Global markets were higher overnight as markets took slightly stronger than expected US inflation data in their stride.
As we have discussed previously, inflation figures will be the key data points to watch this year as inflation data will determine how quickly the US Federal Reserve will raise interest rates in response to any inflation concerns. investors have revised up their expectations for interest rates recently, and there is growing consensus around four rate hikes by the Fed this year. At the moment, policymakers have signalled three.
There were a number of announcements from companies we cover yesterday as the local earnings season gets into full swing including, Genesis Energy, CSL Ltd, Woodside Petroleum, and Fletcher Building.
Stock in Focus: Fletcher Building (FBU:NZ / FBU:AX)
The big news yesterday was Fletcher Building (FBU) announcing another profit downgrade, once again stemming from delays and cost blowouts from their problematic construction (B&I) division.
The most recent downgrade is a $486m provision spread across 14 projects, primarily driven by the International Convention Centre project which is now expected to generate a loss of $410m. The downgrade has come after new CEO Ross Taylor led a strategic review of the business, and the higher expected losses have caused a breach of FBU’s debt covenants (this resulted in halted trading as FBU negotiated with debt holders). FBU are confident that they will be able to have the breaches waived, especially considering the majority of the losses are non-cash.
Looking ahead, Taylor has stated that all available resources will be focussed on completing the existing projects on time and within the limits of the new provisions, and FBU will not be bidding on any new commercial construction projects. In fact, it appears likely that the problematic B&I division will be wound down once existing projects are completed, and FBU will cease to operate in what they see as a difficult commercial construction market. Results of the full strategic review of the business led by Ross Taylor are set to be released in June.
We currently have a HOLD rating on FBU and recommend investors do not panic-sell. However, we would like to see signs of positive news flow before potentially changing our recommendation to a buy.
Members can login to read our full update and views on Fletcher Building.
Australia & New Zealand Market Movers
The Australian share market retraced on Wednesday (ASX 200 index -0.25%) as financials were the weakest performers by sector but most of the weakness was due to CBA falling as it started to trade without rights to its latest dividend pay-out.
ASX investors were also keying into corporate earnings, with several companies seeing some big share price moves after updating investors. Among the movers was pharma giant CSL which climbed 5.1% after it said its half-year net earnings jumped 31 per cent to $1.375 billion as it boosted its full year profit guidance and half-year dividend. Woodside Petroleum entered a trading halt as it announced net profit was 18% above the prior year and that the group will seek to raise A$2.5 billion from investors to fund the acquisition of an up to 50% additional interest in the Scarborough gas field.
The New Zealand market was lower yesterday (NZX 50 index -0.78%) as the market index was weighed down by Fletcher Building. In other news, Genesis Energy gained as It lifted first-half earnings 28% as low hydro-lake levels in the South Island boosted the company's demand for wholesale electricity. Earnings before interest, tax, depreciation, amortisation, and fair value adjustments, the favoured measure of power companies, rose to $199.5m in the six months ended Dec 31 from $155.7m a year earlier.
3 Things Markets Will be Watching this Week
1. Local AU/NZ company profts as the earnings season continues.
2. US earnings season moves into its latter stages.
3. Closely watched US inflation data will be released Thursday morning (AU/NZ time).
Have a Great Day,
Team