Global markets were higher overnight as US stocks added to gains this morning after Federal Reserve meeting minutes showed confidence that economic growth was improving and officials in no hurry to accelerate the pace of tightening.
It was a massive day of corporate profit announcements across Australia and NZ yesterday, as some companies beat market expectations while others missed. There were big moves across market darlings such as A2 Milk which jumped higher. On the flipside, another software as a service company Wisetech failed to match lofty market expectations. Once again, during corporate earnings season, investor attention usually moves away from other issues such as economics and politics and back to focussing on corporate profitability. We highlight results from stocks under our research coverage below.
Stock in Focus: A2 Milk (:NZ / A2M:AX)
Shares in A2 Milk surged +26% yesterday as the company hit a new record high and became the largest company on the NZX.
A2's half-year net profit was up +150% to $NZ98.5 million and the result was characterised by stronger-than-expected growth from direct China sales combined with strong group gross margins and operating leverage. The dairy group also announced it is partnering with Fonterra to develop a "milk pool" and characterised its first-half performance in the China market as "exceptional".
Fonterra will exclusively supply a2 with A1 protein-free milk products in bulk powder and consumer packaged forms, in exchange for an exclusive license to produce, sell and market a2 branded fresh milk for the New Zealand market. This was no doubt another exceptional result from A2 Milk which once again did not fail to deliver.
We currently have a HOLD rating on A2 Milk.
Members should look out for a full update on A2 Milk to be released in next week’s weekly report.
Australia & New Zealand Market Movers
The Australian share market was flat yesterday (ASX 200 index +0.05%) as shares scraped into the black on Wednesday, after a push-pull session where earnings drew extreme but contrasting reactions from investors.
Stocks to report included mining giant BHP which ended the session after reporting an improved $US4.05 billion underlying attributable profit on the back of stronger prices for all of its major products, which nonetheless missed analyst expectations. On the flipside, Wesfarmers' shares rose after its earnings before interest and tax before one-off items slipped 3.3% to $2.35 billion, but the result met consensus forecasts. It was a savage day for growth market darling WiseTech Global which shows even some of the fastest-growing stocks are no match for unrestrained market optimism when valuations are tested. WiseTech Global shares slumped 23% after it reported a 31% rise in first-half revenue to $93.4 million and an 8% rise in net profit to $15.6 million. WTC’s earnings guidance also failed to measure up to market expectations.
The New Zealand market made gains yesterday (NZX 50 index +1.26%) led higher by A2 Milk. Fletcher Building was the worst performer on the NZX as the company's first-half results were clouded by losses at its Building + Interiors unit but also showed weak demand at its most profitable businesses over the next 12 months. Spark New Zealand also fell as first-half profit fell 3.4% t to $172 million as it ramped up spending on a new transformation programme aimed at making it the nation's lowest cost operator. Ebos Group rose as the pharmaceutical and animal health products maker said its first-half profit lifted 12% to a record $76.7 million as it reaps the benefits of a diverse portfolio..
3 Things Markets Will be Watching this Week
1. Local AU/NZ companies continue to report profit figures as earnings season is likely to dominate news flow.
2. Minutes from the last meeting of the Reserve Bank of Australia are out Tuesday and Aussie wage price data is published Wednesday.
3. Minutes from the last US Federal Reserve meeting are released Thursday.
Have a Great Day,
Team