There is a range of Australian share market trends that I think will continue across this week. Some have been building for a few weeks while others only started recently. 

Real estate trading

Real estate trading will likely continue to be very heavy this week. Australian real estate investment trusts (A-REIT) have been among the heaviest-traded shares on the Australian share market over the past 3 weeks. The trading has benefitted companies like office investor DEXUS Property Group (ASX: DXS). However, it has been a little undecided over retail-exposed REITs.

Of all the major real estate companies, it is Scentre Group (ASX: SCG) and Vicinity Centres (ASX: VCX) that have seen their share prices drop marginally. I think this is likely to continue this week. Despite the HomeBuilder package, I think the reality surrounding the housing market is likely to sink in, possibly impacting GPT Group (ASX: GPT), in particular.

Discretionary retail shares

The release of the ABS Retail Trade survey appeared to catch the market off-guard. The survey announced a rise in retail turnover of 16.3% in May 2020. The largest rise in the survey’s 38-year history. This provided a lift to the Australian share market when the survey was released during Friday’s trading. I believe this lift will continue through this week.

It included larger companies like Wesfarmers Ltd (ASX: WES), Harvey Norman Holdings Limited (ASX: HVN) and JB Hi-Fi Limited (ASX: JBH). However, it is also likely to focus attention on small caps like Lovisa Holdings Ltd (ASX: LOV) and Accent Group Ltd (ASX: AX1).

Construction and building

The government’s infrastructure spending package is going to be a slow-burning trend in the Australian share market over the next few weeks. However, I expect investors to be taking positions during this week. The federal government announced fast-track approval processes for 15 major projects as well as an additional $1.5 billion in infrastructure funding. This is aside from any spending currently underway within each state. 

Many engineering companies are likely to benefit from this. Yet I think that Boral Limited (ASX: BLD) is going to benefit no matter what. Boral is the largest supplier of construction materials throughout Australia. It also has an international presence in the US and other countries. As such, it is likely to benefit from stimulus spending in many regions.

More reading

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Motley Fool contributor Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Wesfarmers Limited. The Motley Fool Australia has recommended Accent Group and Scentre Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Challenger Ltd (ASX: CGF) share price won’t be going anywhere on Monday after the annuities company requested a trading halt.

Why is the Challenger share price in a trading halt?

Challenger requested a trading halt this morning while it launches an equity raising which aims to further strengthen its capital position and provide flexibility to enhance earnings.

Challenger’s equity raising comprises a fully underwritten institutional placement of $270 million and a non-underwritten share purchase plan aiming to raise up to $30 million.

These funds will be raised at $4.89 per new share, which represents an 8.1% discount to the last close price of $5.32.

Management notes that the equity raising will further strengthen Challenger Life’s capital position during this period of ongoing market uncertainty. This will be achieved by initially increasing its regulatory capital position to 1.78 times APRA’s prescribed capital amount and its common equity tier 1 ratio to 1.17 times the prescribed capital amount.

How will Challenger deploy these funds?

Challenger intends to prudently and progressively deploy the capital raised. This will be primarily used in investment grade fixed income opportunities that are expected to be return on equity (ROE) accretive for shareholders.

Once fully deployed, Challenger’s defensive portfolio mix will be maintained, and the Life business’ prescribed capital amount ratio is expected to return to around the top end of its target range of 1.3 times to 1.6 times on a pro forma basis.

Managing Director and Chief Executive Officer, Richard Howes, commented: “Challenger is in a strong capital position with the raising further strengthening CLC’s balance sheet, and providing the opportunity to seek out compelling ROE accretive investment opportunities over time.”

“In response to the impact of ongoing market volatility, we have reduced capital intensity and maintained a strong capital position by repositioning the portfolio to more defensive settings. This has increased the cash and liquids we have on CLC’s balance sheet to over $3 billion,” he added.

One positive from the market volatility is that Challenger is seeing a lot of opportunities for it to deploy capital.

Mr Howes explained: “Following the pandemic market sell-off, fixed income asset risk premiums have widened significantly and we are now seeing opportunities, primarily in investment grade, to selectively invest this cash and liquids balance and generate pre-tax ROEs in excess of 20% on the capital backing these investments.”

“This is well above our pre-tax ROE target of the RBA cash rate plus a margin of 14%. Importantly, we can capture these opportunities, while maintaining our current defensive portfolio settings, with a high weighting to investment grade fixed income,” he concluded.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Challenger Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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In morning trade the Altium Limited (ASX: ALU) share price has come under pressure after the release of a trading update.

At the time of writing the electronic design software company’s shares are down 7% to $33.70.

What did Altium announce?

In May, Altium released an update and warned that its performance in the fourth quarter of FY 2020 was being impacted by the pandemic.

It was optimistic that the launch of attractive pricing and extended payment terms would drive volume in challenging market conditions.

However, while these initiatives are driving strong seat growth, management advised that the increase in revenue for FY 2020 will be short of consensus estimates.

This is the result of new lockdowns in China and an increase in COVID-19 cases in parts of the US, which are having an impact on Altium’s final sprint to the close of the financial year.

Management notes that historically, the company closes a significant amount of its second half business in the last two weeks of June. But this year, sales run rates in June are falling short of what would be required to achieve the market’s expectations.

Altium CEO, Aram Mirkazemi, commented: “Our strategy to support our customers and to increase volume under COVID-19 conditions through attractive pricing and extended payment terms is driving strong seat growth and will get us close to or just surpass our key target of 50,000 subscribers.”

“However, we are feeling the revenue impact of this strategy. While we are likely to deliver solid revenue growth, this will land marginally behind latest analyst consensus for the full year,” he added.

Commenting on the pricing and payments strategy, Mr Mirkazemi believes Altium has made the right move.

He explained: “We see Altium’s approach to COVID-19 pricing and extended payment terms as the right thing to do to support our customers in this challenging environment and to not lose momentum as we enter the next phase of growth.”

But these initiatives won’t be around for much longer, with the company increasing its prices again from 1 July. An Altium Designer one-year subscription will be $9,945 in July, compared to $7,185 at present. It will also remove the extended payment terms from 1 September 2020.

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Altium. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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