Mixed Markets | Scales Update

9 December 2021

Global markets were mixed overnight, as US markets (S&P500 index +0.3%) were up for a third day in a row as Wall Street edges closer to all-time highs – as investors bet the economy will buck the omicron threat.

The rebound was helped by Pfizer and BioNTech who said three doses of their vaccine are effective at neutralizing the omicron variant, citing their own preliminary lab tests.

Most sectors were higher with travel and leisure stocks performing strongly; Norwegian Cruise Line up +8.9% and United Airlines up +5.2%. Streaming service Roku surged up +18.2% after reaching a deal allowing its to continue to show YouTube content on its devices.

European Markets (Stoxx 600 index -0.6%) were down as investors digest mixed covid news, positivity from the effectiveness of the vaccine and the UK government mandating working from home and vaccine passports. 

Scales Corp (SCL:NZX)

Scales shares jumped +3.3% yesterday after management expects underlying net profit to be in the upper end of the previously advised ranged of $32m to $37m, largely driven by strong performance of the Food ingredient business (which implied an Underlying Net Profit Attributable to Shareholders range of $23.5m to $28.5m).

Looking ahead to 2022 Scales expects to achieve a similar result, guiding Underlying Net Profit Attributable to Shareholders Guidance range of $23.5m to $28.5m. Management note increasing shipping costs and labour shortages are restricting near-term earnings growth.

We remain BUY rated on Scales, with a medium-term view for investors who want to play a quality agriculture exposure with SCL's apple export business, as well as their pet food business which is experiencing strong tailwinds right now. We also see upside when SCL make an acquisition given significant cash available ($100m).  

Australia & New Zealand Market Movers

The Australian market was up again yesterday (ASX 200 index +1.3%) rising for a fourth day in a row and erasing omicron losses, and is now just -3% off its all-time high from August.

Gains were broad based, with all sectors up, Communications and tech sectors leading gains.
An +8% increase in iron ore helped by Chinese authorities easing restriction on steel makers saw miners perform strongly. 

Magellan Financial Group recovered +4.3% as co-founder and CIO Hamish Douglass and his wife stated they had no plans to sell their shares after separating a few months ago.

Zip Rebounded +10.9% after a broker upgrade raised its outlook on the business, with other Buy now pay later stocks also performing strongly. Regulation could see customers forced to pay buy now, pay later fees currently borne by shopkeepers under plans for more intensive regulation of the sector in Australia.

Energy stocks were strong as the price of crude rose +4.6%. Woodside petroleum rose +2.1% after the company said it would invest $7 billion in emerging new energy markets (hydrogen and ammonia) in the next decade to help position the business as a key player in the transition away from fossil fuels. 

Bank of Queensland was flat after reiterating its +2% growth in earnings for the 2022 financial year as thanks to synergies from its acquisition and highlighting net interest margins would be lower due to industry wide pressure.

The New Zealand market was up strongly on Wednesday (NZX 50 index +2.1%) as investor sentiment grew more confident around the globe and most stocks trading higher.

Sky TV led the market higher for a second day in a row up +14.6%, as the market grew confident on the company. 

Stocks that had been suffering in recent sessions bounced back strongly, Kathmandu up +4.8%, while Pushpay rose +5.8%. New Zealand King Salmon slipped despite lifting its 2022 operating earnings guidance to $10.5m to $12.5m.

3 Things Markets will be Watching this Week

  1. Key events this week US and China CPI (Inflation) data, and trade Data from China.
  2. Developments around the Omicron variant of covid will be dominating headlines. 
  3. Locally, the RBA meets to review its cash rate, earnings release from Metcash, and AGM’s held by Bank of Queensland and Pendal.
Global markets were mixed overnight, as US markets (S&P500 index +0.3%) were up for a third day in a row as Wall Street edges closer to all-time highs - as investors bet the economy will buck the omicron threat.

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