US
Seeing continued strong economic data out of the US – Intel’s sales of PC chips fell 12 per cent in the second quarter, to $6.8bn, which was a lot better than the ~26% expected by analysts, while GDP grew 2.4% (400 bps ahead of expectations). Looks like there’s enough “fuel in the tank” for another quarter or so – people keep spending.
Seeing strong data out of the UK too – retailer Frasers (owner of Sports Direct) posted a 15 per cent increase in revenue to £5.5bn for the 53 weeks to April 30, while adjusted profit before tax rose 40 per cent to £478mn. The strong data is attributed to Gen Z, who continue to “save up” to buy certain items to “keep up” in spite of the cost of living.
We think there’s value to be found outside of the “magnificent seven” which have dominated the market. Disney is trading near five year lows, alongside the telcos (Verizon, AT&T, Vodafone) and a smattering of pharma – Masimo, Illumina. Disney has short term headwinds – the actor’s strike first and foremost – but the brand value hasn’t changed. The telcos are facing legal action with regards to legacy lead cables – likely litigation risk will go on for some time. They’re not glamorous or exciting, but they trade at single digit multiples and pay a handsome dividend. Gucci owner Kering has purchased a 30% stake in Italian label Valentino from Qatar’s Mayhoola for €1.7bn (€350mn of EBITDA and ~€1B of debt values the business at 19x). The company has the option to buy the entire house by 2028. The move comes as Kering pushes to expand its business amidst flagging Gucci sales. We like the deal – Valentino is an iconic brand and it has grown very well since Qatar purchased it from private equity. It’s a better deal than the €3.5bn Kering paid for perfume brand Creed, which valued the brand at 23x earnings. Still yet to be seen how these purchases will impact Kering’s bottom line.
New Zealand
In contrast to the US the New Zealand market (NZX50) was flat after major companies issued warnings due to slowing domestic economic activity and weaker earnings coming.
Global transport and logistics company Mainfreight fell -2.48% after showing a 19.2% decline in group revenue to $1.18 billion for the June quarter compared with the previous period. Profit before tax slumped -43.3% to $83.6m — stating it’s expecting to see reduced volumes going forward.
Ryman Healthcare told shareholders at their AGM that the full-year underlying profit guidance remained at $310m-$330m.
Their portfolio it set to increase towards the lower end of the outlook of 750-800 units, and net investing cash flow will also be at the lower end of the $800m-$1b range.
Pacific Edge shares are currently down -29% revealing the proposed LCD released by the Medicare Administrative Contractor (MAC) Novitas notes the Cxbladder tests are ‘not considered medically reasonable and necessary’, the threshold required for coverage under the US Social Security Act.
CEO Dr Meintjes said:
“We continue to believe the evidentiary review of DL39365 and its predecessor L39365 appear to misunderstand the intended use of the Cxbladder tests, which is to “rule out” patients who would otherwise receive an unnecessary cystoscopy and that this has significant clinical value to physicians, patients and payers like Medicare,”.Pacifc Edge will fight to reinstate coverage, but unfortunately have no solid Plan B which we were after (or major push towards other markets enough to ensure breakeven without Medicare Coverage). We attended the AGM yesterday, with management stating the current $71m cash reserves likely to last 4-years assuming no more coverage – management appear “hopeful” and going all in on getting coverage reinstate — we aren’t sold and view this as a last shot “hail-Mary”. We wouldn’t bet on a reinstatement.