Infrastructure Boost | Kathmandu – Relative Value

9 November 2021

Global markets were in the green overnight, as the US market (S&P 500 index +0.09%) inched higher, following the $1 trillion infrastructure bill being passed over the weekend.

Stocks set to benefit from infrastructure spending were higher, with materials and energy leading gains, while these were offset by losses from utilities and consumer discretionary.

Chip maker AMD rallied +10.1% after the company announced it won Meta, formerly known as Facebook, as a chip customer and revealed new chip products. Record Bitcoin prices sent cryptocurrency exchanges Riot Blockchain (+16.2%) and Coinbase (+6.8%) soaring.

European Markets (Stoxx 600 index +0.04%) were a touch higher as gains from commodity stocks were offset by losses from travel and leisure.

Kathmandu (KMD:NZX / KMD:ASX)

Kathmandu shares are currently lower after providing an understandably weak update for the first quarter of 2022 (13 weeks to 31 October 2021).

Covid enforced store closures in NSW, Victoria, ACT and NZ were more severe than prior comparative period, resulting in a operating profit to be $35m lower than the same corresponding period last year due to Rip Curl sales falling -9.4% and Kathmandu sales down -17.6%. Encouragingly, online sales have grown strongly at a +33.8% rate, with Rip Curl +11.2% and Kathmandu +58.4%.

KMD shares have lagged retail peers, particularly those with a large online presence, which have benefitted from an online shopping surge during lockdowns.
We remain BUY rated with a high risk caveat on Kathmandu as our preferred retailer due to its attractive valuation relative to retail competitors, while also benefitting from a re-opening of economies given the nature of its products.  


Australia & New Zealand Market Movers

The Australian market was down yesterday (ASX 200 index -0.1%), as gains across travel stocks were offset by losses from a number of blue-chip stocks, breaking a three-day winning streak.

Sydney Airport rose +2.8% after its board backed the $8.75 per share takeover offer from IFM investors, sending other travel related stocks higher Flight Centre (+5.7%), Webjet (+4.8%), Qantas (+4.1%). Energy and mining stocks were also higher on stronger commodity prices as well. BHP added +0.8% after announcing the sale of its metallurgical coal joint venture in Queensland for US$1.35 billion.

Tech stocks led losses, Aristocrat Leisure shedding -2.1% after its £2.1b takeover offer for UK gambling software group Playtech came under pressure after news reports stated another company had been given access to due diligence data, while Xero (-4.9%), Afterpay (-0.6%), Appen (-3.7%) all experienced losses.

The New Zealand market was down on Monday (NZX 50 index -0.3%).

Despite more shares rising than falling, market heavyweight Fisher and Paykel Healthcare fell -2.6% being one of the main contributors to downward pressure as increased vaccination rates and lower hospitalisation rates are weighing down on the company’s recent covid boom as investors await its upcoming result.

A2 Milk (-3.2%), Pushpay (-1%) and Mainfreight (-1.9%) were all down with the former holding its AGM soon, while the latter two are due to report.

Auckland International Airport rose +1.4% after good news from Sydney Airport, where the board agreed to the A$8.75 takeover bid. Reopening plays were higher as Air NZ (+1.5%) highlighted higher domestic capacity form 6th December. Likewise Tourism Holding jumped +3.2% with higher vaccine rates locally hinting towards an opened up summer for domestic travel.

3 Things Markets will be Watching this Week

  1. Key events this week include CPI (inflation) data from the US and China.
  2. Employment data from Australia.
  3. Local earnings from James Hardie, NAB, Pushpay, Xero, Orica, Infratil, Goodman Property, Pusdpay and Mainfreight and AGM’s are scheduled for Contact Energy, Fortescue, Ansell, Coles Group, Lendlease, Charter Hall, Computershare and REA Group while Investor Days will be hosted by Stockland and Kathmandu.
Global markets were in the green overnight, as the US market (S&P 500 index +0.09%) inched higher, following the $1 trillion infrastructure bill being passed over the weekend.

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