Barclay’s bull or Pearce take? How to hitch a ride to the post-COVID recovery
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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.
As part of his weekly recap for Stockhead, Trent Primmer (head of trading at Barclay Pearce) picked out two more IPOs with slightly contrasting fortunes that caught the market’s attention this week.
At the bigger end of town, the 106 year-old florist group Lynch (ASX:LGL) hit the ASX boards on Tuesday following a $206 million at $3.60 per share.
So far investors have viewed the IPO pricing level as close to fully valued, with LGL shares trading at a slight discount to close yesterday at $3.50.
It was a strong debut for junior resources explorer TechGen Metals (ASX:TG1), which raised $6m from investors at 20c per share and closed yesterday at 29.5c, for a two-day gain of around 50 per cent.
Looking at the broader momentum trends, Primmer cited a number of positive economic indicators that have all coalesced off the back of the Easter break.
Travel stocks are up and about, with New Zealand giving the all-clear for a trans-Tasman bubble route later this month.
There were no changes to the RBA’s supportive monetary policy settings on Tuesday, while job ads rose 7.2% in March to 174,000 which is the “highest level since October 2018”, Primmer said.
Globally, bond markets have cooled off following the selloff in February which saw yields jump and prompted a rotation out of tech and into commodity stocks.
“Despite this positive economic data which was somewhat anticipated, I think traders were a bit optimistic on early rate hike expectations,” Primmer said.
Along with lower bond yields, the US dollar has also eased back slightly. And in that environment gold has found momentum, climbing off its 2021 lows back towards $US1,750/oz.
For Primmer and Barclay Pearce, the recent price action “reinforces our view that over the long term, gold is still a favourable commodity to have exposure in.
“There is definitely a value-add (in gold). In the short term it’s quite hard to pick an entry point, but long term that’s where we see a lot of value capture,” he said.
While the return to unrestricted global travel will be a non-linear process, recent activity points to a near-term pickup in regional tourism.
And in that environment, it’s no surprise that travel stocks are back on the radar, Primmer said.
While at the small cap end, a big trading update and a share price surge for airport transfer platform Jayride (ASX:JAY) caught investors’ attention this week.
“Anything that gets you exposure to that travel thematic at the moment, I think there’s still a lot of value there,” Primmer said.
“If you go back six months, I don’t think anyone expected the vaccine rollout to be so quick.
“It’s good to see, and it means investors that got exposure to travel stocks last year bought in at a reasonable discount.”
Assessing the activity taking place in ASX capital markets, Primmer said Barclay Pearce had noted a shift towards share placements following a flurry of IPO activity to start the year.
“We’re starting to see more placements coming through which is good,” he said.
“Particularly with the amount of companies going to ASX wanting to list, the timelines for some of these IPOs are getting pushed out.”
“So I think there’s been a bit of hesitation for (sophisticated investors) to invest in pre-IPO rounds or seed capital raisings, but there’s still strong demand for on-market placements for sure,” Primmer said.
He added that post-COVID boom in capital markets activity have already resulted in plenty of strong returns from pre-IPO rounds and on-market placements.
“But I think now things have started to settle a little bit coming into the new year.”
In that environment, “any placement that offers a reasonable discount to the latest closing price — I think you’d expect these to get snapped up pretty quick,” he said.
And for a number of ASX players, now marks a good strategic opportunity to raise some extra cash to capitalise on the economic recovery taking place.
“From an investor perspective, people are looking to ride those tailwinds of fiscal stimulus, vaccine rollouts and the global economic recovery. And companies think the same way,” Primmer said.
“There’s an opportunity to make the most of it and recapitalise to fund your strategy and expand your business.”
“So I think it’s a good period for both companies and investors to look at some on-market placements and hopefully get some decent returns.”