Global markets were lower overnight following the resumption of a sell-off across US Technology stocks, with the latest round of selling being triggered by a record fine against Google’s parent company Alphabet from the European Union. On the flipside, mining stocks were well supported following a rebound in the price of iron ore. Investors also digested a speech in London by US Federal Reserve Chair Janet Yellen, in which she signalled there will be more interest rate hikes ahead.
Closer to home, the NZ market hit a fresh all-time high yesterday, while the ASX slightly lower. One of the stocks hitting headlines was Tegel (TGH.NZ / TGH.AX) which we discuss below.
Stock in Focus: Tegel (TGH.NZ / TGH.AX)
Chicken producer Tegel announced its full-year earnings results yesterday, with a 0.8% increase in its operating earnings (to $75.6m), 5.4% growth in revenue (to $614m) and 7.1% growth in poultry volumes. The result saw the share price initially jump over +4% before losing momentum over the course of the day.
Overall it was a decent result given the circumstances in our view – although at the lower end of the revised $75m-to-$85m forecast range the company guided to in December. The issue for TGH is the low levels of the chicken price, which has meant that strong sales growth and volumes gains are not translating into earnings.
In terms of outlook, management said that based on the current market conditions, TGH expects to deliver an increase in earnings for the year ahead (without giving more explicit guidance).
Further, we would point out that it appears chicken prices have recovered and at the very least stabilised over the last few months. The true turnaround for TGH will come when chicken prices normalise and the share price now looks to us to have bottomed.
We remain firmly BUY rated on TGH as a medium term investment and members should lookout for a full update on TGH to be released in our weekly report.
Australia & New Zealand Market Movers
The Australian share market was slightly lower on Tuesday (ASX 200 index -0.10%) as a late rally in the mining sector wasn’t enough to push the market into positive territory. An upbeat speech by Chinese Premier Li Keqiang saw iron ore futures jump, which in turn saw buying support across mining sector stocks such as Fortescue.
The New Zealand market made gains on Tuesday with the NZ market hitting a new record high (NZX 50 index +0.41%) bolstered by a recovery in Comvita after the manuka honey health products maker downplayed the impact the Myrtle Rust fungal disease would have on the wider industry. Shares in Tower Insurance also surged after news its board was backing an Australian takeover bid by Suncorp to buy all of Tower's shares for $1.40 each pending shareholder and regulatory approval..
3 Things Markets Will be Watching this Week
1. Whether the Oil price stabilises after falling for 5 straight weeks
2. US Fed Chair Janet Yellen speaks in London on Tuesday.
3. NZ trade data is released Tuesday.
Have a Great Day,
Team