Pavan Sharma

We initiate coverage of Brown-Forman with a BUY (underweight) rating. The company is engaged in the distillation and sale of liquor, including it’s flagship brand, Jack Daniel’s.

US markets (S&P 500 Index -1.1%) dropped in choppy trading on Thursday. The market is still trying to find its footing after a surprise increase in August’s CPI report sparked the worst day of trading in 2 years on Tuesday.  Microsoft (-2.7%), Apple (-1.9%), and Adobe (-16.8%) were the biggest drags on the US markets, with Adobe experiencing its worst trading day in more than a decade.  

We initiate coverage of Moët Hennessy Louis Vuitton (LVMH) with a BUY rating. The company is the pre-eminent luxury goods producer globally, controlling a sprawling network of luxury labels, jewellery, alcohol and cosmetics. The company is controlled by Bernard Arnault and family.

LYC shares have had a volatile in 2022 after an amazing run in 2021 where the stock rose +155%. The volatile year also allows us to identify a support level that can create an attractive entry point over the last 6 months, we see ‘strong support’ at $8.40, while the stock struggles to hold above $9.98 which we see as being overbought. Lynas shares rebounded strongly from its July lows, helped by its strong full year result benefiting from doubling is price of rare earths it produces, and delivering a record $540.8m net profit after tax. Lynas has strong cash reserves to expand its growth investing addition $500m to expand its Mt Weld. Lynas being the largest producer of rare earths outside of China means they gained US department of defence deal of $120m and favourable financing to work with JARE Japan Australia Rare Earths.

US markets (S&P 500 Index +1.5%) rose strongly to end the week on a positive note, as markets recovered from a three-week slide. All sectors were in the green, with heavily beaten down stocks making the strongest gains as the most-shorted names were the best performers. Docusign rose +10.5% after its earnings beat estimates, Kroger also jumped+7.4% after lifting its annual forecast.

US markets (S&P 500 Index + 0.7%) closed higher on Thursday despite a Q&A session with Jerome Powell at the Cato Institute, where he reiterated that the Federal Reserve is not considering a change to the pace at which it will hike interest rates. With no change on the macro front, company specific news caused the biggest market moves. Rivian (+10.9%) shares surged after the company announced a partnership with Mercedes to build electric commercial vans in Europe. The leaking of a ‘turnaround plan’ memo from Snap (+9.3%) CEO Evan Spiegel helped the company post an almost double-digit gain.

Shares in childcare centre operator G8 Education (GEM) have been under pressure. And unlike most of the market failed to recovery from June lows. This comes as the childcare operator delivered a weaker result after a challenging start to the year greatly impacted by covid-19 and flooding fortunately things recovered in the second quarter and occupancy rates are now nearing 2019 levels.

Genesis shares have held flat for the year, after their slide late last year as investors worried about the times of record low-interest rate environment would be over. Despite rates heading upwards aggressively this year, Genesis has held its value better as risk adverse investors appreciate its dependable dividend in-light of economic uncertainty. As seen below Genesis is fairly priced in our opinion at current levels as it offers an attractive dividend, while any levels below $2.60 would be considered oversold and tend to bounce back from that, and on the flipside above $3.25 can be viewed as an overbought level pushed by record low-interest rates (which pushes up asset prices higher, especially yield stocks) which was not permanent.

A2 Milk shares bucked the sell-off, jumping strongly after delivering a better than expected result for the 2022 financial year given challenging market conditions. Group revenue rose +20% from last year while operating earnings (EBITDA) lifted +47% from last year to $196.2m. Better inventory management saw gross margins normalise (following the previous year’s write-off), while profit growth was limited to increased marketing spending, which appears to continue to rise to achieve modest revenue growth. The surprise was how well China infant formula performed despite macro headwinds as birth-rate in China slumping -11.5% in 2021 and is expected to fall further in 2022 – the decline was partially offset by an increase in household penetration and consumption within the infant formula market. Strong cashflow generation and profitability in the past means A2 Milk is currently sitting on $816.5m cash on hand, with management announcing an on-market share buyback of $150m – was well received by the market.