Weekly Report
Here’s your weekly update of news, analysis and research. The full reports can be read on the stock pages.
Model Portfolio Change Alert:
We are removing Ardent Leisure (ALG) from our Aussie Model Portfolio as we have lost
confidence in the investment case as the company continues to under-deliver, and moving
the funds into cash.
New Stock Reports
SUMMERSET (SUM:NZ / SNZ:AX) HOLD: Pricing in Property Risk
Growing concerns surrounding the property market have seen significant selling pressure
across the retirement village sector. The three major operators being Ryman, Summerset
and Metlifecare have all experienced large declines since reaching record highs around
September 2018. Having achieved substantial growth in the past, Summerset’s tailwind of
rising property prices is likely going to become a headwind over the medium-term. While
demand for retirement villages will likely remain strong, any weakening in the property market
will weigh on operating profit growth over the near term, tightening Summersets margins on
both new builds and resales. Despite the fall in share price we maintain our HOLD
recommendation – given what we see as limited upside potential at the current juncture.
TREASURY WINE ESTATES (TWE:AX) BUY: Silencing the Critics
TWE shares have started the year strong jumping after it announced its earnings (EBITS)
guidance for the first half of the 2019 financial year will be between A$335m and A$340m,
well ahead of the consensus forecast. The announcement proves some commentators wrong
who have questioned the wine makers ability to deliver further growth given weaker macro-
level data. TWE have acknowledged there is some volatility within their key China and US
markets, and fortunately trading performance continues to remain positive and they are on
track to achieve +25% growth on earnings for 2019 full year. We continue to believe TWE
will benefit from demand as the Chinese consumer pallet evolves, as part of our dining boom
investment theme and as a beneficiary of a weaker Aussie dollar.
MACQUARIE (MQG:AX) BUY (High-Risk): Profiting in Volatility
Shares in Macquarie continue to defy the negative sentiment facing the broader Australian
financial sector, after delivering a positively received interim result for the 2019 financial year, with net profit after tax up +5% from the same corresponding period last year to A$1,310m.
While its annuity style business did not meet up to last year’s performance, its result was
lifted by a strong performance from its capital markets facing businesses which nearly
doubled their profit contribution from the same corresponding period – as merger and
acquisition activity and trading fees improved over a period that saw more volatility in markets.
As well as this, Macquarie announced another profit upgrade for the 2019 financial year,
expecting net profit to increase by +15% from the previous year, a significant jump from the
“flat” profit guidance announced during their 2018 full year result.
Woodside Petroleum (WPL:AX) BUY: Solid Producer
Shares in oil & gas producer WPL managed to rebound after taking a hit from falling oil prices
late last year. Part of the recent recovery was an uptick in oil prices and a strong fourth quarter
update. WPL announced revenue for the 2018 fourth quarter was $1,419m, up +43% from
the same corresponding period last year due to +10% increase in production and stronger
pricing. WPL remains our preferred energy sector pick, with most of its exposure in LNG
which is expected to see increased demand that will create a supply shortfall in 2020. WPL
also offers a healthy 5% dividend yield.
Netflix (NFLX:NASDAQ) HOLD: Price Hikes
Netflix provided mixed results in their 4th quarter announcement. While revenue was slightly
lower than expected ($4.187 billion for the quarter), the company continued to grow the
subscribers at an amazing rate, with a new record of 8.84 million joining in the quarter. A
price increase for US subscribers was also announced, which could bring in an estimated
$1.2 billion additional revenue for the year. Investors were pleased with this news and shares
were up strongly on the day of the price hike announcement. Earnings for the quarter were
down slightly, but still beat market expectations. The main weak spot in the result was lower-
than-expected earnings guidance for 2019. Netflix shares have remained strong over the
recent sell-off, outperforming the market and peers, with the shares also up over +25% year
to date. In saying that, we would expect to see further volatility driven by several factors, be
it stock specific quarterly results, the impact of growing competition, greater market/economic
drivers or backlash to their price increases.