Global markets were mixed overnight, although the US market powered to fresh record. As we touched on earlier this week, the US market has got off to an amazing start in 2017 and is up +4.8% year to date (and had the best start to a calendar year since 1964).
In the US we have begun the quarterly earnings season, with major US banks such as JP Morgan having already reported quarterly profit figures. During earnings season investor attention usually shifts back towards company profitability and away from other issues such as politics.
Investors are optimistic and the S&P 500 (US market index) is a all time highs, making the current earnings season as important as ever (especially against the backdrop of rising interest rates which will not be supportive for valuations) in terms of supporting stock prices. We will be watching developments closely. We also believe a focus of investors will be impact of recently passed tax cuts on corporate profitability.
Stock in Focus: Pushpay Limited (PPH:NZ / PPH:AX)
As illustrated by the chart below shares of Pushpay have advanced over 150% in the last 6 months on the back of the company delivering significant revenue growth as faith institutions in the United States rapidly adopt their product. Pushpay is a software-as-a-service (Saas) business, a sector which has come into favour with investors of late, with other Australasian examples being Xero (XRO) and WiseTech Global (WTC).
The company operates with significant fundamental tailwinds as societal mobile adoption becomes entrenched and as established economies accelerate towards a cashless society. The company is quickly becoming a dominant player in a niche that until very recently has been under appreciated by the market in terms of size and scale. To date the company has executed its strategy and is well poised for future growth, in our view.
As an investor, you are buying the company for assumed future growth and is therefore not a stock for investors that are looking for current value. Further, we note it is at the higher end of the risk spectrum given it is a technology stock in the first few years of its life as a public company.
We have initiated research coverage on PPH as a High-Risk BUY.
Members can login below to read our initiation of coverage report on PPH.
Australia & New Zealand Market Movers
The Australian share market continued to retrace yesterday (ASX 200 index -0.54%) to levels last seen in December, as investors took a gloomy view of the heavyweight miners and sold out of the sector. In mining stock news, South32 fell with the firm telling shareholders that its second-quarter metallurgical coal output dropped 43% due to an outage at its Appin mine in Australia, while it also raisied its full-year output forecast for South African manganese operations. Bucking the lower mining sector trend, shares in OZ Minerals rose the copper miner revealed it would produce more of the red metal in 2018 and 2019 than previously expected.
The New Zealand market was mixed as the index moved higher yesterday (NZX 50 index +0.6%) with Synlait Milk, A2 Milk Co and Fisher & Paykel Healthcare Corp leading gains. In stock news, A2 Milk said it plans to roll out its US business to nine states on the eastern seaboard, which it expects will expand its retail footprint by more than a third.
3 Things Markets Will be Watching this Week
1. We head into the US earnings season – with a particular focus on company comments around the impact of US tax cuts
2. Australian employment data is released on Thursday.
3. Chinese growth (GDP) figures are also released Thursday.
Have a Great Day,
Team