Local Earnings Kick Off | US Bonds Peak

22 August 2023

NZ

Mercury Energy: FY23 EBITDA of NZ$841m exceeded the NZ$795m guidance and the NZ$581m from the previous year. Renewable generation in FY23 hit 9,039GWh, up by about 875GWh from the average. For FY24F, EBITDA is expected at NZ$835m (NZ$817m without insurance), assuming ~8,660GWh generation. Our FY24F EBITDA estimate rises from NZ$805m to NZ$839m with insurance gains. Prefer Genesis – offers better divvy.

Freightways: FY23 results were driven by the acquisition of Allied Express, boosting group revenue by about 29%. However, normalized EBITDA slipped by -1.1% due to margin pressures, notably higher labor costs in the Express Package segment. The full-year dividend of 37cps reflects a cautious approach due to the net debt/EBITDA ratio of 2.8x (target 2.0-3.0x). FRW remains wary of ongoing economic challenges. Good read-through for the best operator in the space – Mainfreight. Reiterating our neutral for A2 Milk. We don’t like commodity-driven products. China’s birth rate is slowing down. We think the -12% sell-off yesterday was well overdue, and we think a fwd P/E of ~20x values a commodity player very richly – could further risk to the downside given China related uncertainty, very little upside.


Aus   Westpac: A mixed 3Q23 for Westpac, with higher costs suggesting risk to FY24E earnings. Unsurprising; we prefer ANZ and MQG as better positioned ‘buys’ in the banking sector.   UBS is advising Solomon Lew’s Premier Investments on a possible breakup of the company into four parts — the company includes brands like Peter Alexander, Smiggle and stakes in Myer and Breville. Smiggle and Peter Alexander likely to be worth both ~$1bn each on their own. Likely could unlock +$500mn in value.

US   Ubiquitous sandwich chain Subway is slated to be sold to private equity firm Roark Capital for a rumored $9.6bn — the closely held firm peaked at around ~$18bn in system wide sales in 2012 and has since faced a decline — famously, an Irish court ruled the sandwich chain’s bread was “not bread”.   Watching this space closely.
SoftBank-backed chip designer Arm has filed for IPO on the NASDAQ. The chip designer, which has a near monopoly on the smartphone market, is expected to list at a +$70bn valuation. Anything under $60bn would be an “egg on the face” moment for Softbank. Potential blockbuster, but we avoid IPOs…(“I’ve been burnt on tips before”)
Chart: US 10-Year Treasury Hit 15-year High

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