Global markets sold off overnight after Fed chair Jerome Powell was seen as signalling rate hikes could accelerate in his first testimony to Congress. Powell made relatively bullish comments on rates and wages and said big tax cut and spending deals recently passed by Congress would add a "meaningful increment to demand" in the economy over the next couple of years.
A number of agri stocks under our research coverage reported earnings yesterday including market darling Costa Group, agribusiness PGG Wrightson, and almond producer Select Harvests. Once again one of our top sector picks is agriculture as we see a “dining boom” driven by Asia as a multi-year investment theme.
Stock in Focus: Costa Group (CGC:AX)
Fruit and vegetable producer Costa surged 10% after upgrading guidance for full-year profit growth from 20% to 25%, and reporting higher revenue and earnings for the period as the company continues to deliver.
Performance was driven by strong performance in citrus and tomato categories and no major negative weather impacts. A full-year outlook was also provided as part of the results presentation, with management stating the portfolio has continued to perform well through January and February. Costa also continues to expand its business lines to keep up with demand, sealing a deal to buy two more avocado growers. The market is clearly excited about the prospects for Costa's avocado business, while the company is also undertaking major projects in mushrooms and berries, and would like to expand further in citrus via acquisitions.
We currently have a BUY rating on CGC.
Members should look out for a full update on CGC to be released in an upcoming weekly report.
Australia & New Zealand Market Movers
The Australian share market was higher yesterday (ASX 200 index +0.24%) as ASX sshares stretched a winning streak to five sessions on Tuesday, with banks doing the heavy lifting. Miners also climbed after iron ore rallied to a 10-month high on the possibility that steel supply curbs in China could go on beyond the Chinese winter.
In terms of company results, Caltex jumped after telling shareholders it will buy out all of its petrol franchisees by 2020. Almond producer Select Harvests disappointed the market as revenue fell -11% and operating earnings fell -32%. Almond prices remain subdued, although looking forward management believe that there is increased pressure on the 2018 US crop as a result of recent severe frost events.
The New Zealand market was higher on Tuesday (NZX 50 index +0.24%) as shares rose for a fifth day, following overseas markets higher. Gains were led by Synlait Milk after the milk processor bought a plot in Waikato for a new manufacturing facility, while Spark New Zealand, Fletcher Building, and Air New Zealand all gained.
In terms of company results, Mercury NZ slipped after the electricity generator-retailer reported record first-half operating earnings of $301 million as favourable rainfall flooded its North Island hydro schemes. New Zealand Oil & Gas was unchanged after reporting a narrower first-half loss having overhauled its portfolio.
PGG Wrightson was also unchanged after first half earnings beat expectations, and management upgraded their outlook for the full year as its agricultural businesses traded better than anticipated. Operating earnings increased to $34.2m in the six months ended Dec. 31, 2017, from $26 million in the year-earlier period. Forecast full-year operating earnings are expected to be between $65m to $70m, an improvement from its previous forecast for full-year earnings to be in line with last year's $64.5m.
3 Things Markets Will be Watching this Week
1. Local AU/NZ companies continue to report profit figures as earnings season is likely to dominate news flow.
2. New US Federal Reserve Chair Jerome Powell makes a speech to US legislators this week.
3. Important US economic data is released on Thursday (AU/NZ time), including GDP and inflation figures.
Have a Great Day,
Team
