May’s Brexit Deal | Shorts Hit Next DC

13 March 2019

Global markets were mixed overnight with investors watching Brexit developments in London. Subdued US inflation data overnight also supported the view that the US Fed can be patient when it comes to interest rate moves. 

Support for Theresa May's deal is evaporating, throwing into doubt both the Brexit leadership and her own position as Prime Minister as her proposed deal looks to be headed for a second heavy defeat. While we do not think Brexit will have significant implications for global markets, it is an uncertainty which continues to dominate headlines and investor sentiment.


Stock in Focus: Next DC (NXT:ASX)

NEXT DC shares have been treated harshly after the release of its 2019 first half result. Given NXT trades on a high valuation multiple (in terms of current earnings) many in the market believe the stock is over-valued – NXT is one of the top 10 most shorted stocks on the ASX with about 11% of its shares being short-sold (short sellers are essentially betting that the price of a stock will fall). Given this backdrop, big share price reactions can occur even when news is not “that bad” and there is little room for error.

We continue to believe in the medium-term fundamental story behind NXT given the explosion of data as an investment theme. Looking at the result itself, NXT reported a net loss after tax for the half, largely attributed to one-offs relating to the acquisition of the property trust Asia Pacific Data Centre group. 

Operationally it appeared to be a sound result (although not enough to excite the market), with recurring revenue was up +23% from the previous period and underlying operating earnings (EBITDA) of $42.2m, up +26% from the same corresponding period last year. The result was driven by strong growth in customer numbers up +25%, who increased interconnections per customer by +7%.

We currently have BUY rating on NXT.



Australia & New Zealand Market Movers

The Australian share market was marginally lower on Tuesday (ASX 200 index -0.09%) despite jumping 0.7% at the open, as the major banks dragged the market lower. The major mining stocks led the market advance, with BHP, Rio Tinto, South32, and Fortescue Metals Group all making solid gains. In stock news, tech stock Appen fell heavily on Tuesday as the company returned from a trading halt after announcing the successful completion of its $285 million institutional placement to fund its acquisition on FIgure Eight Technologies.


The New Zealand market was a touch higher yesterday (NZX 50 index +0.07%) as the NZX remained underpinned by companies held for their reliable earnings and dividends. In stock news, retailer Briscoes Group reported a 3.4% lift in full year net profit despite what it said was "erratic consumer confidence". Briscoe Group, which owns the Briscoe's homewares and Rebel Sport chains and a minority stake in outdoor chain Kathmandu, said net profit for the year ended Jan. 27 was $63.4 million versus $61.3 million in the prior year.


3 Things Markets Will be Watching this Week

  1. Important US consumer inflation figures are published on Wednesday.
  2. US Federal Reserve Chairman Powell makes a speech on Tuesday.
  3. China will release retail sales, industrial production and fixed-asset investment reports on Thursday.


Have a Great Day,


Global markets were mixed overnight with investors watching Brexit developments in London.

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