August Sees Stocks Gain | Next DC Update

3 September 2018

Global markets were mixed on Friday in light trading as Canada and the United States concluded trade talks without resolution, ahead of the US Labor Day weekend.

Despite the pullback with profit taking at the end of last week, it was a strong month for equities in August with several markets hitting all time highs last week. The NZ market, measured by the NZX50 index notched a +4.4% gain for the month, with returns led by the large caps such as Fisher & Paykel Healthcare, Spark and Ryman as investors digested the latest earnings season results. The Australian market, measured by the ASX 200 was marginally higher for the month (up +0.6% in August) 

For the week ahead, global trade talks are likely to remain a focus, with important US economic data released at the end of the week. Closer to home, the event to watch will be the Reserve Bank of Australia decision on Tuesday. 
 

Stock on Focus: Next DC (NXT:AX)
Data centre company Next DC released its 2018 full year results on Friday, with another record result on the back of a +30% gain in revenue, which also saw operating earnings up +27%. 

While Next DC’s bottom line profit figure was down on last year, the strong revenue figures were driven by an increase in contracted utilisation, customer numbers, and interconnections. Next DC is also investing heavily in its data centre network, with capital expenditure up +79% to $285m.

Our first thoughts are that while the result did not see a large share price reaction, our medium-term view on the stock remains unchanged. We have held a positive view on NXT as one of our top growth stocks in the ASX given its exposure to the “explosion of data” investment theme as data continues to grow at a tremendous rate, and therefore the demand to store it securely and reliably.

We are currently have a BUY recommendation on Next DC

Members should look out for a full update on Next DC to be released in our weekly report.

 

Australia & New Zealand Market Movers

The Australian share market sold off on Friday (ASX 200 index -0.51%) as threats of US imposed tariffs on China spooked the Australian market to close lower. The ASX was dragged down by the telecommunications sector as well as the miners after a dip in iron ore prices. In stock news, Harvey Norman's full-year profit has slumped -16.4% to $375.4 million due to property revaluations and the furniture and electrical goods retailer's failed dairy farming investment.

 

The New Zealand market continued to drift lower on Friday (NZX 50 index -0.29%). In stock news, the Overseas Investment Office announced it had cleared Tourism Holdings campervan manufacturing business to acquire a new site to expand its operations in Hamilton. In July, the OIO allowed Action Manufacturing, of which THL owns half, to acquire a leasehold interest in 1.5 hectares of land at Te Rapa for $8.6 million. Units in Fonterra Shareholders Fund were lower as Fonterra cut its forecast pay-out to farmers by 25 cents per kilogram of milk solids, blaming increased supply in Europe and the Americas,  and appetite for dairy products in emerging markets cooling.

 

3 Things Markets Will be Watching this Week

1.             Locally, investors in Australia and NZ will be watching for the last few company profit announcements as earnings season winds up.  

2.             The Reserve Bank of Australia makes an interest rate decision on Tuesday.

3.             Important monthly US employment figures are released at the end of the week.
 

Have a Great Day,

Team

Despite the pullback with profit taking at the end of last week, it was a strong month for equities in August with several markets hitting all time highs last week.

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