Earnings Outweigh Covid Concerns | Genesis Energy

23 July 2021

Global markets were mostly higher overnight, (S&P 500 index +0.8%) continuing the rebound from Monday’s sell-off. Investors seem to be growing in terms of risk appetite as a wave of strong corporate earnings supported equity markets, outweighing earlier concerns around the recent spike in delta variant covid cases.

Most sectors were higher, with stocks which were hardest hit on Monday and being the one to benefit from reopening the most and leading returns such as as airlines and travel related stocks. Energy stocks also benefited from a rally in oil prices jumping back up to $70/barrel.

Better than expected results and upbeats guidance from Coca-Cola (+1.3%), Verizon (1.3%) and  Johnson and Johnson (+0.4%) saw them all trade higher – boosting investor sentiment across the market. Chipotle rose +11.5% after the reporting quarterly revenue surpassing pre-pandemic levels as dine-in customers returned to its restaurants. On the flipside, Netflix fell -3.2% as its quarterly earnings and subscriber growth guidance for the third quarter missed market expectations.

European stocks were up overnight (Stoxx 600 index, +1.7%), on stronger earnings and with travel and leisure stocks leading gains as investors became less concerned about the recent spike in covid cases.

Genesis Energy (GNE:NZX / GNE:ASX)

Genesis shares were up +2.4% yesterday, rebounding from earlier losses from the previous session despite lifting it earnings guidance for the 2021 financial year as the company said it is burning record levels of coal to meet spike in demand. Interestingly, and to our surprise, the company announced it intends to retain ownership of its Kupe oil & gas field as a strategic asset worth more than what it can currently sell for. This was not digested well by the market on Tuesday as GNE was seen to be more attractive to environmentally focussed investors if it divested its fossil fuel assets. 

We remain BUY rated on Genesis at its current valuation due to its attractive (and stable) dividend yield of 5.2%, making it more attractively priced than NZ power generator peers. 

Australia & New Zealand Market Movers

The Australian market was up yesterday (ASX 200 index, +0.8%) following strong performance overseas, shrugging off the spread of covid-19 in Sydney.

Most sectors were higher, with financials performing well and ANZ leading the banks following its $1.5 billion share buy back announcement earlier this week.  Healthcare and Materials were the strongest, while Industrials and Tech were the only sectors down.

Kogan.com fell -1.5% after their business update which delivered a strong set of sale and earnings numbers continued to have inventory issues. Altium fell -5% to be the worst performer on the market as it was reported its potential bidder Autodesk will end talks about their potential takeover.

The New Zealand market was up on Wednesday (NZX 50 index +0.5%).

Market heavyweight Fisher and Paykel healthcare (a direct beneficiary of covid) rose +0.8% again helping boost the market. 
Steel and Tube surged +5.3% after lifting guidance supported by ongoing strength in construction activity, with Fletcher Building up +3.3% following a similar suit. 
PGW was a touch higher yesterday after guiding its operating earnings would be $1m higher than its previous guidance, while reported earnings would be around $56m, lower due to reclassification of a $2m software costs.

3 Things Markets will be Watching this Week

  1. Key events this week include US earnings (Netflix, Johnson & Johnson, Coca-Cola), ECB July rate decision, Eurozone Manufacturing PMI.
  2. Covid-19 related development globally, and particularly in Australia (NSW and Victoria Lock down). 
  3. RBA Minutes and quarterly updates from Australian miners. 
Global markets were mostly higher overnight, (S&P 500 index +0.8%) continuing the rebound from Monday’s sell-off.

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