Global markets were higher overnight, with US stocks at a five-month high, after the latest data backed the Federal Reserve’s patient stance on future interest rate hikes.
US data again showed risk-friendly benign inflation, which weakened the dollar, and means there is less pressure on the US fed to raise interest rates. Lower interest rates are supportive of the economy and business with a lower cost of borrowing, and also improve company valuations – and as we have discussed previously this has been a driving factor of the strong equity market returns this year.
At the same time, British Prime Minister Theresa May's Brexit deal was defeated by 149 votes in parliament, setting up a parliamentary vote on a no-deal Brexit to follow. While an extension of the Brexit date from March 29 now seems likely, the path forward is far from clear.
Stock in Focus: Metlifecare (MET:NZX)
The retirement sector has been hit hard of late, primarily on property market slowdown concerns across both sides of the Tasman, with Ryman. Metlifecare, and Summerset all falling significantly since their peak share prices reached at the start of October 2018.
MET shares fell after its 2019 interim result, as smaller revaluation gains resulted in a reported net profit down -57% from the same corresponding period last year. Fortunately, their underlying result was a lot more positive, with increased sales volumes and modest price increases boosted by strong demand, which helped raise underlying net profit after tax by +15% from last year to $41.7m. While margins were slightly weaker than in the previous year, and are expected to tighten over the near-term given the cooling of the New Zealand (particularly Auckland) property market, MET are looking to increase development activity which may help offset this while also meeting future demand.
Given the recent fall, the share price is trading well below (a 30% discount) to its net tangible asset per share value of $6.97. We are positive on the retirement sector given the massive tailwind of an ageing population, although there are risks such as a slowing housing market (which we think have been largely priced in recently) and wage increases given a shortage of labour.
We currently have BUY rating on MET.
Australia & New Zealand Market Movers
The Australian share market continued to drift lower yesterday (ASX 200 index -0.22%) as the ASX experienced its 4th day of losses. Sigma Healthcare's decision to rebuff Priceline-owner Australian Pharmaceutical Industries $730 million bid was behind the biggest drop on the index. Artificial intelligence provider Appen rebounded sharply from Tuesday’s sell-off after its capital raise. In economic news, the Westpac-Melbourne Institute consumer sentiment index fell -4.8% in March which reduced sentiment to its lowest level since September 2017.
The New Zealand market was a touch lower on Wednesday (NZX 50 index -0.10%) as uncertainty over Britain's exit from the European Union kept investors on edge. Fletcher Building dropped as investors remain wary of the construction firm, with some concerned about its proposals to potentially re-enter vertical construction. Pushpay was the biggest gainer on the NZX yesterday.
3 Things Markets Will be Watching this Week
- Important US consumer inflation figures are published on Wednesday.
- US Federal Reserve Chairman Powell makes a speech on Tuesday.
- China will release retail sales, industrial production and fixed-asset investment reports on Thursday.
Have a Great Day,