Global markets were mostly lower overnight (S&P 500 index -0.2%) in choppy trading. There was a batch of upbeat earnings updates including Johnson & Johnson’s strong profit forecast and 3M’s quarterly profit beat.
Headlines are being dominated by electronics gaming retailer GameStop, which was up +92% overnight (and another +54% after hours) extending its surge as day traders continued to pile into the heavily shorted retailer.
GameStop has been caught in a short squeeze – its high short interest sets off a cycle where any gains force short investors (who are betting that the stock price will fall) to cover their positions by buying the stock, thereby sending the stock even higher. An influx of retail trading has also been credited to its rise – with a massive 2.5 million reddit users following the WallStreetBets thread. The massive retail punter trading flows have been driven by social media apps and spiked during COVID as new investors entered the stock markets given lockdowns and the lack of sports gambling options. This trader euphoria is a classic sign that we are late in the market cycle. The moves are certainly interesting to watch and we are happy to watch from the side-lines with our popcorn.
Pushpay (PPH:NZX / PPH:ASX)
Since our update last year, PPH shares continue to trend lower, even though the company made some positive announcements.
PPH have announced the appointment of internal candidate Molly Matthews (Chief Customer Officer) as its new CEO, to assume duties from 1 March 2021. The old CEO will be staying on in a board and advisory capacity. PPH have also updated 2021 operating earnings guidance from US$54m-58m to US$56-60m (+4% at the mid-point). PPH has cited very strong processing volumes in December, driving its expected total 2021 processing volumes to be higher than originally expected.
PPH has again in its trading update provided commentary around focusing on the Catholic church – in our view a far smaller opportunity than nondenominational and evangelical churches. We would question entering this market which is very small in both absolute and relative terms.
While we remain BUY rated on PPH, our conviction is lower than it was earlier. We would expect the remaining 15% stake held by the Huljich’s will likely come to market this year, creating an overhang on the share price.
Going forward, we see a greater focus on acquisitions with PPH indicating they will look to “buy” market share, especially as they look to have saturated the very large mega-church end of the church market. We think good acquisitions or expanding into a new countries/market could be options that see the share price re-rate higher. We continue to see the stock as a top-quality software as a service business which is now more reasonably priced given its pull-back.
Australia & New Zealand Market Movers
The Australian market was closed yesterday for Australia Day.
The New Zealand market was lower on Tuesday (NZX 50 index -0.6%) with turnover lighter than usual with Australian traders off work for a national holiday.
Investor confidence faded over the weekend, as the pandemic delivered yet another round of bad news with the effect most visible in travel related-stocks, which saw a second day of losses. PM Jacinda Ardern has noted NZ’s borders are likely to remain closed to most of the world for the rest of the year, as reopening them poses “too great a risk to our health and economy”. The Government continues to actively seek out travel bubbles with Australia and the Pacific.
Genesis Energy, our top gentailer sector stock pick, produced another good set of operating statistics for the second quarter of 2021, with the highlight being continued retail performance improvement. Genesis is on track to report 1st half operating earnings of around NZ$230m and looks set to beat the top end of guidance (NZ$395-415m), with dam levels near average for this time of year and the forward curve elevate
Synlait Milk Limited has updated its forecast base milk price for the 2020 / 2021 season to $7.20 kgMS from $6.40 kgMS. Synlait’s decision to increase its forecast base milk price was driven by the strong increase in dairy commodity prices over recent months and the company’s view that commodity prices will remain around current levels for the remainder of the milk season.
3 Things Markets will be Watching this Week
- The week ahead is dominated by the busiest week of earnings in the US with 122 S&P 500 companies reporting including: Apple, Microsoft, Tesla, Facebook, Visa, Samsung Electric, J&J, Mastercard, Chevron, McDonald’s and Caterpillar.
- Also in the US, we have the US Fed interest rate decision and release of quarterly GDP figures.
- In Australia, ResMed releases earnings and quarterly production reports are due from Fortescue, Oil Search, Oz Minerals, Origin Energy, Newcrest Mining and Evolution Mining.
Team