce investment analyst Jack Colreavy highlighted a couple of attributes that have made Firebird popular with investors in the early going.

“I think that (demand) is a reflection of some tailwinds behind the pandemic recovery, and the global outlook for infrastructure investment,” Colreavy said.

Along with iron ore, manganese is a key component in the manufacture of steel.

“They’re an exploration company with what looks like a good tenement. It’s quite easy to get iron ore exposure in Australian market, but manganese is a bit harder so it’s a nice little pure play in that space.”

Colreavy also provided some insights on the price action around Airtasker, which surged ahead in its first two days of trade before easing back slightly.

He cited a statistic that showed more than 20,000 trades in the stock (to the value of $108m) were executed via retail brokerage platform Commsec over the first two days of trade.

“What that says to us is there’s some underlying interest among retail investors in these types of stocks,” Colreavy said.

“For example, a lot of investors in those Millennial and Gen Z brackets would’ve used Airtasker. They’re quite familiar with the product and brand, and therefore they want to participate in the ownership of the company.”

He added that it was good to see some continued appetite in high-growth tech names, in light of the recent selloff in that sector (led by falls on the US Nasdaq index).

“It’s good to see retail interest in these businesses, but they do need to perform now over the medium term and produce the economic results to justify their valuations,” Colreavy said.

Taking the Crown

Among other trading highlights this week, Colreavy also flagged the non-binding takeover bid for Crown Resorts (ASX:CWN) from private equity giant Blackstone.

“The most interesting thing around that is the offer price currently sits at $11.45, but the share price is sitting close to $12,” Colreavy said.

“What that indicates is the bid may be upgraded, or there will be be another buyer in the mix so that’s definitely one to watch.”

And he also flagged a strong set of half-year results from retail conglomerate Premier Investments (ASX:PMV), which booked an 88.9 per cent increase in half-year net profit to $188.2m.

Momentum trades

In terms of ‘momentum’ events that can spark buying (or selling) in specific stocks or sectors, Colreavy highlighted the deluge of rain on Australia’s east coast as a key market-moving event.

“This will have a flow-on effect through financial markets, with thermal coal and insurance the key industries to watch,” he said.

Investors are monitoring the flow-on effects for listed insurers, as damage claims are made which could in turn lead to rising premiums.

Meanwhile, prices for thermal coal “have surged to their highest level since 2018, due to a disruption in rail supplies to Newcastle and vessels being unable to dock as a result of the NSW storms”, Colreavy said.

Ships are backed up at port of Newcastle, the world’s largest coal port. And in response, thermal coal prices have risen to $US105 per tonne — more than double their post-pandemic lows of $US48/t in September last year.

Stocks to Watch

In line with that momentum trade, the companies on this week’s Stocks to Watch all operate within those sectors that have been directly affected by the wild weather.

“QBE Insurance Group (ASX:QBE), Suncorp Group (ASX:SUN), and Insurance Australia Group (ASX:IAG) are Australia’s largest insurance companies and would have the largest exposure to losses from the high number of adverse weather effects over the last 12 months,” he said.

“We expect future premiums to rise, putting cost-of-living pressure on consumers as they struggle with paying the higher costs or going down a path of self-insurance.”

And as for ASX-listed thermal coal stocks, Whitehaven Coal (ASX:WHC) has already downgraded the high end of its forecast full-year production guidance by half a million tonnes (22m, down from 22.5m).

Colreavy is also keeping an eye out for any weather-related production updates from New Hope Corporation (ASX:NHC), which operates a coal mine in the flood-hit Hunter Valley region of NSW.

The third company he flagged is Stanmore Coal (ASX:SMR), which primarily produces metallurgical coal (not thermal coal).

But with its operations based in Queensland, QMR may end up benefitting from the chaos “because they won’t have those supply disruptions, and may benefit from higher prices”, Colreavy said.

Investor bio: Jack Colreavy works as an analyst in the Barclay Pearce corporate finance team. He has also represented Australia in distance running, competing in the marathon at the 2017 IAAF World Championships in London. Jack is a CFA charterholder and holds a Master of Commerce (Finance & Banking) from the University of Sydney.

The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead.

Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.