Global markets were mixed overnight on the back of upbeat quarterly reports from retailers and in anticipation of a US-China trade deal as early as this month end.
Closer to home, yesterday saw the Reserve Bank of Australia (RBA) hold official interest rates at 1.5 per cent yesterday for the 27th consecutive meeting, despite continuing signs the economy is struggling. The decision to stay put was expected by financial markets and analysts, although there is a growing view that the RBA will have to cut interest rates in the near future.
Stock in Focus: Tourism Holdings (THL:NZX)
Tourism Holdings (THL) shares have taken a hit after posting a -23% decline in first-half profit and trimming the top end of its guidance for annual earnings.
However, the profit decline was on the back of increased investment into the TH2 joint venture which was previously announced and should have come as no surprise. Overall the core business continues to perform well despite weak vehicle sales within the US, offsetting solid performance from the Australian and New Zealand businesses, resulting in group revenue falling -1% from the previous period to $207.3m.
Despite the lower net profit, THL announced their 2019 dividend is likely to remain flat from 2018, as they choose to pay an attractive dividend to shareholders. THL have also trimmed their 2019 full year earnings guidance slightly – to adjust for the near weakness in RV sales in the US market, although THL continue to remain upbeat given they see this as largely cyclical and there are no long-term concerns with their ability to adjust capital expenditure accordingly, with expectations to reach net profit after tax of $50m by 2021.
We continue to see THL as a business set to benefit from a multi-year tourism boom across New Zealand and Australia, and a beneficiary of any NZD weakness.
We currently have a BUY rating on THL.
Australia & New Zealand Market Movers
The Australian share market retraced on Tuesday (ASX 200 index -0.29%) despite a rally during afternoon trade as the market paused amid a lack of news on trade talks between the US and China. Metcash was the best performing stock inside the benchmark index on Tuesday after the company's strategy shift was received positively by analysts. On Monday, the company said it was chasing sales growth by spending $300 million over five years buying and refurbishing stores, opening small stores and ramping up digital investment.
The New Zealand market fell yesterday (NZX 50 index -0.15%) in light trading, following the end of earnings season, as local investors followed overseas leads where markets were generally weaker. Fonterra Shareholders' Fund units rose even after Fitch Ratings put Fonterra on notice of a potential credit rating downgrade, saying the milk processor's asset sale programme is critical to reining in its debt.
3 Things Markets Will be Watching this Week
- The Reserve Bank of Australia makes an interest rate decision on Tuesday.
- The final few local companies report earnings this week, wrapping up the current earnings season.
- Important monthly US employment data is released at the end of the week.
Have a Great Day,
Team
