Nasdaq Pulls Back | Scales Corp

30 October 2019

​Global markets swung between gains and losses overnight after tech shares slumped on a weaker than expected result from Google's parent Alphabet and ahead of tomorrow’s expected rate cut by the Fed.  A report from China suggested it may not sign a partial deal next month which also saw markets ease from their highs.

​All eyes are on the US Federal Reserve, which began its two-day meeting and is set to make an interest rate announcement tomorrow morning.​
 

Stock in Focus: Scales Corp (SCL:NZX)

​SCL shares broke into new all-time highs recently after delivering a well-received result for the first half of the 2019 financial year, as newly acquired businesses perform well. 

Scales reported net profit after tax of $121.8m, up significantly from the previous year of $34.8m as the recent result included a one-off fair value gain of $93.2m from Scales divestment activity. Ignoring the one-offs, underlying operating earnings (EBITDA) was $47.3m up marginally (+$0.2m) from last year. A strong start from the new businesses was offset by one-off inventory write-offs, and the core horticulture businesses strong performance in Asia and local markets was offset by slower start in the European market. 

While agribusinesses do come with associated risks – such as impacts from weather, currency moves, and commodity prices, we believe Scales still offers an attractive risk reward opportunity to gain exposure to global agricultural trends. We remain confident in SCL’s ability to growth their earnings both organically and via strategic acquisitions given the additional funds it has to reinvest – as it actively searches to make a value add agri acquisition.

We currently have a BUY rating on Scales.
 

 

  
Australia & New Zealand Market Movers

​​Australian shares finished the day slightly higher on Tuesday​ (ASX200 Index +0.07%)​, after a fall in energy and utilities weighed down a strong performance from the Tech sector in particular. Xero and Afterpay had a strong session. Lithium stocks notched up a second day of gains, partly because of civil unrest disrupting major producers in Chile.
Out-of-home advertising business QMS Media posted the biggest rise on Tuesday, gaining +23% after a bid for the company by Quadrant Private Equity was unveiled. On the flipside, Bega Cheese tumbled as the cheesemaker warned of tightening market conditions due to "the effects of the continuing drought and further decreases in total Australian milk production".
 

New Zealand shares edged higher​ yesterday (NZX50 Index +0.05%) following moves across most of Asia. Auckland International Airport and the Fonterra Shareholders' Fund led the market higher.​ ​Fletcher Building was down​ as there is speculation it may leave the MSCI New Zealand index in an upcoming reweighting, with some investors predicting Mercury will replace it.​ Index weightings are important as tehy drive investment flow from passive funds such as ETFs. ​Synlait Milk fell ​as the Supreme Court agreed to hear an appeal over whether there should be covenants restricting land-use on its Pokeno site where it's built a new factory.
 

 

3 Things Markets Will be Watching this Week

  1. ​ US earnings season for the 3rd quarter ​continues this week.
  2. The US Federal Reserve makes an interest rate decision Thursday morning AU/NZ time.
  3. ​​On the economic growth front, there will be important US economic data published at the end of the week.

 

Have a Great Day,
 

Team

​All eyes are on the US Federal Reserve, which began its two-day meeting and is set to make an interest rate announcement tomorrow morning.​

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