Stock in Focus: The Warehouse Group (WHS.NZX)
The Warehouse Group shares slumped -11.7% after reporting a weak result for the first half of 2023, which saw slow down in the second quarter weigh heavily upon the result. Noel Leeming and Torpedo7 sales decreased, while The Warehouse and Warehouse Stationery were up 13.2% and 1.7% respectively.
Consumer demand challenges are starting to emerge and cost inflation impacts both margins and earnings; group profits declined 61% from last year to $17.4m, despite total revenue growth of +4.8%, with growth skewing towards low value, low margin products – as a result the group did not pay out an interim dividend.
We do not rate The Warehouse Group, while their core red shed business could hold up in a recessionary environment, they don’t have the scale to compete as efficiently as its larger Aussie rival Kmart, whilst the introduction of Costco in New Zealand is another headwind.
New Zealand Market Movers
The New Zealand market (NZX50) ended the day flat, rebounding from its loss – largely caused by the Fed deciding to continue to hike rates, and forecasting less cuts than the market had expected for 2024.
Most risk assets traded lower, while higher interest rate environment saw property and retailers fall a little, while more defensive blue-chips held up well offsetting these losses. Note that Amazon has reached a cooperating deal with the NZ Govt on the building of more data centres — we keep saying it, but all that data has to go somewhere. The quasi-acqusition of the TAB is imminent, with Entain looking like the likely winner here — upfront payment to the govt looks like $1B with on-going profits to be shared. Note that Investore Property revaluations came in at –12%; mostly softening cap rates driven by higher interest rates. No view here but think about how it reads through to other property companies – KPG has already had a revaluation and still trades at a good discount to NAV. How low can you go?
Australia Market Movers
The Australian Market (ASX200, -0.7%) was down yesterday with most sectors trading lower. Commodity facing sectors were hardest hit, EV exposures selling down the most, and lithium pirces continue to tumble in 2023 (where does lithium start to get interesting again?). Estia Health stock surged +9.3% across Wednesday and Thursday with 4.2% of the company traded on Weds alone – is somebody building a pre-bid stake?
US Market Movers
Short seller Hindenburg Research released a short report on payments provider Block (Twitter founder Jack Dorsey’s other company). Main allegations are that: i) many accounts are duplicates; Hinenburg was able to register accounts under “Donald Trump” and “Elon Musk”; ii) that the sheer volume (40-60%) of duplicate accounts distorts all growth figures for the company. No position here – we prefer exposure to Visa and Mastercard (both BUY-rated) and avoid Block.
See chart above – from Bloomberg – on Manchester United. See our recent note here. It isn’t cheap; but top-tier assets rarely are – the premium MANU commands is brand and its rapidly loyal fanbase.
The Bank of England (BoE) hiked 25bps, taking its Bank Rate to 4.25%, and maintained guidance that further tightening is possible if inflation pressures warrant. The minutes noted ‘if there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required.’ So, no overt pivot to pause yet. With UK inflation still at +10%, to us this seems like “further tightenining” might be required. Read-through is interesting here: at elevated levels of interest rates commerical property in the UK and the US starts to feel the pain – especially office towers – lots of debt to service and office towers still largely unoccupied – look at the climb in vaccancy rates Q4 2019 vs Q4 2022 — reccomend avoiding US/UK commerical property space.
What Markets will be Watching this Week
Wednesday
CPI (Inflation) data from the UK
Westpac NZ Consumer Confidence
Kathmandu Earnings
Thursday
US Fed Interest Rate decision
Friday
Bank of England (BoE) Interest rate Decision