Global markets were lower overnight as US stock indexes retreated for the second day, with weak results from CSX Corp putting pressure on railroad stocks and highlighting the wide-ranging impact of the protracted trade war between the United States and China. The Federal Reserve's Beige Book, a compendium of anecdotes from US businesses, also pointed to trade-related pressures on transportation and manufacturing companies.
Stock in Focus: Elders (ELD:ASX)
Agribusiness Elders jumped +16% yesterday as it returned from a two day trading halt after completing a capital raise.
ELD is funding the acquisition of Australian Independent Rural Retailers (AIRR), a member-based buying and marketing company for independent rural merchandise and pet and produce stores for $157m. The rationale for the acquisition is that AIRR is large scale wholesale business, with a strong track record that can supplement and enhance Elder’s existing distribution and logistics network and coverage. At the same time Elders will be able to benefit from approximately ~$8m of net synergies and provide low double-digit earnings per share accretion (post synergy).
There will be a 1 to 6.70 pro-rata entitlement offer from existing shareholders, with shares issued at $5.55 – we would suggest shareholders to take up the entitlement offer. The addition of AIRR will help further diversify Elder’s business allowing them to partially offset or mitigate the effects of one-off industry specific risks which would have been worse for other specialised agriculture suppliers, while adding value to existing Elders shareholders and we are pleased with the result given our positive view on ELD.
We currently have a BUY recommendation on ELD.
Australia & New Zealand Market Movers
The Australian share market rallied on Wednesday (ASX 200 index +0.49%) as the major banks were slightly firmer as several upgraded their house price outlooks. In stock news, Estia Health shares slid after it was served with a class action by law firm Phi Finney McDonald. The class action was filed on behalf of shareholders and alleges the company failed to disclose serious difficulties the business was experiencing in the lead up to the publication of its 2016 financial year results. Mineral Resources fell after Western Australia's Department of Water and Environmental Regulation refused to approve the commissioning of a second train at its Wodgina lithium mine due to concerns one of its tailings dams was seeping into groundwater.
The New Zealand market was marginally in positive territory yesterday (NZX 50 index -0.03%) as exporters including Tourism Holdings and Air New Zealand led the market higher as a weaker currency underpinned their international earnings. Local trading has been thin during the past week and a half with fewer people on deck over the school holiday period. Activity will ramp up in the coming month for the August earnings season, when the majority of NZX-listed companies report their first-half and annual results. In stock news, Auckland International Airport said its most recent passenger numbers showed declining traffic, particularly from China. Chorus fell after reporting steady growth in its broadband connections and ongoing losses in total connections.
3 Things Markets Will be Watching this Week
- US Corporate earnings season gets into gear this week.
- Chinese economic growth and activity data are amongst the highlights this week. In the US, retail spending and the Federal Reserve’s Beige Book will be keenly observed ahead of the next interest rate decision.
- In Australia, the June employment report will hog the headlines towards the end of the week.
Have a Great Day,