Earnings Disappoint | Pacific Edge

25 November 2022

New Zealand Market Movers 

The New Zealand market (NZX 50 Index, 0.0%) closed flat on Thursday despite some lacklustre earnings results.  

AFT Pharmaceuticals (-9.8%) cratered after reporting its half-year operating profit of $3.5 million, a 36% drop from the previous corresponding period due to “lower licensing income and increased Australasian investment to capitalise on growth opportunities”. At the same time, the company reported a 18.4% jump in revenue. Rakon (-7.0%) fell similarly after reporting its result for the six months to 30 September 2022. Total revenue for the components manufacturer rose 2% to $87.2 million with core business growth and a weak NZ dollar helping offset the decline in unusually high demand that proceeded the post-covid chip shortage.  

Australia Market Movers 

The Australian market (ASX 200 Index, +0.1%) were also effectively flat on the day as losses in Energy (-1.8%) offset the gains made in IT (+1.3%) and Real Estate (+1.2%). Materials (+0.9%) was also a top performer on the day as falling Australian bond yields (-0.1%) boosted gold (+0.3%) and gold miners. 

Europe Market Movers  

European markets (Stoxx 600 Index, +0.5%) advanced half a percent on Thursday after the release of the latest US Federal Reserve meeting minutes. All sectors closed positive, with Chemicals (+1.1%) leading gains. 

US Market Movers 

US markets (S&P 500 Index 0.0%) are closed for the Thanksgiving Holiday, while S&P500 futures (+0.3%) are looking positive for the Friday open. 

Stock In Focus: Pacific Edge (PEB.NZX) 

Pacific Edge shares fell –3% on its half year result which provided little surprises and reiterating business as usual with strong growth in the business continuing. Operating revenue rose +62% from last year to $8.7m, while increased investment into growth meant net loss rose from -$9m to -$10.6m, implying a cash burn of around $2m per month, with cash and cash equivalents of $93.5m plenty of reserves for continued investment into growth. 

Investors were more eager to get news regarding Novitas Local Coverage Determination (LCD) insurance coverage, which is still uncertainty and a decision still yet to be officially made– but now Pacific Edge are still being reimbursed for their tests and have not seen any reduction in demand.  
We like the growth potential of Pacific Edge, however due to the potential loss of the Novitas Coverage, would stall the growth trajectory and greatly impact revenue adversely. We are BUY rated on the long-term with a high-risk caveat, with medium-term downside assuming Novitas Coverage is cut.  

What Markets will be Watching this Week (UTC +13) 

Monday 
EA ECB President Lagarde Speech 

Tuesday 
Argosy Property earnings 

AU RBA Govenor Philip Lowe Speech   

Wednesday 
Oceania Healthcare earnings 

Tower earnings 

NZ RBNZ Interest Rate Decision  

Thursday 
Rakon earnings 

Pacific Edge earnings 

US Durable Goods Orders MoM OCT  

US FOMC Meeting Minutes 

Friday 
US Thanksgiving Holiday (US markets closed) 

The New Zealand market (NZX 50 Index, 0.0%) closed flat on Thursday despite some lacklustre earnings results.   AFT Pharmaceuticals (-9.8%) cratered after reporting its half-year operating profit of $3.5 million, a 36% drop from the previous corresponding period due to “lower licensing income and increased Australasian investment to capitalise on growth opportunities”. At the same time, the company reported a 18.4% jump in revenue. Rakon (-7.0%) fell similarly after reporting its result for the six months to 30 September 2022. Total revenue for the components manufacturer rose 2% to $87.2 million with core business growth and a weak NZ dollar helping offset the decline in unusually high demand that proceeded the post-covid chip shortage.

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