Global markets were generally higher overnight, with the US market moving between small gains & losses as investors await news on trade tariffs.
President Trump tweeted that he is set to hold a meeting on tariffs at the White House and it is still unclear whether the proposed tariffs will exempt any countries though there are signs that both Canada and Mexico will secure exemptions. As we mentioned yesterday, whatever the eventual outcomes, there is a level of uncertainty at the current juncture.
European shares were higher, as the European Central Bank took another small step towards ending the quantitative easing (QE) program implemented during the global financial crisis by voting unanimously to drop a pledge to increase asset purchases as necessary. The ECB's Mario Draghi however reiterated the bank's return to more normal policy will continue to proceed at a slow pace.
Stock in Focus: Tegel (TGH:NZ / TGH:AX)
Tegel shares dropped to new lows yesterday as the company released disappointing updated earnings guidance for the 2018 financial year. There have been a number of one-off costs which have hit the business, while a trading update revealed progress in Australia has been slower than expected.
The one-time costs range from compliance rule changes to restructuring and disruptions to its New Plymouth processing plant from cyclone Gita. Tegel expects that total pre-tax non-recurring costs will be approximately $8m to $10m. Costs such as these are generally not a concern, given their on-off nature.
In terms of the trading update, NZ volumes and revenue are still on track to beat last year, however Australian sales have been weaker than expected as the business transitions itself. At the same time TGH has incurred additional costs as it contracted a further three Free Range farms in January to allow for the continued growth of the market segment. As a result, TGH now expects operating earnings (EBITDA) to be between $70m – $72m, with net profit after tax of $25m – $27m (compared to $31.7m last year) and we forecast that the full year dividend will be lowered as a result. This was a disappointing update as the company has once again lowered/failed to meet its prior earnings guidance.
We currently have a BUY rating on TGH for investors with a medium-term investment horizon.
Members should look out for a full update on TGH to be released in next week’s weekly report.
Australia & New Zealand Market Movers
The Australian share market was higher yesterday (ASX 200 index +0.69%) as shares gained ground for the second time in four sessions, with investors moving back into the banks as concerns over a global tit-for-tat trade war faded. In other news, the Commonwealth Bank (CBA) is halving the maximum amount of cash customers can deposit through an in a day, as it seeks to strengthen systems for fighting financial crimes in response to a money laundering compliance scandal.
The New Zealand market rallied on Thursday (NZX 50 index +0.90%) led by A2 Milk, while Restaurant Brands and Tegel dropped after updating their earnings guidance and a number of stocks such as Air NZ went ex-dividend.
Restaurant Brands shares were slightly lower as it announced revenue rose 49% to $740.8 million in the 2018 financial year, as acquisitions in Hawaii and Australia bolstered earnings. In June last year, chief executive Russel Creedy said the company expected to "comfortably" exceed revenue of $700 million in 2018 and it was aiming to reach $1 billion in annual sales which had set the bar high in terms of market expectations.
In other news, Tower jumped 4.5% as it was revealed Suncorp Group's Vero Insurance has sold its cornerstone stake in Tower to US private equity firm Bain Capital for $53.9 million.
3 Things Markets Will be Watching this Week
1. Local AU/NZ company earnings season moves into its latter stages.
2. Global politics as details around trade tariffs to be implemented by the Trump Administration are announced.
3. The Reserve Bank of Australia makes an interest rate decision on Tuesday.
Have a Great Day,
Team