Stock in Focus: First Solar
Take a look at First Solar, which we last wrote-up at $42.00 per share as a BUY– it now trades at $210.14 per share. The company is engaged in making solar panels in the US, and has a full order book up until 2026. We think there’s a couple of secular things that make this a continued “BUY” – i) the US currently relies overwhelmingly on China for solar panels, which is an untenable situation given US foreign policy and geopolitics. ii) First Solar’s panels are thin-film based, versus the ones built in China, which are PV-based. A US-based producer of PV-based panels would take about a decade to set up, so First Solar esentially has a clean runway for the next decade. We think the stock can earn $US24.60 per share by 2025, which at a 15x earnings valuation would make the stock worth ~$450. Retain high risk buy — long-term trends towards solar look good; First Solar is the best-positioned in the US; being made in US is a big advantage for these guys.
New Zealand Market Movers
The New Zealand market (NZX50, +0.3%) was up yesterday as market tensions eased. Property stocks were the standout recovering from its recent lows, as they’ve be under strong selling pressure.
Synlait Milk fell -5.4% after confirming its weak half year result, which was partially flagged earlier and increasing costs saw net profit plunge -83% from last year down to $4.81m on costs pressures, as revenue only slipped -3%. Not a fan of this company…best to avoid.
Infratil investor day last week – by all reports the company is in good shape and continues to be our favourite infrastructure stock. Goal is $500M of EBITDA by 2025 – well on their way with $200M of EBITDA this year. Retain buy.
Australia Market Movers
The Australian Market (ASX200, +0.1%) was a tick higher on Monday as most sectors were in the green, except for energy.
We note that United Malt is staring at a bid worth $4.80-$5/share from European company Malteries Soufflet — backed by European agricultural investor InVivo and financial investors including KKR. No position but we think this looks like it undervalues United Malt; could probably juice a higher offer – the company has a virtual monopoly in malt production in AUS. One for the arbitrage investors.
Energy was hit hard after the Labour and Green government agreed to implement strict plans for large emitters to cut emissions by -4.9% per annum. Ampol shares fell -1.2% after flagging outage at its Lytton refinery will reduce its earnings
Invocare shares rose +1.1% after the board rejected the $12.65/share buyout stating the proposal isn’t high enough. Expecting a slightly higher offer (think PushPay – just enough to get it past the post).
US Market Movers
The S&P 500 crawled up +0.16%.
Salesforce saw off Elliot Management’s proxy fight — Elliot backed off nominating board members, likely because Salesforce’s stock price has appreciated 41% YTD. Nice work if you can get it; we have to ask though – how much of this was Elliot going all “activist” on Salesforce, and how much was of it was the simple bounceback of Salesforce’s stock on the back of a whole slew of tech-names bouncing back?
Alibaba’s Jack Ma returned to China after an extended stay in Japan. Is China softening towards tech? Currently on the offensive – TikTok of course is testifying in Congress – remember the Chinese government has “golden shares” in all major Chinese companies, so the landscape is different from what it was a year or two ago.
We’re not currency experts by any means but found the chart below intriguing. The blue line is US 3 month libor vs China’s 3 month Shibor (spread is 262 bps). The red line is China’s Yuan at 6.88 vs the USD. The big picture here is money is leaving China – China is selling US treasuries to find USD. Looks bearish for the yuan (very) and the broader read-through is a less-than-sparkling outlook for China. (Again – why our preference for Solar is First Solar – no China exposure; trend towards US-onshoring.
What we’re watching for the week ahead
Monday
Australia:
Premier Investments 1H Earnings; NZ:
Synlait Milk 1H Earnings
Tuesday
US:
Conference Board Consumer Confidence, Richmond Fed; Australia:
Retail Sales, AUB Group EGM.
Wednesday
US:
Pending Home Sales; Australia:
CPI; NZ:
NZ King Salmon FY Earnings, Property for Industry AGM.
Thursday
US:
Initial Jobless Claims, Q4 GDP; Eurozone:
Consumer Confidence; Japan:
Tokyo CPI; NZ:
Building Permits, ANZ Business Confidence.
Friday
US:
Personal Income/Spending, PCE Deflator, Chicago PMI; Eurozone:
CPI, Unemployment Rate; UK:
Q4 GDP; China: Composite PMI; Australia:
Private Sector Credit, AMP AGM; NZ:
ANZ Consumer Confidence.