Every Tuesday afternoon we publish a collection of topics and give our expert opinion about the Equity Markets.

Bond Market Volatility and the commencement of Australia’s National Vaccine rollout highlight the week ahead for the financial markets.

The volatility in bond markets remains a focus

The bond market has drawn attention after Australian yields spike more than 15 bp on Monday. The RBA resumed purchases of 3Y bonds for the first time in two months yesterday as part of its yield curve control program, after the rate traded above the 0.10% target. Along with rising inflation expectations and economic optimism driven by the vaccine rollout and record fiscal stimulus, strategists note markets are also pricing in some risk of the RBA tightening monetary policy, amid doubts whether it will commit to keeping rates unchanged for at least three years.

PM’s vaccination kicks off the national rollout

80K doses are to be administered as part of the government's phase 1a of the program. Aged care residents, border and quarantine workers, and frontline healthcare workers will be the first to be inoculated. Prime Minister Morrison got his first dose of the Pfizer vaccine on Sunday as Australia recorded another day of zero locally acquired coronavirus cases. State health chiefs flagged the potential for no more border closures and shutdowns once the priority groups are vaccinated.

Costa Group Holdings (ASX: CGC)

Costa Group is the largest producer, packer, supplier and distributor of fresh fruit and vegetables to the major Australian food retailers. Despite COVID-19 implications and drought challenges, the company delivered strong full-year results in CY20, with a significant boost to revenue, rising 11.2% compared to CY19. The strong performance in revenue boost trickled down to the company’s bottom line as EBITDA and net profit after tax (NPAT) surged by 47.2% and 108.4%, respectively, relative to CY19. The catalyst for this growth was the increased international trading volume and favourable citrus and avocado prices, which were driven by elevated domestic and international demand. 

Looking forward, demand and pricing across its product categories are generally expected to remain strong into 2021 with the company continuing to focus on its competitive advantage in yield, geographical spread, quality, and cost of production. Furthermore, the company’s strong balance sheet and operating cash flow gives it the opportunity to continue to invest in quality bolt-on opportunities, international expansion, and domestic innovation projects to drive significant growth through FY21.

CGC is currently trading at a one-year forward P/E of 33.3x and offers a gross yield of 2.6%.

NIB Holdings Limited (ASX: NHF)

NIB Holdings Limited (NHF) is an Australian health insurance company providing health and medical insurance to over one million Australian residents, New Zealand residents, international visitors and students.

The company has continued to deliver strong performance despite the significant disruption to the business brought on by COVID-19 with its share price increasing ~13% over the past 12 months. Alongside this, NHF recently announced its FY21 half-year results reporting a 4.4% increase in underlying profit and a 15.9% increase in NPAT, which outperformed analyst expectations. Furthermore, membership growth in its core Australian residents health insurance business is expected to be ahead of the industry growth rate and could be looked on favourably by the market, given economic conditions. In H1FY21, NHF added more than 16,000 members representing a 2.7% increase for the half-year and grew premium income by 2.2% to $1.1 billion. Looking forward, COVID-19 has raised people’s awareness about the risk of disease and the need for protection with the business is well-positioned for recovery and growth when travel restrictions are relaxed and borders reopen.

NHF is currently trading at a one-year forward P/E of 19.4x and offers a net yield of 3.2%.

CSL is one of the world’s leading biotechnology companies that is involved in the research, development, manufacture, marketing, and distribution of biopharmaceutical and allied products. The company develops and delivers innovative medicines that save lives, protect public health and help people with life-threatening medical conditions live full lives. 

Last week, CSL announced its half-year results, reporting a 16.9% increase in revenue and a massive 45% jump in NPAT. The growth was primarily driven by a surge in flu vaccine sales, the successful transition to its own distribution model in China, and solid demand for immunoglobulins and its leading HAE product HAEGARDA. However, despite the strong performance in its bottom line, CSL management held firm with its FY21 guidance, reflecting growth in profit of just 3-8% and implies a sharp profit decline in the second half. While this is disappointing, the pullback in the CSL share price to 6-month lows could represent a significant buying opportunity for a long term focused investor.

CSL is currently trading at a one-year forward P/E of 41.2x.

We are excited to have our Head of Trading, Trent Primmer, interviewed by Stockhead to share some new ideas about our firm's ASX picks for 2021. 

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