Global markets were mixed overnight and shares on Wall Street are fluctuating between small gains and losses as the US market is on track for its worst month in 2 years.
February marked the return of volatility to markets, driven by expectations of higher interest rates around the globe and the return of inflation. In terms of the local markets, the ASX lost -0.4% in February after the nasty sell-off at the start of the month sent the market tumbling as investors fretted about the prospect of higher interest rates. Those worries faded as February went on, with some strong corporate earnings reports from companies providing reassurance for investors. It was a similar story for the NZX, which ended February marginally lower (-0.8%%) after a surge late in the month.
Stock in Focus: Sky TV (SKT:NZ / SKT:AX)
Sky Network Television sank -9% yesterday as it announced it has slashed prices in an effort to slow an exodus of customers quitting its pay-TV service in favour of cheaper on-demand rivals. We have held a negative view towards Sky TV as the company struggles with the challenges of “digital disruption”
Sky TV cut its interim dividend in half to 7.5 cents in an effort to cope with the rapidly changing environment, as first-half profit rose 12% to $66.6 million. While this result was ahead of expectations on the back of good cost control, changes to the programming setup and subscriber losses appear to have spooked the market.
SKT continue to lose subscribers with the establishment of digital options such as Sparks Lightbox and global giant Netflix. Accompanied with falling subscribers, advertising revenues are under pressure as advertisers have more media outlets, and to add to Sky TV’s problems programming right costs are rising to gain quality content. We believe there appear to be far too many factors going against Sky TV for it to deal with.
We currently have a SELL rating on Sky TV. Members should look out for a full update on Sky TV to be released in next week’s weekly report.
Australia & New Zealand Market Movers
The Australian share market was lower yesterday (ASX 200 index -0.68%) with the move sealing another downbeat month for the ASX. Harvey Norman shares dropped -12.5% after recording their biggest drop for 30 years during the session, with investors punishing the retailer for its latest set of financial results. Reported results were a lot weaker as Harvey Norman experienced losses in its joint ventures as well as less property revaluation than occurred in the previous year.
The New Zealand market ended in positive territory on Wednesday (NZX 50 index +0.16%) as shares were mixed, with Sky Network Television sinking to a ten-week low while Synlait Milk, Air NZ, and Trade Me Group gained. Trade Me Group rose as the company, which operates New Zealand's largest online auction site, said earnings didn't budge in the first half as its expenses grew faster than revenue. It expects full-year profit to grow at a slower pace than last year.
Scales Corp posted a -17% drop in 2017 profit as its horticultural division contended with weaker sales prices and an increase in on-orchard costs after poor weather. Although its share price was little changed as Scales reiterated its 2018 ebitda guidance of $58 million to $65 million, saying gross production in its horticulture division, which operates under the Mr Apple and Fern Ridge Produce brands, was expected "to be consistent with five-year average volumes" with lower costs expected as a result of a less challenging season.
3 Things Markets Will be Watching this Week
1. Local AU/NZ companies continue to report profit figures as earnings season is likely to dominate news flow.
2. New US Federal Reserve Chair Jerome Powell makes a speech to US legislators this week.
3. Important US economic data is released on Thursday (AU/NZ time), including GDP and inflation figures.
Have a Great Day,
Team