6 April 21 Week Ahead, Market Highs | Elder’s Update

7 April 2021

Global markets rallied overnight (S&P 500 index +1.4%) as strong economic data has pushed US markets to new record highs. In the US there was solid jobs data and manufacturing data was very strong, signalling that 2021 could see the best US annual economic growth in nearly four decades.

In stock news, technology was higher as Tesla jumped +4.4% after posting record delivery numbers, while Google's parent company Alphabet gained +4.5% after the Supreme Court ruled in its favour over a copyright dispute with Oracle

Finally, the positive mood was supported by President Biden announcing a $2.25 trillion fiscal package centred primarily around infrastructure, which included a corporate tax hike.


Elders (ELD:ASX)

Elders (ELD) shares have been on solid run, almost doubling since the start of 2020 and immune to the covid-19 pandemic as strong rainfall created a blockbuster 12 months for its primary producers. Cattle prices have surged to astronomical levels as herds are restocked. Crop yields are also at record highs, a telling sign of how insulated parts of the agriculture sector is from COVID-19 impacts, shaking off the challenging weather conditions of 2019.

For the 2020 financial year Elder’s delivered a solid result despite being affected by drought, bushfires and covid-19. Sales rose +29% from last year to $2,092.6m. Underlying profit after tax grew to $109 million, up 71% from the $63.6 million recorded in the prior corresponding period. Underlying earnings before interest and tax (EBIT) swelled to $119.4 million, a jump of 62% over the same time last year.

We continue to see Elder’s as a key benefactor of our ‘dining boom’ investment thematic (multi-year demand for food from a growing Asian middle class) given its diverse agribusiness portfolio and strategic plan to seek further growth both organically and via acquisition given strong performance across most agriculture sectors. If agriculture conditions continue to be favourable, as they have been for farmers recently, Elders will continue to benefit. Elders’ cropping retail products, livestock agency services, and financial services are all closely tied to farming conditions, but ELD’s is well diversified.

We remain BUY rated on Elder’s as its business is likely to remain defensive amidst economic uncertainty, with room for upside for shareholders. As always, investors should be wary the business remains more prone to weather and agriculture pricing related risks. Unlike some of our other agriculture picks, such as A2 Milk, it has not been hit by issues in global trade.


Australia & New Zealand Market Movers

The Australian market was in positive territory on Thursday (ASX 200 index +0.6%) on the back of strong materials and tech sectors. Building materials and mining stocks bounced as President Biden's infrastructure plan was revealed, which included more spending on roads, bridges and railways. James Hardie (+3.8%), BlueScope Steel (+3.5%) and Boral (+6.7%) all gained — with Boral also announcing a 10% share buy-back.

Harvey Norman has reportedly added almost $100m to its $3.1bn property portfolio after buying Watergardens Homeplace in Melbourne’s north-west from QIC Global Real Estate. The large-format mall site was acquired for $97m on a yield of 4.75%, following very strong competition for the property from high-net-worth investors and institutions. Harvey Norman and Bunnings are anchor tenants of the 25,931-square-metre mall, which stands on a seven-hectare site.

Macquarie Bank shares were lower after it was ordered to hold an extra $500 million capital. APRA says past breaches relating to intra-group funding raised serious questions about its risk management.
The New Zealand market drifted lower on Thursday (NZX 50 Index -0.6%) with Auckland Airport and a2 Milk among the big ap stock weighing on the market.

In stock news, Shares in AFT Pharmaceuticals plunged -11.5% after it suddenly slashed its profit guidance in half. The company had forecast profit of $14m to $18m as recently as November, now it expects between $9m and $11m.  Evolve Education fell -1.6% as it came off a trading halt following a successful capital raise. The company pulled in A$21.7m from institutional investors at A$1.10 per share.

In terms of the anticipated Trans-Tasman Bubble, an announcement is due at 4pm from the government today on timing for the NZ – Australian travel bubble to open up with press speculating from 12th April or 19th April.  Under a full demand scenario, Air NZ would reduce cash burn -$30m a month from current $45m-$55m. Auckland Airport would move from currently -$4m net profit a month to +$16m profit under a full demand scenario.


3 Things Markets will be Watching this Week

  1. The pandemic will remain in focus, but theme of US strength vs Europe looks set to continue, with further restrictions being placed on the AstraZeneca vaccine in Europe after reports of adverse side effects. As with the US, the UK is showing good signs, as it has vaccinated 47% of the population and will begin easing restrictions.
  2. The US Federal Reserve releases minutes from its latest meeting.
  3. Locally, we have the latest RBA cash rate call along with metrics for the 1st quarter from Summerset Group along with AGM’s from Scentre Group and NZX.
Global markets rallied overnight (S&P 500 index +1.4%) as strong economic data has pushed US markets to new record highs.

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