Global markets were mixed overnight on the back of mixed signals around a US China trade deal and as US corporate earnings announcements continue to be digested.
Closer to home, NZ shares fell after the Reserve Bank surprised investors by keeping the official cash rate at 1.0%, with dividend paying "bond proxy" stocks taking a hit. Stable high dividend paying stocks such as utilities and the power generators have received investment flows on the back of a low interest rate environment, as investors hunt for income. Given the consensus market expectation was for rates to move even lower yesterday, there was profit taking across such stocks. The news also saw a surge in the NZ dollar.
Stock in Focus: TPG Telecom (TPM:ASX)
TPG Telecom (TPM) have been trading higher after delivering a better than expected 2019 financial year result, as well the market appearing more upbeat on TPG’s ability to overturn the Australian Competition and Consumer Commission (ACCC) block on the proposed merger between the listed telco and Vodafone.
Earlier, TPG shares jumped on its 2019 financial year result after delivering an underlying operating earnings (EBITDA) of $823.8m, despite being down marginally from last was ahead of its guidance range $800m to $820m. Despite being adversely impacted by customer migrations to NBN services and experiencing weaker margins in its core consumer business, TPG managed to offset these headwinds by improving revenue and earnings in its corporate business, as well as continued realisation of operating expense efficiencies across the group. TPG’s reported net profit was $173.8m, less than half from last year due to largely due to non-cash impairment arising from their decision to not roll-out their own Australian mobile network.
The current share price over-values TPG’s existing business in our view as with a price to earnings multiple of 25x it is rich given the lack of growth with its existing business and prevailing headwinds impacting its core business. TPG’s share price currently reflects that there is a good chance they should receive regulatory approval to go ahead with the merger, but could easily sink significantly lower if their appeal to overturn the ACCC decision is rejected – which is still a potential risk.
We currently have a HOLD rating on TPM.
Australia & New Zealand Market Movers
The Australian market was lower on Wednesday (-0.81%) with investors increasingly anxious about the prospects of a trade deal between the US and China, although Bingo Industries soared. Bingo Industries rallied after its chief executive Daniel Tartak said he would lift his stake in the waste management group and as it said margins were improving after it implemented hefty price rises in NSW from July 1, even though it had led to some volumes being lost. Buy now, pay later provider Afterpay was up slightly after more than doubling underlying sales in the four months to October 31, compared to the same period last year. Afterpay also said customer numbers rose at a quicker pace over the period, up 137% on the prior year, and that it was adding a series of retailers to its list of partners.
The New Zealand market sold off yesterday with Meridian leading losses (-0.83%) post the RBNZ decision to keep the offical cash rate on hold at 1.0%. Infratil shares fell after the company reported a 1.7% lift in first-half operating earnings. The utilities owner said a two-month contribution from Vodafone New Zealand had offset weaker returns from Trustpower and its Longroad Energy interests in the US. The result was broadly in-line with prior expectations. Mainfreight rose after the logistics firm said its New Zealand operations will perk up as a growing pipeline of freight movements drive more business, as it reported solid profit figures.
3 Things Markets Will be Watching this Week
- Trade related news-flow is likely to continue to sway investor sentiment.
- Global quarterly corporate earnings season enters its final stages.
- The Reserve Bank of New Zealand makes an interest rate decision on Wednesday.
Have a Great Day,