Inflation Data Shrugged Off | Genesis Energy

14 April 2021

Global markets were higher overnight (S&P 500 index +0.3%) with US equities reaching record highs after March inflation numbers turned out to be not as bad as feared, and as markets shrugged off concerns surrounding a pause in the Johnson & Johnson vaccine roll-out. 

US futures initially dropped on the Johnson & Johnson news, but pared losses after the CPI inflation figures for the month of March came in at 0.3%, 0.1% stronger than anticipated – but seen as not enough to slow economic stimulus and equities. US Treasury yields and the US Dollar actually fell after the inflation report, but a jump in inflation remains a key near term risk for share markets that we are watching. 

Ahead of earnings season later this week, investors continued to shift back into the high-flying technology names, while utilities and consumer discretionary were the best performing sectors.

Genesis Energy (GNE:NZX/GNE:ASX)

Genesis Shares have pulled back recently with concerns around rising bond yields, as well as investors favouring fully renewable gentailers. In terms of stock specific news, Genesis delivered a strong result for the first half of the 2021 financial year where it lifted operating earnings (EBITDAF) +30% from last year to $217m, with strong performances from Genesis' Wholesale, Kupe and Retail segments

Given wholesale pricing is expected to remain supportive near term, we continue to remain BUY rated on Genesis as it offers an attractive dividend (~5%) well ahead of most electricity sector peers.

Australia & New Zealand Market Movers

The Australian share market held flat yesterday (ASX 200 index +0.04%) after a rise in technology stocks was offset by weakness from the major miners. 

Zip Co shares soared +17% after its US subsidiary, Quadpay, delivered record transaction volume, revenue and customer numbers over the third quarter as US shoppers flocked to its lending app. This created support for rest of the buy now pay later stocks, with Afterpay climbing +3.1%, Splitit +8.3% and Sezzle advancing +8.1%. 

Crown Resorts shares dipped -0.2% after US private equity giant Blackstone upped the pressure for the company to quickly accept its takeover bid, telling the gambling giant to kick off the takeover process before regulators make any more changes that could jeopardise the deal. 

Also in M&A news, private equity suitors eyeing Woolworths’ $10bn liquor and hotels business Endeavour Group are calculating the potential impact of a proposed NSW digital gaming card to crack down on money laundering and problem gambling, which the industry says could slash revenues by as much as $1.8bn. Private equity firms including Carlyle Group and BGH Capital are conducting due diligence on Endeavour’s liquor, hotel and gaming interests, assessing whether to make offers for the group before Woolworths proceeds with a long-awaited demerger. 

The New Zealand market rose on Tuesday (NZX 50 index +1.1%). with A2 Milk & Fisher & Paykel Healthcare leading gains. 

A Broker upgrade saw A2 Milk experience strong buying interest particularly from Aussie Investors, with the advisors stating their Daigou trade channels are showing signs of life after being effectively shut down.  

SkyCity Entertainment shares fell -1.2% after announcing it will stop dealing with junket operators to avoid being caught up in money laundering schemes to avoid issues licensing issues Crown is possibly facing. VIP (IB) business is highly volatile and higher risk and lower margin than its core business, so the move appears  sensible in light of the recent Crown turmoil. 

In other stock news, Comvita upgraded its earnings guidance to NZ$22.5-$25.5m (prev NZ$20-23m) – attributed to better segmental performance from key target markets China and North America, digital channel performance and better cost control from production and corporate overhead.

3 Things Markets will be Watching this Week

  1. Reporting season in the US also kicks into gear with 24 S&P 500 companies due to report including JPMorgan, BofA, Citi, Morgan Stanley and Goldman.
  2. Locally, the latest employment data in Australia is due while the RBNZ meets on Wednesday.
  3. Bank of Queensland will release 1st half earnings on Thursday with quarterly updates due from Transurban, Mineral Resources and Auckland Airport. AGM’s are scheduled for Santos, Woodside, NZME and Seeka.
Global markets were higher overnight (S&P 500 index +0.3%) with US equities reaching record highs after March inflation numbers turned out to be not as bad as feared, and as markets shrugged off concerns surrounding a pause in the Johnson & Johnson vaccin

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