Please not that our regular daily market insights will resume in mid-Jan 2018. We wish everyone a Merry Christmas and a prosperous New Year.
Global markets were mixed overnight as shares on Wall Street took a breather as investors await Republican controlled Congress votes to pass their tax-cut bill. The promise of an impending US tax reform plan has sparked global risk-on sentiment which has kicked off the Santa rally not only in the US but on the local AU/NZ markets as well.
Stock in Focus: Z Energy (ZEL:NZ / ZEL:AX)
Shares in Z Energy have rebounded over the last month after their first half profit result was well received by the market. In other news, the governments probe into fuel prices continues with the MBIE recommending the Commerce Commission be given increased market studies powers next year to further investigate pricing in the petrol market. It is very early to tell what (if any) implications will arise from the studies.
Looking at the result itself, Z Energy reported net profit for the half of $80m up 10% from last year, with sales revenue up +26% from last year to $2.08Bn on due to strong fuel volume growth. The result was driven by full six months of operation from the acquisition of Caltex from Chevron, and better refining margins. At the same time, competitive pressure played a part in weaker retail fuel margins dropping from 18.2 cents per litre to 17.3 cents per litre.
We are currently HOLD rated on Z Energy.
Members should look out for a full update on Z Energy to be released in today’s weekly report.
Australia & New Zealand Market Movers
The Australian share market continued to rally yesterday (ASX 200 index +0.54%) as Investors flooded into shares, buoyed by new record highs on Wall Street and a broad-based lift in commodity prices.
In stock news, Retail Food Group (RFG) shares continued to plummet after the company advised of a fall in its 2018 first-half financial year statutory net profit after tax (to $22m from $33.5m previously). RFG is the 6th most shorted stock on the ASX and its shares have hit an 8-year low after the profit downgrade, reflecting the extreme negativity around the franchise giant at present. RFG said its Michel's Patisserie, Brumby's and Gloria Jean's brands were now trading below expectations while its Crust and Donut King brands continued to meet expectations, with Fairfax Media's recent investigation of franchisees crushed by excessive fees contributing to a "noticeable decline in momentum in new and renewing franchise sales". Among other things, where a franchisee fails and a new buyer can't be found, RFG is on the hook for any remaining rent, and Fairfax Media has found more than 200 of its 2500 stores are for sale.
Investors who believe RFG can ride out the adverse publicity, as well as what its update called "persistently challenging domestic retail conditions", may see the stock as very cheaply valued at its current price. On the flipside we would be cautious given the company clearly has issues with disclosing relevant information to the market.
The New Zealand market was in positive territory on Tuesday (NZX 50 index +0.68%), led higher by Freightways and Comvita, as a2 Milk and Fletcher Building rebounded from recent selling ahead of the Christmas holiday. In stock news, retirement village company Summerset lifted full-year earnings guidance on strong resales volumes and margins as well as good margins on new occupation right sales. It now expects underlying profit to be in a range of $77 million-to-$79 million in calendar 2017 versus prior guidance of $72 million-to-$75 million.
3 Things Markets Will be Watching this Week
1. US Politics with Tax Reform taking centre stage.
2. Minutes from the last Reserve Bank of Australia meeting are released on Tuesday.
3. NZ GDP data is published on Thursday.
Have a Great Day,
Team