China US Tension | Z Energy – Light at the End of Tunnel

7 May 2021

Global markets were mixed overnight (S&P 500 index +0.8%) with all three of Wall street's indices and sectors ending the day in the green. US economic data remains jobless claims numbers came in at 498,000, a fresh pandemic-era low in anticipation of the monthly jobs report due on Friday which will be an important gauge on the pace of the labour market recovery. 

Financials were the top performing sector, followed by consumer staples. Paypal shares were up 1.9% after the company posted better-than expected earnings and said revenue last quarter surged +31%. Healthcare was the weakest sector only edging slightly higher after being spooked by Joe Bidens support for patient waivers on covid-19 vaccine technology, which saw vaccine manufactures all fall Moderna (-2.4%), Pfizer (-2.2%0 and Novavax (-1.4%).

Biden also hit headlines as he looks set to keep the pressure on China by keeping the Trump imposed limits on US investments. Finally, there were more US Fed member comments from Brainard who runs risk committee, saying that stretching valuations are creating vulnerabilities in US financial system. 

European markets were mixed (Stoxx 600 index +0.1%) on strong company earnings data and as the Bank of England decided to keep its benchmark lending rate and quantitative easing programme unchanged. Food & Beverage sector was the strongest up +0.9% by Anheuser-Busch InBev jumping +5.6% after beating first quarter earnings estimates, while oil Heavyweights (-1.3%) were a drag due to weaker oil prices.

Closer to home, NZ has paused quarantine-free travel from NSW to NZ as the source of the two cases in Sydney in the last two days are still unknown. 

Z Energy Limited (ZEL:NZX)

Z Energy Limited (ZEL) shares jumped +3.4%, after delivering their 2021 financial year result which had something for teh bears and the bulls.
Operating earnings (EBITDA) came in at $238m, in the middle of their guidance. The result was affected by covid-19 heavily restricting travel movements for the majority of the first half impacting volumes, while the second half was impacted by weaker margins. ZEL announced a 14 cent per share dividend, on the top end of guidance after squeezing out a positive cashflow result. Management provided promising guidance for operating earnings (EBITDA) expected to be between $270m and $310m.

It was an encouraging result. While we are not expecting a full recovery to "pre-pandemic" levels, we maintain our High Risk BUY rating on the basis of ZEL's attractive valuation and positive earnings outlook, now able to generate healthy dividends for investors amidst a more upbeat economic outlook.   



Australia & New Zealand Market Movers

The Australian market slipped yesterday (ASX 200 index -0.5%), largely prompted from a weak lead from Wall street, with most sectors in the red.

High growth tech stocks were hardest with weakness felt across the board. Appen slumped -21% following comments surrounding uncertainty with its outlook, and AfterPay was another heavy casualty slumping -7%.
NAB shares fell -3% despite delivering a solid earnings result when its cash earnings jumped +94% from last year to $3,343m, but its revenue missed market expectations – financials were generally weaker some pulling back with expectations elevated given their recent rally over the last few months.   

QBE insurance was the best performer on the day up +3.2%, up strongly for a second day in a row following an upbeat third quarter update.

The New Zealand (NZX 50 index -0.8%) market fell on Thursday, as market heavyweight Fisher and Paykel Healthcare was down another -2.2%, (down just over 7% from its 2021 high last week) heading to its much anticipated result later this month.

Fonterra remained in a trading halt as they consulted on a restructure of their fund. A2 Milk was down -3.3%, giving back most of its recent gains as investors used this as a selling opportunity.

3 Things Markets will be Watching this Week

  1. There are 140 S&P 500 companies reporting this week including PayPal, General Motor, DraftKings Inc, Wynn Resorts, AIG, Pfizer, Moderna Inc.
  2. Also this week in the US there is the release of monthly employment data (nonfarm payrolls) and the monthly ISM Manufacturing survey.
  3. Closer to home, we have the latest RBA interest rate decision, employment data in NZ and earnings from Westpac, ANZ, NAB, Macquarie Group and Z Energy
Global markets were mixed overnight (S&P 500 index +0.8%) with all three of Wall street's indices and sectors ending the day in the green.

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