Global markets continued to fall overnight, with US Markets (S&P 500 Index -1.0%) down for a fourth day in a row as the Russia-Ukraine conflict weighs down on market sentiment.
The market remains fixated on European geopolitical developments, with some market volatility on the shift in probabilities for a full-on invasion of Russian into Ukraine. Putin has recognised two breakaway regions in eastern Ukraine as independent entities & sending in Russian troops, drawing US and European vows of new sanctions, and upping the ante in a crisis several commentators fear could unleash a major war. While developments turned nasty yesterday, there remains some doubt about whether a full-scale war remains imminent.
President Joe Biden on Tuesday announced sanctions on Russian bank VEB and its military bank, Russia’s sovereign debt and certain wealthy individuals and their families. The U.K. has also started targeted economic sanctions against five Russian banks and three wealthy individuals. Germany halted the approval of the Nord Stream 2 gas pipeline, seeing gas prices rise +10%, but still trade at 3-month lows, as the threat of gas shortage over winter is greater.
Losses were felt broadly across the US market with all sectors trading lower, as consumer discretionary and energy stocks led loses, while safe haven sectors like utilities and real estate suffered minor losses.
European Markets were mixed ending the session flat (Stoxx 600 -0.02%), staging a strong recovery strong a loss of more than -1.8% soon after the open. Auto lead gains, Porsche SE soaring +12.2% and Volkswagen AG up +5.4% following news of a potential IPO of Porsche AG.
Costa Group (CGC:ASX)
Costa Group shares jumped +8.7% yesterday after delivering solid result for the 2021 financial year. The highlight being the strong growth for its international business with revenue up +30% from last year and the segment now representing 27% of total revenue. The domestic business saw improvement across most categories in the second half except for avocados – which was impacted by foodservice lockdown and low retail price points.
Also promising is the growth opportunity across various businesses, including increased harvesting farms in Morocco and China, Full year contribution from 2PH citrus farm acquisition and new 10 hectare glasshouse, increased volumes of premium blueberry variety and Coligan farm table grape rebound from previous year weather event.
We remain BUY rated on Costa, but with a high-risk caveat given some unavoidable agriculture related risks.
G8 Education (GEM:ASX)
G8 Education rose +5.4% yesterday after delivering a stronger than expected result for the 2021 financial year, despite covid restriction were able to lift occupancy rates to 70.9% just down -2.1% from pre-pandemic levels (2019 full year). Accordingly, G8 Education delivered an improved net profit after tax of $45.7m, and with the strong performance and stable balance sheet plan to buyback 10% of its share capital.
While current trading conditions are still challenging due to the spike in omicron cases, looking ahead the recovery should be stronger. G8 also announced its would lift fees by +6%, to help improve margins to cover wage rises and increased investment into improving centres and training staff (as fees remained unchanged over the course of the pandemic).
We are BUY (High Risk) rated on G8 Education as we believe occupancy rates and fee rises in 2022 should both improvement earnings significantly.
Australia & New Zealand Market Movers
The Australian market was down yesterday (ASX200 index -1.0%), as Russia-Ukraine risk sentiment dominates market moves despite a day filled with strong earnings.
Most sectors were lower, tech shares continuing its tumble, with the broader market generally weaker. While energy stocks enjoyed strong gains as the price of oil continues to climb higher Woodside petrol climbing +3.8% to fresh post pandemic’ highs.
Cochlear was a strong performer rising +9%, after reporting a +20% increase in underlying profit to $157.5m, and lifted it earnings guidance slightly.
Coles shares rose +3.2% as Australia’s second largest food and liquor retailer increased sales by +1% and only reported a -2% decline in profit – able to navigate cost inflation a bit better than expected.
Endeavour group, the parent of Dan Murphy’s liquor store lifted +3.2% after delivering a better than expect profit up +15.6% from the previous period to $311m.
The New Zealand market was down on Tuesday (NZX 50 index -0.3%) as geo-political risk sentiment outweighed earnings announcements, and investors await RBNZ’s OCR (interest rate) decision today.
Meridian Energy rose +4.3%, after delivering bumper profit filled with one off items including the Tilt acquisition. Mercury Energy rose +0.7% despite its earning missing expectations, as it paid $50m to exit a price hedging deal which was losing it money and would benefit from higher earnings over the coming years.
Heartland Group Holdings fell -3.3% after its first half earnings were below expectations driven by softer than expected yields, however failed to provide a full guidance as stricter CCCFA rules were weighing down on lender eligibility and loan growth.
3 Things Markets will be Watching this Week
- Geopolitical Risks – Russia/Ukraine
- US housing data, and CPI (inflation) data from Eurozone. The RBNZ makes an interest rate decision.
- Local earnings with its busiest week, A2 Milk, Costa, Heartland Bank, Woolworths, Rio Tinto, Wisetech, Air NZ, Scales Corp, Summerset, Qantas, Delegat, Harvey Norman and Tourism Holdings reporting.