Global markets rallied overnight, as upbeat manufacturing numbers from the US & China eased worries about slowing economic growth.
While most global growth indicators have softened in recent months, they are overall still consistent with at least moderate growth (i.e. no recession) and low inflation. Investors are keeping an eye on data and Asian markets surged higher after surprisingly strong Chinese manufacturing numbers. We will continue to watch developments as it needs to be kept in mind that we have experienced a period of very strong economic growth in the US.
Stock in Focus: Briscoes Group (BGP:NZX)
Continuing on with our retailer theme, today we touch on the recent result from Briscoes Group (which owns Briscoes, Rebel Sport, Living & Giving, and a stake in Kathmandu).
BGP managed to deliver a surprisingly decent result for the 2018 financial year, despite bad weather around Christmas making things “challenging” for the retailer, on top of other macro-levels headwinds. The BGP share price was little changed even after releasing a record net profit after tax of $63.39m for the year, which was up +3.3% from last year. The improved profit was driven by modest sales growth, as well a slight margin improvement and an increased dividend received from its investment in Kathmandu.
Management outlined that the economic outlook remains uncertain, flagging consumer confidence, increased wage pressure, erratic fuel pricing and a challenging New Zealand dollar (increases price paid for inventory), but believe they will be able to overcome these factors with an improved shopping experience. We are not so confident and believe that emerging macro-level headwinds will tighten margins and could see sales and profits fall over the medium-term. In saying that, Briscoes is our top retail sector pick.
We currently have a HOLD recommendation on Briscoes Group.
Australia & New Zealand Market Movers
The Australian share market rallied on Monday (ASX 200 index +0.59%) as solid economic data from China temporarily allayed fears of a global economic slowdown, giving the local market a positive start to the new quarter. The major iron ore miners such as BHP, Rio Tinto, and Fortescue rose on Monday, buoyed by the prospect that an increase in China manufacturing would boost demand for the bulk metal.
In stock news, Woolworths announced it would shut 30 Big W stores and book $370 million in one-off costs this year as a result. The retailing giant also announced a $1.7 billion off-market share buy-back after completing the sale of its fuel retailing business to EG Group. Of stocks under our coverage, almond producer Select Harvests surged on a positive crop and market update, saying conditions have been ideal and the 2019 harvest is progressing very well. In addition to this, management advised that market conditions are favourable thanks to a lower Californian crop and strong demand from China.
The New Zealand market was a touch higher to start the week (NZX 50 index +0.09%) joining a rally across Asia as better than expected Chinese manufacturing data lifted investor confidence. Tourism Holdings led the market higher. Low interest rates have pushed the benchmark New Zealand index into record territory, as the dominance of defensive stocks with regular dividend payments attract investors in search of yield. In stock news, Infratil rose after selling its half-stake in an Australian student accommodation venture for A$162 million.
3 Things Markets Will be Watching this Week
- Signals around the health of the global economy will likely remain a focus for investors – with US & Chinese manufacturing data published Monday.
- The Australian government will release their latest Federal Budget on Tuesday.
- The Reserve Bank of Australia also makes an interest rate decision on Tuesday.
Have a Great Day,
