Stock in Focus: Scales Corporation (SCL.NZX)
Scales Corporation shares managed to recover from recent lows last week after being oversold over the last 2 weeks. The full-year result ending December 2022 was mixed with China’s lockdowns affecting demand and pricing offset by its strong food business. Management still paid a half year dividend hinting things aren’t as bad as the market sell-off suggests given 11 of their 15 orchards were unaffected – ~72% of Scales’ output.
We change Scales to a High Risk BUY, but we are only buyers below $3.30 – until there is further information on regarding the cost of repairs to the damaged orchards. We still see some value given majority of its orchards were unaffected and its other businesses were also largely unaffected, diversification from its global protein business being the standout again, and its strong balance sheet.
New Zealand Market Movers
The New Zealand market (NZX50 Index, -0.2%) edged lower yesterday as it wrapped up the local earnings season. Merdian was down -0.8% despite its half year result showing the benefit of extra rain over the winter keeping the South Island hydro-dams full and realising a +$51m benefit closing out its electricity hedge.
Napier Port was flat after telling the market it expects cruise ships to return back to the port next week. We are neutral on the ports – NPH and POT – we think there are better infrastructure assets to be had elsewhere – why buy NPH at 16x EV/EBITDA when you can buy Infratil at 13x EV/EBITDA?
NZ Rural Land Company annouced a capital raise yesterday – 1 for 3 with the new rights offered at $1 (4 bps discount on the current stock price of $1.045. The capital raise is to purchase a North Island forestry estate for +$63.7m. We prefer Agrosy for real estate exposure.
Australia Market Movers
The Australian market (ASX200 Index -0.1%) edged lower on Wednesday, on a mostly weak day that saw most sectors lower except for miners which got a boost on news China’s manufacturing increased in the month of February – helped by relaxed covid restrictions.
The Australian economy grew by +0.5% in the fourth quarter of 2022, coming in lower than the +0.8% expected, whilst inflation for January was up +7.4% over the last 12-months. The weaker GDP, and “slowing” inflation which is down from an annual increase of +8.4% had markets questioning the RBA’s next interest rate decision – but it’s still likely to remain hawkish tipping for at least 3 more hikes.
US Market Movers
Manchester United has had a bit of chop this week – we note the offers are still on the table and the chop was likely caused by buyers wanting to enter into the stock at a lower price – unsubstantiated rumors in British tabloids caused the stock to drop a little (likely the buyers are potential acquirers). Likely this is pre-acquisition brinksmanship — the Glazers bought Manchester United via a lot of leverage and an all-cash offer should remain tempting.
Chart of interest – Assets did well in Jan, less well in Feb
What Markets will be Watching this Week
Monday
Earnings from Lynas, Invocare, TPG telecom, Woodside Energy and Downer
Tuesday
Earnings From Restuarant Brands Heartland Group
Wednesday
Australian CPI data
Australian GDP
Meridian Energy Result
Thursday
US Manufacturing PMI (Producer Inflation) data
Eurozone Inflation data
Eurozone Unemployment data
Friday
Pushpay shares will vote on the proposed takeover from BGH Capital/Sixth Street.
Japan CPI (Inflation) Data