New Zealand Market Movers
The New Zealand Market (NZX50 Index, -0.8%) fell on Thursday, as recession fears dragged market confidence lower.
Mainfreight fell –3.5% after revealing growth was starting to slow down following its strong performance over since the start of the pandemic. We anticipate earnings to peak in the 2023 financial year and expect a decline from 2024 onwards and a start of a cycle of downgrading some of the NZX’s companies that sport “blue chip” valuations – losing their “growth premium”.
Australia Market Movers
The Australian market (ASX200 Index, -0.5%) was down lower on Thursday, slipping from its 9-month high.
Across the board all sectors were lower with utilities, real estate and tech leading losses. AGL Energy slumped –10% after the energy retailer provided disappointing earnings and dividend guidance due to the early closure of its coal-fired power station.
Elders’ shares rose +1.4%, after revealing its investor presentation to calm investor nerves – which discussed livestock pricing, weather, real estate activity, winter crops and its succession plans. We remain buy-rated on the stock.
US Market Movers
The US Market (S&P 500 -0.88%) fell as investors digested new jobless claims, which rose to 196,000 vs. economists’ anticipated 190,000. It’s a small sign the Fed’s quest to cap inflation may be working, but it’s competing with data that came out last week that the US economy added +500,000 new jobs in December.
The US 2-year treasury rate was up 6bps to 4.48% while the 10-year rate docked a smaller increase to 3.66%, driving the 2s10s curve to a new threshold for inversion of minus 82bps, the greatest since 1981 – the inversion is a common recession predictor tool which has borne out correctly in the past.
Manchester United (MANU) jumped another 8.78% today to $25.39 as the market anticipates a formal takeover offer. We wrote up Manchester United on the 20th of January anticipating takeover interest when the stock hovered around the $22 mark, and we reiterated our buy rating on the 8th of Feb, when the stock traded at $21.12. Our target price is ~$29 as a takeover offer solidifies. MANU represents 1% of our US model portfolio.
Stock in Focus: Disney (DIS.NYSE)
Disney chief executive Bob Iger announced job cuts across Disney (~7,000) and about $5.5B worth of cost cutting – ~$3B will be found by cutting content spending and the remainder by cutting sales & admin costs. This preemptive move may have called off Trian’s Nelson Peltz, who announced an end to his short-lived activist campaign against the House of Mouse. We think it may have more to do with Peltz’s inexperience in the sector, and the Disney board’s unwillingness to give up a board seat: cost cuts are maybe the best Peltz is going to get. The stock is up +25% YTD. We remain buy-rated on the stock, as we consider it a well-diversified (Parks, ESPN, Disney) entertainment business that remains attractively priced compared to peers like Netflix. Disney trades at 21x fwd earnings whilst Netflix trades at a richer 25x earnings valuation. We see Disney as a pair-trade alongside WarnerBrothersDiscovery (WBD), which is higher-risk but sports a very attractive valuation.
More to the point, Disney’s cost-cutting is endemic of where the industry is at. Money is not “free” now, so it’s a question of making profit, rather than content-at-all-costs. This position was expressed by WBD CEO David Zaslav a couple of quarters ago – now with Netflix and Disney following suit, it’s the “order of the day”.
What Markets will be Watching this Week (UTC +13)
Tuesday
RBA interest Rate Decision
Wednesday
US Balance of Trade Data
UK House Price Inflation
Disney Earnings
Uber Earnings
Thursday
US Weekly Jobless Claims
Paypal Earnings
PepsiCo Earnings
Warner Music Group Earnings
Friday
AUS Monetary Policy Statement
Inflation Data from China
NZ PMI data