Fed, RBNZ | Xero, SKC, JHX

9 November 2018

Global markets were mostly lower overnight after the Federal Reserve kept interest rates steady and said ongoing strong job gains and household spending had kept the economy on track

As was anticipated, the Fed left rates on hold and there was nothing in the policy statement to suggest that officials are wavering from their plans to hike interest rates again in December. Closer to home, yesterday saw the Reserve Bank of New Zealand (RBNZ) keep its interest rate unchanged at 1.75%, but did turn slightly more hawkish as it lifted its inflation forecasts slightly. The RBNZ is still planning on keeping rates on hold until December 2020 although it is no longer saying the next move would be up or down.

There was stock related news-flow across a number of stocks under our research coverage yesterday – Xero, SkyCity, and James Hardie.  We will provide full updates on each in next week’s weekly report.


Stock in Focus: Xero (XRO:AX)

Accounting software provider Xero announced yesterday that its subscribers had grown by almost 14% in the first half of the year to 1.579 million.  Xero has been one of our best performing stock-picks to date, and we were once again encouraged by their update.


Looking at some of the detail, Xero's jump in subscribers led to a 37% increase in revenue to $NZ256.5 million (AUD $239 million) in the first half ending September 30. But the fast-growing company's net loss also widened, going from $NZ19.6 million in the previous corresponding period to $NZ28.6 million. As we have stated in the past, this does not overly concern us as we believe Xero could turn on profitability if they wished to pull-back on expansion plans.

Giving us further confidence is that Britain continues to perform well, with revenue up 56% and subscribers jumping 40% in the half to 355,000             

We are currently have a BUY rating on Xero.


Australia & New Zealand Market Movers

The Australian share market rallied on Thursday (ASX 200 index +0.53%) as shares climbed to a near three-week high. In stock news, Afterpay Touch shares jumped after the buy-now-pay-later company announced it had signed up 300,000 US customers in less than six months, signalling a strong start to its operations in the US. Despite James Hardie announcing its half-year profit rose 17% supported by strong gains in its key United States market, a softer outlook for the US housing market pushed the company's shares significantly lower. Domino's Pizza investors were unconvinced by a trading update as same store sales slowed.


The New Zealand market continues to trend higher yesterday (NZX 50 index +0.47%) as markets were relieved the US midterm elections did not throw up any major political surprises. In stock news, SkyCity Entertainment gained after it said it had agreed to sell its Darwin casino for A$188 million to US-based Delaware North as part of a plan to free up capital and focus on its more profitable Auckland and Adelaide operations. The sale price is about A$8 million above the book value of the asset, excluding neighbouring waterfront land at Little Mindil, which the company plans to sell separately. SkyCity has not yet determined what it will do with the proceeds. TradeMe rose as chief executive Jon Macdonald reiterated at the company's annual meeting that the business expects revenue growth of between 5 and 8 percent in the current financial year.



3 Things Markets Will be Watching this Week

  1. US mid-term elections take place on Wednesday (AU/NZ time).
  2. The US Federal Reserve makes a policy statement on Friday (AU/NZ time).
  3. The Reserve Bank of Australia makes an interest rate decision on Tuesday, while the Reserve Bank of NZ makes a monetary policy announcement on Thursday.


Have a Great Day

Global markets were mostly lower overnight after the Federal Reserve kept interest rates steady and said ongoing strong job gains and household spending had kept the economy on track

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