Global markets were higher overnight, US Markets (S&P 500 Index, +0.9%) trading higher after minutes from the Federal Reserve’s May meeting.
The Fed revealed that they would need to raise rates quickly, not only with a 50 basis point rate hike at the next meeting, but opening the door for several 50 basis point rate hikes, to bring the cash rates above the “neutral” range and into a “restrictive” target – to combat inflation.
Most sectors traded higher as they try to rebound from selling, as risk of inflation getting out of control played a greater risk than higher interest rates. Consumer Discretionary was the best performing sectors as higher end retailers delivered robust earnings, after market had low expectations following weak earnings from retail giants over the l past week.
European markets (Stoxx 600 index, +0.8%) closed higher, lead by gains for oil and gas stocks in an attempt to recovery from its recent sell-off.
Closer to home, the RBNZ increased it OCR rate another 50 basis points to 2.00% – which came at no surprise. However, their guidance came with a more hawkish tone than earlier opening the door for two more double rate hikes for July and August meeting with a target rate of 3.25% by the end of the year, and a higher and much sooner peak of 3.9% by mid next year. Compared to a previous peak of ~3.25% by 2024. The primary goal is to bring inflation back down to 1-3% target rate and to front load as much rate hikes and to be in a position to cut back when and if needed.
Fisher and Paykel (FPH:NZX)
Fisher and Paykel Healthcare shares fell -3.9% after delivering their 2022 full year result which was in line with guidance provided earlier, however a lack of guidance gave investors nervousness on how the company would perform post-covid. Net profit after tax came in at $376m and revenue of $1.68 billion both down -28% and -15% form the previous year which benefited greatly from the pandemic. Despite the fall, revenue for the year was still up +33% from the 2020 result which did not benefit greatly from covid.
We still believe Fisher and Paykel is a top-quality stock, but the stock is likely to remain volatile over the near to medium term and despite the fall is still trading at a traditionally rich valuation multiple (~40x 2023 earnings, assuming a -10% fall in revenue from the current year). At the current juncture we believe patient long-term investors could start averaging in their position over the medium-term.
We remain BUY rated but with a caveat that it is suitable for long-term investors who can look through medium-term weakness and uncertainty post pandemic and Fisher and Paykel’s ability to recommence its modest double digit revenue growth from 2024 onwards which it had continuously achieved pre-covid.
Australia & New Zealand Market Movers
The Australian market was up yesterday (ASX200 index, +0.4%).
Most sectors were higher as consumer staples staged a recovery form its recent sell off to be the best performing sector, followed by materials and financials – these gains were offset by the continual slide of tech shares.
Costa group share jumped +8.6% after announcing earnings for 2022 would be $5m higher than expected, as strong demand for fresh produce internationally helped offset rising costs.
BHP shares fell -10% after trading special ex dividend, shareholders will receive 1 Woodside dividend for every 5.534 BHP shares they owned as part of the new energy merger deal with Woodside Petroleum. The new larger Woodside Energy Group (taking into account BHP’s energy assets) will trade with a new name and ticker of WDS:ASX and be a top 10 global energy producer. The merger is expected to be completed 1 June. After which, those new shares will then commence normal trading on the ASX boards a day later on Thursday 2 June.
The New Zealand market (NZX 50 index, -0.7%) was down on Wednesday following a weak result from Fisher and Paykel healthcare and a more hawkish tilt from RBNZ.
Pushpay shares managed to buck the trend rising another +3.6% on its news the previous day another potential takeover party being existing shareholders BGH Capital and Sixth Street. Pacific Edge jumped +5% in anticipation of its result due today.
3 Things Markets will be Watching this Week
- Geopolitical risks remain elevated given the Russia/Ukraine conflict.
- RNBZ monetary policy decision
- Local earnings from Kiwi Property Group, Arvida, Fisher & Paykel Healthcare, Pacific Edge, Mainfreight, Tower Insurance, Elders, and Select Harvest.