Global markets were lower overnight (S&P 500 index -0.5%) as US stocks slipped from record highs, with technology and consumer discretionary stocks the major drag in the session.
Tesla was the biggest drag on the market as its shares fell (-3.4%) after one of their vehicles believed to be operating without anyone in the driver's seat crashed into a tree on Saturday north of Houston, killing two occupants. Bitcoin dropping -8.4% over the weekend also hit sentiment towards the stock as Tesla has a significant Bitcoin investment. Microsoft, Amazon, and Nvidia, also weighed on the benchmark index as the market awaits results this week and next, which form the bulk of earnings season. Investors will be watching results over reporting season to see if profits and guidance match up to high valuations – with expectations set high.
Scales Corporation (SCL:NZX)
Scales (SCL) shares have slowly edged higher after delivering a soft result for the 2020 financial year. Group operating earnings (EBITDA) came in at $53.9m up +2.2%.The key Horticulture business was weaker with earnings down -21%, offset by a surging Food Ingredients business who's earnings grew +71% supported by strong demand for pet food and margin expansion. Looking ahead into 2021, SCL still has some challenges to overcome for its Horticulture business as it deals with disruptions with global supply chains causing ongoing delays and increased costs. There are also well flagged issues around labour shortages in NZ which we are watching.
We continue to remain confident in Scales underlying business, with issues facing its Horticulture mostly short-term in our opinion. Overall we continue to remain BUY rated as we see growth potential for the business both organically and through potential acquisitions – given the large amount of funds available (circa $100m) for reinvestment.
Australia & New Zealand Market Movers
The Australian market (ASX 200 index +0.03%) was flat yesterday, and is just 1.4% away from reaching its record high set in February 2020 (pre-covid). Material financials and utilities were doing most of the heavy lifting for the day, which were offset by weakness from energy and technology.
Ocrobre and Galaxy Resources have agreed to a A$4 billion merger which will make the new entity a top five global lithium chemicals company by market cap. Under the agreement Orocobre shareholders will own 54.2% of the combined group while Galaxy investors will own the remaining 45.8%. Financials continue to trade stronger as they benefit from reduced worries over bad debts and a lift in long term bond yields, with eventual recovery in profitability and dividends.
The New Zealand market (NZX 50 index +0.7%) was higher on Monday, as travel stocks performed well on the first day of the trans tasman bubble. Led by Auckland International Airport which ascended +4.7%, being the greatest benefactor set to grow monthly earnings considerably. Air New Zealand lifted slightly, up +1.1%, with the airline stating it would transport 5,200 passengers in 30 flights across the Tasman – but they are still not out of the deep end yet with a looming capital raise.
Tilt Renewables' share price jumped 5%, after Mercury NZ and Powering Australian Renewables raised their takeover offer to $8.10 per share in exchange for exclusivity “no shop, no talk clause”. Meridian Energy had the day’s biggest fall, down -2.6% as the share price continues to settle after the enormous sell down from passive funds on Friday, while Contact was up +0.9% as investors establish a new fair value level.
Skellerup shares fell -0.9%, despite raising its earnings guidance for a second time this year up +18% – on the strong performance of its industrial and dairy consumable products.
3 Things Markets will be Watching this Week
- Corporate earnings season gets into full swing this week with around 80 S&P500 companies reporting, including Netflix, IBM and American Airlines.
- Highlights globally include the ECB’s latest interest rate call.
- In Australia, Wesfarmers will host an Investor Briefing while a number of quarterly updates are due including BHP, Northern Star, Challenger, Sydney Airport, Oz Minerals, AMP, Evolution Mining, Santos, Brambles and Woodside.
