News

The New Zealand market (NZX 50 Index, +0.4%) rose marginally on Tuesday. Pushpay (-1.7%) fell after the company omitted to provide details concerning the takeover bids it was fielding. On Monday, Pushpay climbed +3.5% before being placed in a trading halt. Sky Network Television (+5.2%) surged, correcting for the -5.0% selloff the stock experienced yesterday after announcing it had sold its RugbyPass streaming platform and secured the rights to the World Rugby through to 2029. 

We initiate coverage of Domino’s with a HOLD rating. Domino’s Pizza is the world’s largest pizza chain. In the world of quick service restaurants, it is distinguished by i) it’s delivery/eat-out-first model and ii) the cheapness of its offering. For a long time, the leading pizza chain in the world was Pizza Hut. Pizza Hut was an eat-in concept. Delivery was secondary. Dominos made delivery primary and benefitted from cheaper store fit-outs (no dine-in floorspace, practically) and a pre-Uber Eats shift in consumer preferences to delivered food. Like its competitors Dominos largely franchises out, collecting a franchise fee and acting as the largest supplier to its stores (dough, cheese, toppings, etc). The delivery-forward model has faced some challenges as of late, as fuel prices and staff shortages eat into franchisee’s razor-thin margins.

The New Zealand market (NZX 50 Index, -1.7%) finally had a chance to react to the strong US jobs data released on Friday. Healthcare (-2.2%), Utilities (-2.1%), and Real Estate (2.1%) were the largest drags on the market on Monday. Materials (+1.0%) was the only sector in the green.

The New Zealand market (NZX 50 Index, -0.2%) feel marginally on Friday. However, its rally on Tuesday and Wednesday meant that the market closed higher for the week (+0.3%), ending 3 straight weeks of losses. The Australian market (ASX 200 Index, -0.8%) fell on Friday but still manged to seal their best week (+4.5%) in 2 years thanks to the Energy sector (+1.0%) and the seemingly dovish pivot from the Reserve Bank of Australia. 

We initiate coverage of McDonald’s with a NEUTRAL rating. As we wrote in our report on Starbucks, we like the quick service business because the set-up costs are relatively low, and the return is relatively high. Well-known brands are easier to sell; everyone knows what McDonald’s is. There’s a high degree of predictability baked into the model. We especially like McDonald’s because it is really a real estate company. The company owns roughly 70% of the buildings and 45% of the land of McDonald’s locations worldwide (excl. Russia). Franchisees pay a percentage of gross revenue (~10.7%) as rent and another percentage (~4%) as a franchise fee. The fact that McDonald’s sells burgers is incidental – it is a highly effective driver for franchisees to pay rent to the parent company.

US markets (S&P 500 Index -1.0%) fell for a second consecutive day on Thursday, raising bets that the bearish case for US stocks remain intact. However, they are still on track to end the week higher after experiencing its biggest two-day rally since 2020 earlier in the week. Utilities (-3.3%) and Real Estate (-3.2%) led all sectors into the red on Thursday, except Energy (+1.8%). 

US markets (S&P 500 Index -0.3%) swung from a small positive position in the last hour of trading to close in the red on Wednesday.  On the economic data front, the ADP Employment Change showed 208K jobs added to the US economy in September, slightly above market forecasts of 200K. Investors are now looking ahead to Friday’s release (UTC -4) of the Non Farm Payrolls (NFP) report.

We initiate coverage of Starbucks with a hold rating. The Seattle-born Starbucks is a globally known coffee chain with +33,000 stores worldwide. Starbucks has come under pressure from i) unionisation efforts ii) China’s extended COVID shut-down iii) shifting consumer tastes. Same-store sales in China declined ~43% in Q3 ‘22, whilst intl. same-store sales decreased 18%.

US markets (S&P 500 Index +3.1%) rallied for the second day in a row as Treasury yields ease from levels not seen in a decade. The US 10-year Treasury note yield has fallen to 3.625% on Tuesday, easing from the high of 4.0% hit on September 27th. Among the leaders of the S&P 500 were shares of airline and cruise line stocks, including Norwegian Cruise Line (+16.8%), Royal Caribbean (+16.6%) and Carnival (+13.3%), Delta Air Lines (+8.8%) and American Airlines (+8.6%).