US markets (S&P 500 Index -0.2%) closed lower for a sixth straight day on Tuesday, setting a new low for 2022. Only the Energy (+1.2%) sector ended in the green to any significant degree.
Financials (-0.3%) closed lower just as news broke that 16 Wall Street firms (including the major banks) had settled with the SEC, for approximately $2 billion, for failures in their record keeping. Morgan Stanley (-0.4%), for one, said in July it was setting aside $200 million to settle this issue – a figure that JPMorgan (-0.9%), Bank of America (-1.5%), and Citigroup (-1.0%) were likely to mirror.
In other news, Disney (-2.3%) fell on Tuesday and announced that it will be closing all four of its Orlando-based theme parks for at least two days (beginning Wednesday), as Hurricane Ian, a category three storm, strengthens en route to Florida.
European markets (Stoxx 600 Index, 0.0%) closed flat on Tuesday, giving up early gains above 1 percent.
Attention remains on the British pound (-0.2%) as it consolidates at a 37-year low and potentially approaches and crosses parity.
Scales Corp (SCL: NZX)
Scales Corp (-6.8%) fell to $4.66 on Tuesday after the agribusiness group announced plans to expand its Global Proteins divisions in Australia with a A$27 million investment. The expansion will be funded entirely from the company’s existing cash reserves.
Investor impatience might have contributed to the sell-off in SCL. In the announcement, the company noted that the new Australian operations are not expected to affect its FY22 results positively, and that there is a “possibility for some disruption to earnings whilst the investments are integrated and ahead of Meateor Australia becoming fully operational.”
We remain comfortable with our BUY on Scales with an upbeat medium-term view and see organic growth from its underlying business once labour and supply chain issues start to normalise.
Current valuations remain supportive of Scales’ existing business, which is still set to pay a ~4% dividend, while the recent sell-off provides an attractive entry opportunity. We see growth potential for the business both organically and from any potential acquisitions – given the large amount of funds available for reinvestment: SCL has a $100m net cash position currently, which could fund $200-$300m in acquisitions.
Australian & New Zealand Market Movers
The Australian market (ASX 200 Index, +0.4%) rose with a rally in coal and lithium stocks. Thus, Materials (+2.6%) and Energy (+1.7%) were the best performing sectors on the day.
Lithium explorer MetalsGrove Mining (+119.1%) doubled to $0.23 per share after identifying significant lithium potential in Western Australia.
Meanwhile, the Australian dollar (-0.6%) continued its slide against the US dollar in line with other major pairs.
The New Zealand market (NZX 50 Index, -1.9%) fell significantly after selling pressure built up over the long weekend.
Air NZ (-3.4%) closed lower on the day, even after fuel prices fell below US$85 per barrel for the first time in 9 months.
Synlait Milk (-5.3%) fell more than 5 percent after it published its FY22 results for the 12 months ended July which put the company back in the black (Net profit $38.5m vs $28.5m loss in 2020/21)
The New Zealand dollar (-0.1%) fell marginally lower against the US dollar.
What Markets will be Watching this Week (UTC –4)
Monday
Germany Ifo Business Climate (SEP)
Tuesday
US Durable Goods Orders MoM (AUG)
US New Home Sales (AUG)
Wednesday
Germany Consumer Confidence
NZ Business Confidence (SEP)
Thursday
Germany Inflation YoY (SEP)
China Caixin Manufacturing PMI (SEP)
Friday
Japan Consumer confidence (SEP)
Euro Area Inflation Rate YoY Flash (SEP)
