Powell Gets Dovish | Air New Zealand – Still Negative

28 August 2020

Global markets were mixed overnight, with the Nasdaq (US technology index) lower while the broader US S&P 500 advanced +0.2%.

Investors digested the US Federal Reserve’s new strategy to adopt an average inflation target and restore the United States to full employment. Chairman Jerome Powell reiterated that the Federal Reserve will remain accommodative and said the Fed will seek inflation that averages 2% over time, a step that implies allowing for periods of overshoots. This is a big change in approach and implies that short term interest rates will likely remain even lower for longer, with inflation now less of a risk for stock markets, in our view. 

Closer to home, the NZ and Australian market is in its last few days of earnings season.

Air New Zealand (AIR:NZX / AIZ:ASX)
Air New Zealand reported its first loss in 18 years, with a 2020 financial year underlying loss of -NZ$87m, with a significant decline through the second half of 2020.

While it was not quite as bad as it expected, the airline won’t pay a final dividend and it expects to draw down on the government’s loan facility in the coming days. Its share price was up 0.4% when trading stopped.

Importantly, there was no update from Air NZ on capital structure beyond noting its ongoing engagement with the Crown, and forecast monthly cash burn of NZ$65m-85m going forward. CEO Greg Foran in the media confirmed a capital raise within the next six months “is part of our thinking” and noting that “we have a strong partnership with the government – they’re a 52% shareholder – and we’re in discussions with them. But no decisions have been made".  

We believe Air New Zealand are delaying an inevitable capital raise (which will be at a significant discount to current share price), and we remain firmly SELL rated. 


Australia & New Zealand Market Movers

The Australian market was a touch higher yesterday (ASX 200 Index +0.1%) as corporate reporting season continued, with Flight Centre plunging to a loss as the coronavirus pandemic hits the travel sector – although its shares were flat as the result was expected. In the big end of town, gains for the miners offset falls for banks and energy stocks.

Woolworths shares were higher as its net profit has fallen -57%, despite the coronavirus pandemic lifting supermarket sales. The company's full-year profit fell to $1.16 billion, as the closure of its hotels and pubs due to COVID-19 restrictions offset a strong performance at its supermarkets division.  Comparable supermarket sales rose 8.9% in the fourth quarter, ahead of the 7.1% rise at rival Coles.
Afterpay posted an annual loss of $19.8 million, improving on last year's $42.9 million loss. Its shares were more or less flat but have rocketed higher this year, up 200% since January 1 and more than 900% since its low point in March.
Bega Cheese was among the best performers on the benchmark index, with its shares rising 7.8​%​ after its net profit surged to $21.3 million.
Shares in data company Appen dived ​-​11​% as its revenue came in below analysts' estimates.

The New Zealand market was up  (NZX 50 Index +0.2%) hitting a new record, before a third cyber attack shut down the exchange after just one hour of trading. Embarrassingly for the NZX, the market has once again shut-down and halted trading this morning. 
Before the trading halt, Vista Group International had been leading the market, up +19% as the cinema software company reported a $43.2 million first-half net loss but claimed a stronger competitive position than before.
NZ King Salmon shares were a touch higher even though its earnings were at the bottom end of guidance on the back of weak 2019 fish performance and lower demand due to Covid-19.


3 Things Markets Will be Watching this Week

  1. ​​​​​​​​​​​​​​​COVID-19 related news-flow remains key, with second wave and lockdown headlines, while US Congress debate what an extension of stimulus will look like.
  2. Investors will be looking for guidance from the world’s Central Bankers as they meet (virtually) at the Jackson Hole symposium
  3. Locally, it is another big week of earnings ahead. Companies of note reporting include: Fortescue, Chorus, Ansell, Stockland, Meridian, Spark NZ, Ramsay Health Care, Woolworths, Air NZ, Boral, NEXTDC and Port of Tauranga.


Investors digested the US Federal Reserve’s new strategy to adopt an average inflation target and restore the United States to full employment.

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