24 July 2020 Technology Stocks Retrace | Z Energy, Air NZ, CCL

24 July 2020

Global markets were lower overnight (S&P 500 index -1.2%) as US stocks fell after an unexpected rise in jobless claims rekindled concern the economic recovery has stalled. The first uptick in jobless claims since March comes as Congress negotiates a new relief package for millions of Americans who are set to lose enhanced benefits at the end of the month. We would not extrapolate too much from one data point, as generally speaking economic data seems to be stronger than initially feared.
Technology stocks led market declines, partially reversing recent strong gains even as Microsoft and Tesla released solid quarterly earnings figures.

Z Energy (ZEL:NZX /ZEL:ASX)
Z Energy extended its 2-day rally after reporting better than expected first-quarter cost savings and improved market share. 

The relatively positive trading update showed 1st quarter profit and 1st half guidance was better than expected, despite fuel volumes down 39% with petrol off 41% and Diesel -20%. Management is guiding a 1st half of 2021 profit of NZ$85-$100m. Z  Energy also experienced better than expected fuel margins and retail volumes are now tracking above the prior comparable period. 

We believe it is still too early to get positive and remain HOLD rated on ZEL.

Australia & New Zealand Market Movers

The Australian market was in positive territory yesterday (ASX 200 Index +0.3%) after swinging between positive and negative territory, following the Federal Government's budget update – with investors responding positively to what is forecast to be the biggest budget blowout since World War II. 
The government has extended by 3 months its regime allowing people in hardship to withdraw their retirement savings early. Australian’s Treasurer yesterday also highlighted bringing forward personal tax cuts are on the agenda as well as tax incentives for employers in a bid to lift household demand and prevent a sharp fall in business investment.

In stock news, Coca-Cola Amatil shares jumped as it said it will write down the value of its Indonesian assets by between $160 million and $190 million as a result of the COVID-19 pandemic. However, an associated trading update was well received, with Australia volumes in June down only 4% vs the prior period and NZ June volumes were up. 
Santos shares advanced after reporting record quarterly production in June, supported by a deal to acquire ConocoPhillips' northern Australian portfolio which lifted production and cash flows.
Newcrest Mining rose after its full year gold production came in at the top end of its guidance range following a strong fourth quarter, with its Cadia mine exceeding the top end of its production range. 
Shares in peer Evolution Mining fell despite the company reporting record cash flows in the June quarter due to the high gold price.

The New Zealand market was lower on Thursday (NZX 50 Index -0.2%) led by a fall in Oceania Healthcare after it reported annual earnings weaker due to covid-19. The retirement village reported a net loss of $13.6 million in the year ended May after writing down the value of its property portfolio by $22.5 million. The operating result was solid in a challenging environment, with underlying profit (excluding revaluation) flat on the prior period. Looking ahead, the company expects to complete a further 217 beds and units in the 2021 financial year and maintained medium-term guidance of 250+ beds and units. 

Air NZ is looking to cut a further $150m in costs with long-haul recovery suggested to begin by the middle-to-end of 2021 while the trans-Tasman is looking increasingly unlikely to reopen this year. CEO Greg Foran also highlighted that Air NZ had not yet tapped into its $900m Government facility, but was close to requiring it.
Chorus dropped as the Commerce Commission began consulting on regulatory changes that will affect the company’s future return expectations.

 

3 Things Markets Will be Watching this Week

  1. ​​​​​Covid-19 newsflow around a second wave and re-opening of economies remains top of mind
  2. It is going to be another huge week ahead for corporate earnings with Amazon, Microsoft and Tesla all scheduled to report. 
  3. Locally, Oceania Healthcare will release full year earnings, Sydney Airport will provide a quarterly update and production reports are due from BHP, Evolution Mining, Oil Search, South32, OZ Minerals, Beach Energy, Lynas, Northern Star, Newcrest Mining and Santos.
Global markets were lower overnight (S&P 500 index -1.2%) as US stocks fell after an unexpected rise in jobless claims rekindled concern the economic recovery has stalled

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