New Zealand
The New Zealand market (NZX50, -0.3%) was done yesterday, despite inflation coming in lower-than-expected, suggesting increases are past its peak, however it is still not at a level for the RBNZ to consider reversing its rate hikes anytime soon.
Headline CPI inflation in NZ, come in at 1.2% on a quarterly basis and 6.7% on an annual basis mainly due to lower-than-expected tradables inflation. Economists had expected +1.4% quarterly increase and +6.9% annual increase. While a slowdown is welcome it is still far off the 3% target so leaving room for one more 25-point hike in May and then a pause for the remainder of the year (or unless something significant in the economy breaks).
NZ CPI (Inflation)
Argosy Property revealed a portfolio loss of $146.4m, a -6.4% decrease on book value over the last 12 months cap rates across the portfolio softening by 86 basis points up to 5.84% and the net tangible asset per share down from $1.74 to $1.57. This comes as no real surprise but we’d wait to see how debt levels are, we see risk of further valuation losses and interest cost headwinds impacting earnings and medium-term dividends, so are generally wary on the sector as a whole and would prefer to be buyers at attractive risk adjust dividend yields – which aren’t quite there yet, but we’re getting close.
US Earnings Continue
Pool Corp reported earnings today – net sales were down 15% YoY – a sign of consumer spending starting to wane – of course this quarter is typically one of Pool Corp’s most quiet quarters, as most of the US experienced a particularly cold and wet winter. EPS sat at $2.58 and operating margin sat at 12.1%. It’s one of the first signs we’ve seen of weakening consumer sentiment: pools are obviously a discretionary expense and one of the first things to be cut during a recession. Regardless, existing pools need to be maintained and this is where we see the bulk of Pool Corp’s revenue coming in the next few quarters – basically +$1B per quarter of recurring revenue or so. Still trading well below its peak levels – Pool Corp previously was trading at +30x earnings, now trades at 17x fwd earnings – retain buy.
American Express saw record quarterly revenue – +$14.28B but put aside +$1.1B for credit losses – of course, these losses might not eventuate, but the fact that Amex is setting aside so much reflects rising consumer debt & strained balances – management noted that services + travel spending is “off the charts” – Gen Z + Millennials are growing +28% and revenue looks set to grow +15% for the FY – in other words, consumers keep spending, but they’re spending on credit.
Australia
The Australian markets (ASX200, -0.1%) edged lower on another mixed day of trade.
Financials were the best performing after The Bank of Queensland reiterated its 20 cent per interim dividend, with weak earnings due to one-off non cash items which were flagged earlier. Operationally net interest margins improved which bode well across other major lenders.
