Global markets were mixed overnight as a steep fall in Walmart's shares put the skids on the S&P 500’s six-day winning streak, but gains in Amazon and technology stocks kept the Nasdaq in positive territory. Analysis of the recent market correction continues, and once again we highlight that in 2018 we believe there will be higher volatility in markets relative to recent years as global central banks start to normalise policy.
Local earnings season is in full-swing across Australia & NZ this week, with a huge day in terms of corporate profit announcements due today. During corporate earnings season, investor attention usually moves away from other issues such as economics and politics and back to focussing on corporate profitability. Hence earnings season is likely to set the tone and direction for the ASX/NZX for the new month barring any major global events. We are expecting a solid earnings season across both Australia and NZ, with ASX stocks more likely to surprise on the upside, in our view.
On the earnings front, mining major BHP Billiton released weaker than expected half year profit figures overnight which saw it come under pressure in London trade.
Stock in Focus: Telstra (TLS:AX)
Shares in Telco giant Telstra had a muted response from the market after the release of 2018 interim results. The share price has continued to struggle since we downgraded our recommendation in April last year as the competitive environment remains tough for Telstra.
Looking at some of the detail of the result, Telstra reported revenue growth of +0.8% to $12.9Bn, while operating earnings (EBITDA) fell -2.5% from last year to $5Bn. Despite managing to add customers in a competitive mobile market, average revenue per user was down, and the cost of signing up and maintaining customers grew.
Trading at an attractive dividend yield of 6.3% and a low PE multiple Telstra appears cheap. However, within the telecommunications space competition is tough and there appears to be no sign that things will get easier from here. We expect the competitive pressure will be overwhelming for the incumbent telco giant and we are not yet convinced profits and dividends will be able to grow from management’s guidance.
We currently have a HOLD rating on TLS.
Members should look out for a full update on TLS to be released in this afternoons weekly report.
Australia & New Zealand Market Movers
The Australian share market was essentially flat on Tuesday (ASX 200 index -0.01%) managing to claw back from early losses to end the day barely changed, as banks came under selling pressure but earnings and broker moves helped limit downside.
Among the companies making moves were Altium which soared 26.7% after reporting a 30% jump in revenue to $63.3 million and a 50.8% rise in profit to $14.9 million while Seven West surged 18.6% after its interim net profit soared more than eight times to $100.73 million from $12.39 million a year ago. On the downside, Super Retail Group fell 14.5% after its half-year profit declined 3 per cent to $72.2 million from $74.4 million in the year-earlier period. Vocus Group was another big decliner, with the firm losing 10.5% after it cut its full-year profit guidance due to an increase in subscriber costs and weaker-than-expected energy sign ups.
The New Zealand market lost ground yesterday (NZX 50 index -0.21%) in light trading ahead of a busy day of earnings today, with Heartland Bank and Fletcher Building dropping while Sky Network Television and Air New Zealand rose. Heartland Bank led the index lower yesterday. Its shares were down as it boosted first-half profit 7% to $31.1 million as an expanding loan book underpinned all lines of business and strong reverse mortgage growth in Australia whetted its appetite to do more business across the Tasman.
3 Things Markets Will be Watching this Week
1. Local AU/NZ companies continue to report profit figures as earnings season is likely to dominate news flow.
2. Minutes from the last meeting of the Reserve Bank of Australia are out Tuesday and Aussie wage price data is published Wednesday.
3. Minutes from the last US Federal Reserve meeting are released Thursday.
Have a Great Day,
Team