Daily Market Insights
Global markets were higher overnight as the US market hit fresh record highs. Optimism was driven by a jump in the price of oil as Saudi Arabia and Russia agreed to extend their current oil production output quota through to March 2018. As we discussed yesterday, OPEC countries will be officially meeting in Vienna on the 25th of May.
Local markets were weighed on by economic data out of China yesterday. China's industrial activity and spending data for April came in slightly below consensus, which likely weighed on sentiment given New Zealand and Australia's exposure to China.
Over the medium term, we believe the Chinese consumer will become a very important factor for global consumption trends, as the Chinese economy shifts from a manufacturing to a consumer centric economy. As a result, one of our key investment themes is for a “dining boom”, as we believe demand for a higher quality diet from a growing middle class in the developing world (in particular Asia) is set to be a multi-year tailwind for AU/NZ agricultural businesses.
One stock set to benefit from this theme is agribusiness Elders (ELD.AX), which reported its half year result yesterday.
Stock in Focus: Elders (ELD.AX)
Elders released a solid 2017 half year result yesterday, with sales of $698.2m versus $615.0m previously, and net profit after tax of $38.3m, which was up 56% on the prior period. The agricultural company said improved seasonal conditions and geographical growth helped it achieve the impressive result.
In terms of outlook, Elders management also said they expect full year operating earnings to be on the high side of previous guidance provided in connection with the company’s “eight-point plan”.
During the period the company was able to clean up its balance sheet, removing its legacy ‘hybrid capital’, which stopped the business from paying dividends to shareholders. In addition to its operational goals, the company said it is on-track to resume paying dividends in its 2017 financial year.
Elders’ business extends from retail sales of agricultural products to live export and real estate. We have held a positive view on ELD’s given its attractive investment theme and given the business has successfully turned itself around and is now focussed on its “8-point plan” longer term growth strategy.
Members should look out for a full update on ELD to be released in our weekly report.
Australia & New Zealand Market Movers
The Australian share market was more or less flat on Monday (ASX 200 index +0.03%). However, there was a decent recovery across the major bank stocks, even as weaker than expected Chinese data weighed on the broader market. In stock news, shares in sandalwood company Quintis entered into a trading halt, pending an announcement by the company due Wednesday.
The New Zealand market started the week lower on Monday (NZX 50 index -0.3%) as weaker-than-expected data out of China compounded jitters after a ransomware attack that locked up more than 200,000 computers in over 150 countries. Stocks which have rallied strongly of late such as A2 Milk and Air NZ continued to retrace as investors took profits. At the same time shares in Trustpower were higher yesterday after it lifted annual profit 37%.
3 Things Markets Will be Watching this Week
1. The Reserve Bank of Australia releases minutes from its last meeting on Tuesday.
2. Australian employment data is released Thursday
3. NZ retail sales data is published Monday.
Have a Great Day,
Team