Minor Inflation Miss| Xero  

11 November 2022

New Zealand Market Movers 

The New Zealand market (NZX 50 Index, -0.5%) fell on Thursday, despite a few favourable earnings reports. 

Mainfreight (-1.9%) failed to advance after announcing its half-year financial results to 30 September 2022, the strong result pre-released to the market. Revenue climbed +32.0% (or $729 million) to $3 billion and an interim dividend of $0.85 per share (payable on 16 December) was announced. The downside gleaned from the report is the company note that they expect a “moderation” in revenue from its Air and Ocean division in line with the decline in sea freight rates. 

Goodman Property (-1.0%) also released its financial results for the six months to 30 September 2022. While the company’s cash earnings improved +7.4% to $49.4 million, net profit fell considerably due to an absence of capital gains on its properties, with net tangible asset per share surprisingly holding flat over the period.  

Australia Market Movers 

The Australian market (ASX 200 Index, -0.5%) fell in line with the New Zealand Market. 

Origin Energy (+34.8%) surged after fielding a surprise joint bid from NYSE-listed Brookfield Asset Management and EIG worth $18.4 billion, representing a 55% premium on its Wednesday closing price. Regardless, Energy (-2.1%) was the worst performing sector on the day, with Woodside (-2.3%) and Santos leading losses (-1.6%). 

Elsewhere, Australian Consumer Inflation expectations lifted to 6.0% in November, up from 5.4% in October. 

Europe Market Movers  

European markets (Stoxx 600 Index, +2.8%) jumped on Thursday following the release of the US Inflation Rate data. Technology stocks (+7.6%) lead sectorial gains, with Oil and Gas (-0.4%) the only outlier in the red. 

US Market Movers 

US markets (S&P 500 Index +5.5%) experienced a phenomenal rally on Thursday thanks to US inflation for October coming in at 7.7% year on year and up +0.4% monthly, lower than the 7.9% year on year and +0.6% increased that was expected. While a minor beat was optimistically welcomed by the markets the fed emphasised the need for further hikes is still required and on the cards.  

As such, yields on US 10-year Treasury notes fell 30-basis-points to 3.8% and the tech-heavy Nasdaq100 (+7.2) surged. Amazon (+11.7%), Apple (+8.1%), Meta (+10.2%), and Microsoft (+7.5%) were some of the benefactors. All sectors closed higher led by huge rallies in interest rate sensitive sectors leading gains Technology (+8.0%), Consumer Discretionary (+7.5%), and Real Estate (+7.9%). 

With the lower yields, the USD has fallen across the board, with risk-on currencies the Australian dollar (+2.6%) and New Zealand dollar (+2.2%) among the best performers. 

 
Stock In Focus: (Xero.ASX) 

Xero  plunged -10.9% after Chief Executive Steve Vamos announced their resignation effective February 1, 2023 after 5 years in the job. Further, the company reported its earnings for the six months to September 30. Revenue jumped +30.0% to NZ$658.5m, and total subscribers increased +16.0% (to 3.5 m), all the while its net loss increased +172.9% to NZ$16.1 million from NZ$5.9 million the previous year. 

Revenue growth appears to be sound, while a jittery market was sensitive to the larger loss than expensive, and we believe much of the selling associated to CEO resignation. 
We rate Xero as a quality tech company, with plenty of growth potential over the medium to long term, albeit with some slow-down in growth levels over the near-term. Despite being sold off so heavily over the year, there is still a risk of further downward pressure over the near-term so would create buying opportunities and we still remain Buy (High Risk) rated.

What Markets will be Watching this Week (UTC +13) 

Monday 

Tuesday 
AU Westpac Consumer Confidence  

AU NAB Business Confidence reports.   

Wednesday 
CN Inflation Rate year-on-year OCT 

Thursday 
AU Consumer Inflation Expectations NOV 

Friday 
US Inflation Rate year-on-year OCT 

GB GDP Growth Rate year-on-year Q3 

NZ Business NZ PMI OCT 

Saturday 
US Michigan Consumer Sentiment NOV 

The New Zealand market (NZX 50 Index, -0.5%) fell on Thursday, despite a few favourable earnings reports.  Mainfreight (-1.9%) failed to advance after announcing its half-year financial results to 30 September 2022, the strong result pre-released to the market. Revenue climbed +32.0% (or $729 million) to $3 billion and an interim dividend of $0.85 per share (payable on 16 December) was announced. The downside gleaned from the report is the company note that they expect a “moderation” in revenue from its Air and Ocean division in line with the decline in sea freight rates. 

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