Infratil: remaining BUY rated
Infratil delivered a solid result ahead of expectations, with strong earnings across its businesses, especially One NZ (formally known as Vodafone NZ). CDC continues to deliver, while Wellington Airport (WIA), Longroad and Diagnostic Imaging showed signs of improvement.
There is still plenty of growth in the tank from its existing businesses and with $1.6 billion of available liquidity to make a major acquisition (the company is sitting on a lot of cash from One’s TowerCo sale). Infratil expects 2024 operating earnings (EBITDAF) to be $570 to $610m. We remain BUY rated as on IFT as our key NZ holding. We believe there are strong tailwinds and growth potential for many of IFT’s businesses – with Vodafone, Canberra data centre, Qscan and Pacific Radiology businesses all set to provide positive cashflow and earnings growth. We remain optimistic about IFT’s growth potential – which should outweigh interest rate risks that affect other more defensive, lower-growth companies. IFT hold a number of quality growth assets, namely their Canberra Data Centres (and now Kao Data) and renewable energy businesses (with the recent addition Gurin Energy) which mean they can play “mega” investment themes of date + AI expansion and a lower carbon future.
New Zealand
The New Zealand market (NZX 50 Index, -0.9%) was down yesterday as markets braced for the RBNZ’s OCR decision this week.
Given the budget last week being viewed as inflationary and added pressure from increasing immigration, food prices and wage growth, economists are predicting the OCR to peak at 5.75% -6.00%.Tipping for another 50 to 75 basis points of hikes over the next 2 to 3 meetings (Westpac and ASB forecasting a 6.00% peak, while ANZ at 5.75%).
Representatives from NBCUniversal are taking meetings in Auckland — we wonder if they are shopping around for a new streamer, or renegotiating the terms of their deal with Sky. AFT’s FY23 results met expectations, although the initial FY24 underlying EBIT guidance fell slightly below our expectations, we are more confident in achieving this guidance range compared to previous years – expecting EPS -8% for FY24.
US
Meta, TikTok & Regulation
Meta’s business case at the moment is basically: we have a lot of eyeballs on Instagram, and weirdly a lot of uses (still) on Facebook. It’s pretty compelling because that number stretches over a billion.
Even if your founder sinks tens of billions of dollars into his special interest project that nobody else likes (the “metaverse”) you are still printing ~$5.7 billion US dollars and generating cigarette-company-like margins. It sort of answers the question: what is the dumbest thing you can burn money on and still generate really good margins.
On the other hand, Instagram and Facebook are pretty old platforms and if you talk to any Gen Z person they will say they are on TikTok. They probably don’t use emails. Gen Z is wild.
This is a problem with you are Mark Zuckerberg and you are spending untold billions on your special interest project: you suddenly have a competitor who has ~1.6 billion users and an app that people spend hours on. That used to be your thing; now there’s these other guys doing it. They are perhaps doing it better. So part of your business case is that your competitor (TikTok) gets banned by a big country.
If you are a lobbyist for Meta there are a lot of things you can say: “it’s national security”; “it’s China”, “someone think of the children”.
The more states and countries that ban you the better it is for you, because you have a knock-off product for TikTok that you are very keen to replace it with (“reels”).
Well, Montana did just that – the state’s reason sounds deeply McCarhythian. They are banning it to “protect Montanans’ personal and private data from being harvested by the Chinese Communist party”. Perhaps they are right, of course, though this is more or less exactly what Meta has done in the US, which brings us to our second bit of Meta news: today the company was fined ~1.4 billion Euro over transferring EU user’s data to the US. A year or so ago Meta promised that they wouldn’t keep doing stuff like this. And here they are – unsurprisingly – transferring data. It’s not the biggest fan the EU could’ve imposed – they could’ve actually tripled it, but it sends a message.
The bigger thing, we think, is that a couple of years ago Apple changed privacy settings in its app store which materially affected Meta’s earning ability – part of its sales proposition to advertisers was “we will magically target exactly the right audience. If they dream about Orthopedic Shoes, we will know and show them the ad”. Apple’s changes, as well as EU privacy law, put a serious spanner in the works for the Company Formerly Known as Meta. Meta said they were using “AI” to get back on track: this fine from the EU points to something else: old fashioned data collection.
Meta’s stock is up +99% YtD, but on a longer time scale threats like TikTok and the EU fine point to deeper issues at the company: competition is here and it is real, and the era of data collection isn’t what it used to be. As LCD sound system once sang – “I’m losing my edge”.