Tech Pressure, Financials on Fire | Heartland Result

4 March 2021

Global markets fell overnight, US markets (S&P 500 index -1.3%) with the sell off in government bonds resuming as the US Senate moved to adapt the stimulus bill passed by the House, and the White House projected there would be enough vaccines for all US adults by the end of May.

Technology stocks were major drag with Apple, Amazon, Microsoft and Alphabet all dropping more than 2%, Tesla and  Netflix shed 5% with the Nasdaq index down -2.7%. The continuous rise in bond yields is raising concerns about equity valuations for growth stocks and a pickup in inflation. 
At the same time, stocks linked towards economic recovery such as energy and financials provided some support as they continued to rally. As we have discussed previously, financial stocks  all else equal benefit from higher interest rates as it improves bank interest margins. 

Heartland Group (HGH:NZX / HGH:ASX)

Heartland Group shares held flat after delivering its 2021 half year result, which saw its net profit after tax rise +10.6% from last year to $44.1m. With gross finance receivables up +2.7% and net interest margins expanding +5 basis points to 4.28%.

Management remain upbeat that 2021 full year profit will reach top end of guidance of $83m to $85m.

While a solid result, we continue to remain HOLD rated on HGH due to its valuation and risk profile and favor the large Aussie banks. The Australian major banks (Westpac and ANZ preferred) have a lower risk profile (safer lending) than HGH with more exposure to the broader economy and housing markets, and are forecast to pay a much more attractive dividend over the medium-term.


Australia & New Zealand Market Movers

The Australian market was higher (ASX200 Index +0.8%) yesterday, supported by stronger than expected increase in the country's fourth quarter economic output which was up +3.1% from the previous quarter, buoyed by strength in consumer spending.

The major miners led the market higher, as industrial metals prices rose across the board iwth BHP advancing +3.5%, Rio up +2%, Fortescue Metals up +5.7%. Rare earth miner Lynas climbed +6% after an announcement by China's inner Mongolia to halt new aluminium projects.  

The major banks also provided strong support extending their gains and energy stocks rose as Brent crude was higher. Technology names came under selling pressure again as investors question their valuations. 

The New Zealand market was more or less flat on Wednesday (NZX 50 index +0.1%), with mixed movements across the board. 

A2 Milk and Fonterra both rose +0.8% after  milk powder prices soared +21% in the overnight Global Dairy Trade auction on surging demand from China.

Genesis Energy led the share market higher, up +2.7% rising  alongside other electricity generators such as Vector which was up +2.5% and Contact Energy which climbed +1.4%.


3 Things Markets will be Watching this Week

  1. Unfortunately, COVID related news-flow continues to dominate headlines, both in terms of lock-downs and vaccine news. 
  2. The Reserve Bank of Australia makes its latest  cash rate call on Tuesday. 
  3. Later in the week there is a raft of economic data, including closely watched US unemployment figures (nonfarm payrolls).


As we have discussed previously, financial stocks  all else equal benefit from higher interest rates as it improves bank interest margins. 

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