Banks To Kick Off Earnings Season | Z Energy Takeover Update

12 October 2021

Global markets were lower on Friday, but the US market (S&P 500 index -0.2%) managed to end a volatile week marginally higher.

Most sectors were lower, driven by Friday’s US job report for the month of September which disappointed, as the US economy added just 194,000 jobs in September – well below the Dow Jones estimate of 500,000. On a positive note, the unemployment rate itself fell to a much lower point than economists forecast at 4.8%, hitting the same level seen in late 2016.

Financial and Energy stocks were the only sectors in the green, the latter benefiting from West Texas Intermediate crude futures crossing $80 per barrel on Friday for the first time since November 2014.

European Markets (Stoxx 600 index -0.2%) were lower on Friday, which saw the auto sector lead gains, while tech shares continue to slide lower.

While there have been plenty of macro-economic factors driving markets of late – Interest rates, China issues, the focus once again turns to company specific news as we start 3rd quarter US earnings season. The quarterly profit reporting season commences later this week, with the major US Banks set to kick start announcements. 

Z Energy (ZEL:NZX) / (ZEL:ASX)

Z Energy shares are up +7% today, after the board unanimously recommends the Ampol takeover offer of $3.78 per share, plus $0.05 per share dividend for the first half of the 2022 financial year. If the scheme is not resolved by 31 March 2022 a final cash payment to a limit of $0.10 per share will be made to reflect the 2022 dividend. 

Shareholders would need to vote for approval as well as gaining regulatory approval from New Zealand’s Commerce Commission (NZCC), and Overseas Investment Office (OIO). Ampol may consider launching an IPO for its Gull Business to help meet regulatory/competition requirements.

We are now Hold rated on Z Energy since its jumped after the initial takeover offer as we believe the shares are now fully valued. While in this situation the shares still trade below the takeover offer, this is due to the very real risk of the deal not going through. 

Australia & New Zealand Market Movers

The Australian market was up Friday (ASX 200 index +0.9%) buoyed by NSW achieving its 70% vaccination milestone to end the current lockdown and allow many businesses to reopen such as gyms, cafes, restaurants, pools, shops, hairdressers and beauticians.

Gains were mostly broad based with reopening plays performing the best such as outdoor advertiser Ooh Media up +7%, and G8 Education up + 4.4%. Commodity stocks were also higher with both Materials and energy sectors trading higher.

Financials were mostly stronger, linked to the local economy opening up, while tech stocks were marginally higher, and more defensive 'stay at home' type stocks were weaker. 

The New Zealand market was down on Friday (NZX 50 index -0.1%) as investors rotated from interest rate sensitive stocks to cyclical stocks, following the RBNZ’s rate hike on Wednesday and in anticipation of further interest hikes over the near-term.

Fletcher Buildings (+2%), Fonterra (+2.9%), Move Logistics (+1.9%) and Heartland Bank (+0.9%) were key names stronger. 
While defensive utility and property stocks were weaker as their valuations are most sensitive to interest rate movements.

Tourism Holdings limited was the best performer of the day up +3.3%, set to benefit from easing restrictions in Australia, as NSW opens up from its lockdown.

3 Things Markets will be Watching this Week

  1. Key events this week include CPI (inflation) data from the US and China.
  2. ​US Third quarter earnings season commences, with the major US Banks set to report this week
  3. Locally, Employment data in Australia is due and Business Confidence in New Zealand
Global markets were lower on Friday, but the US market (S&P 500 index -0.2%) managed to end a volatile week marginally higher.

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