Global markets were mostly higher overnight as results from Berkshire Hathaway boosted optimism about a strong earnings season, while gains for Facebook on a report that it was planning to offer new services lifted the tech-heavy Nasdaq index.
The S&P 500 (major US market index) is within a percentage point of its all-time high for the first time since the current correction began. Investors have focused on robust corporate earnings recently and shrugged off worries about US tensions with countries including China and Iran. Of the 413 S&P 500 companies that have reported second-quarter results so far, 79.2% have topped earnings estimates, according to Thomson Reuters data – compared with the 72% average for the past four quarters.
Our longer-term readers will know one of our key investment themes is that a “dining boom” driven by a growing middle class in Asia will see multi-year demand growth for higher quality food and is set to be a multi-year tailwind for Australian/NZ agricultural businesses. One stock set to benefit from this theme and that we have been vocal supporters of is agribusiness PGG Wrightson (PGW) which we discuss below.
Stock on Focus: PGG Wrightson (PGW:NZ)
Shares in PGG Wrightson (PGW) jumped +7.8% yesterday as it said it has agreed to sell its seeds business to Danish company DLF Seeds for $421 million, although the deal is subject to shareholder and Overseas Investment Office (OIO) approval. PGW said the sale amount exceeded the book value of PGW Seeds' net assets, which were estimated to be $285m and signalled it may return up to $292 million to its shareholders.
The seed and grain unit is the largest of PGG Wrightson's three core businesses, generating more than half of its operating earnings in the last financial year from across New Zealand, Australia and South America. The sale follows several expressions of interest received from international parties and has clearly excited the market.
We currently have a BUY rating on PGW.
Members should look out for a full update on PGW to be released in our weekly report.
Australia & New Zealand Market Movers
The Australian share market started the week off on a higher note (ASX 200 index +0.61%) as strong iron ore prices in China helped material stocks while investors were largely focused on earnings due later in the week. In stock news, jobs site Seek has had nearly $700 million wiped off its market value after flagging a sharp slowdown in forecast earnings and revenue growth, as well as higher-than-expected investment costs. The group will book a $178 million impairment charge against its operations in Brazil and Mexico for 2017/18, saying deteriorating political and economic conditions in those locations are impacting performance.
The New Zealand market rose on Monday (NZX 50 index +0.44%) led higher by Comvita and Fletcher Building with PGG Wrightson jumping to a two-month high. While investors largely await earnings season news flow, in stock news shares in stock market operator NZX said trading activity was busier in July from a year earlier, although with smaller values changing hands. NZX shares were lower as total trades jumped 70% to 258,063 in July, with average daily trades at 11,730, though total value traded was down 24% to $2.62 billion, or a daily average of $119 million
3 Things Markets Will be Watching this Week
1. US corporate earnings season continues as investors digest quarterly company profit announcements.
2. Locally, investors in Australia and NZ will have a number of profit announcements to focus on as earnings season gets busier.
3. The Reserve Bank of Australia makes an interest rate decision on Tuesday, the RBNZ also makes a decision on Thursday.
Have a Great Day,
Team