Stock in Focus: CSL Limited (CSL.ASX)
CSL shares tumbled -6.9%, after flagging foreign exchange headwinds would be a US$230m to $250m impact for the 2023 financial year, up from the previously expected $175m.
Operational growth remains sound with constant currency net profit guidance remaining unchanged.
However, for the 2024 financial year, CSL expects net profit after tax of US$2.9 billion to $3.0 billion, indicating a +3% to 18% increase from the previous year which on the low end is far from market expectations.
CSL was not able to provide any detail as to where the divergence from the market came from – we suspect minor misses across multiple line items within CSL Behring, Seqirus and Vifor divisions. After the sell-off we see CSL trading at 32x 2024 earnings which is fair in our opinion and continue to remain BUY rated as the business provides better downside protection in a challenging macroeconomic environment.
NZ
Auckland Airport (AIA) revised its dividend policy to pay out 70-90% of NPAT rather than the previous 100%. Shares fell on the news.
Stock is down ~7% MTD; we note that figures look good for the airport with more room to grow – 1.4M passengers in April; 80% of pre-Covid equivalent – +20% of growth to come with plenty of traffic in the pipeline with the (still) booming tourism industry. Note cargo continues to go gangbusters — 130% of pre-Covid equivalent. Seeing strong movement in Queenstown int’l visitors too — ~63k for the month — expect stronger numbers as we come into ski season.
Note that Habour has added to it’s position in Pacific Edge – what’s going on there? Liquidation value of stock is ~5c.
Australia
Despite the drop in one of the ASX’s largest stocks the Australian market (ASX200, +0.3%) rose on China hopes. Materials and financials were the best-performing sector and did most of the heavy lifting as the People’s Bank of China (PBOC) lowered its borrowing rates by 10 basis points in a surprise move to stimulate its economy as it struggles with weakening global demand.
US
The Fed skipped a rate rise this meeting but signaled two more hikes to come – the first hike could come as soon as July. Powell said that the Fed needs more “credible evidence that inflation is topping out and then beginning to come down” – as we’ve discussed at length, core CPI still remains ~6% which is too high to signal a rate cut. Historically inflation has only come down when the Fed’s rate exceeds the rate of inflation. At the moments markets are pricing in an effective Fed rate of ~4.75%, with core CPI running at 5% – i.e. CPI needs to come down more and the Fed needs to hike more if we’re taking a historical view – we think an effective peak Fed rate of ~5.00% is likely.
Drunk in(flation) love
You could be forgiven for thinking today’s FT was co-opted by satirical newspaper The Onion with the following headline: “Beyoncé blamed for stubbornly high Swedish inflation”. And yet there’s truth to it – inflation for April and May sat at 8.2% – falling only 200 bps from the last CPI read. Let’s pause for a moment and consider how high 8.2% is compared to the US (~5%). Beyonce’s new tour opened in Sweden, and tickets were substantially cheaper than their US counterparts ($60-140 vs. $80-$600). Hotels went up in price. People spent like crazy. Restaurants were full. Etc. And that all leads to this remarkable quote, from a fairly straight-laced economist:
“Beyoncé is responsible for the extra upside surprise this month. It’s quite astonishing for a single event. We haven’t seen this before,” said Michael Grahn, Danske’s chief economist in Sweden, who estimated the singer caused 0.2 percentage points of the rise.
Think about that for a moment. Beyonce is responsible for 200bps of inflation in an entire country. Normally you might expect the Olympics to be responsible for mass spending and inflation; here is it just Beyonce. Quite remarkable. Sweden was one of the last countries to raise rates, and they’ve got a lot of work to do before they get it under control (for the FX traders: long USD, short SEK!)
MANU
MANU is looking more interesting by the minute as an acquisition becomes imminent. The Premier League has said it isn’t open to leveraged buyouts within the league, which effectively puts a pin in Jim Ratcliffe’s offer. Trading at ~$23.45 aftermarket.
