Stock Dispersion | Tower Update

3 February 2022

Global markets were higher overnight, with US markets (S&P 500 index +0.9%) marking the fourth straight day of gains as investors direct their attention to mixed  earnings results.

Alphabet (Google) rose +7.4% during normal trade following their strong earnings beat. Chipmaker AMD rose 5.1% on strong earnings and guidance, while Qualcomm rose +6.2% ahead of its earnings.
On the flipside, Paypal tanked -24.6% after issuing disappoint guidance, blaming inflation and Starbucks dipped -1% slightly after reporting earnings miss and cuts its earnings guidance outlook for 2022.
We see increased dispersion in returns across stocks this year, as some outperform while others lag, a good environment for stock picking rather than passively buying the market. 

Overall it was a generally upbeat day as some stocks which recovered strongly over the last week also pulled back as investors looked to take profit, like Netflix (-6%), Tesla (-2.8%). After hours Facebook (Meta) has come our with a weak result. 

European Markets (Stoxx 600 index +0.7%) lost steam along with the US markets but still ended up +0.7% as strong earnings outweighed concerns that the European Central Bank would announce interest rate hikes at its meeting today; financials increased +1.1% on prospects of higher rates.

Tower Insurance (TWR:NZX / TWR:ASX)

Tower Insurance shares jumped +5.2% yesterday after holding a positive AGM, reiterating their 2022 full year net profit guidance of $21m to $25m. The Tongan eruption update is still being assessed, with a clearer a picture  1-2 months away, with reinsurance cover up to $873m of cover for catastrophe events like this and a statement that the reinsurance excess of $11.25m is within the $20m aggregate Tower has set aside this year.

Operationally Tower is performing well experience Gross Written Premium growth of +12% over the same period last year which is related to inflation based rating adjustment and that customer numbers grew +6,000 over the first quarter to 310,000.

We remain BUY rated on Tower, as it offers an attractive divided yield ~7%, and part of its business (investment income) benefits from rising interest rates. 



Australia & New Zealand Market Movers

The Australian market was up on Wednesday (ASX200 index +1.2%) as investors weigh up strong corporate earnings against recent interest rate driven sell-off.

Most sectors were up with Energy and Materials leading gains on strong commodity prices, a weaker Aussie dollar boosting earnings outlook for many exporters.

Telstra’s shares were up +1% after announcing plans to invest $1.6 billion into two major telecom infrastructure projects. Aristocrat shares rose +0.9% after failing to close the $3.9 billion Playtech acquisition after failing to reach 75% shareholder approval. 

The New Zealand market (NZX 50 index +1.9%) was up strongly yesterday, with modest gains across most of the market.

Mainfreight led the market higher surging +6% after delivering a solid trading update, as it continues to benefit from attractive Air and Oceans rates, as revenue rose +45% from last year, and profit before tax up +85%. 

Tower jumped +5.2% after reconfirming its earnings guidance of $21m to $25m, and reporting it adding 6,000 new customers. 

Travel stocks were higher Auckland International Airport (+5.5%) and Air NZ (+2.7%) in anticipation of the NZ Government’s announcement today on possible relaxation of international borders for NZ citizens, (particularly critical workers) who are still required to self-quarantine at home. 


3 Things Markets will be Watching this Week

  1. A big week of data, with US employment numbers (nonfarm payrolls), Bank of England and ECB meetings due this week 
  2. US earnings from Alphabet, Meta Platforms (Facebook), and Amazon are set to be reported this week
  3. Locally, the RBA announcement on the cash rate will be made today and NZ employment data will be closely watched. 
Global markets were higher overnight, with US markets (S&P 500 index +0.9%) marking the fourth straight day of gains as investors direct their attention to mixed earnings results.

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