Tech Short Squeeze | NZ King Salmon Downgrade

2 February 2022

Global markets were higher overnight, with US markets (S&P 500 index +0.7%) marking the third positive day in a row.

Energy and Material stocks lead gains on the back of strong commodity prices, and Exxon Mobil rose +6.4% after reporting is best quarter profit in seven years, beating expectations on the back of strong energy prices.  UPS shares surged +14% after reporting better than expected earnings and hiked its quarterly dividend. Bank stocks also got a boost as 10-year treasury yields rose 2 basis points to 1.8%.

Big Technology names were generally stronger with Alphabet (Google) up +1.6 ahead of its earnings result which was released after the close of trade – and beat expectations, causing the stock to jump +8% in after-hours trade. There seems to be a short squeeze and rebound across technology stocks over the last few days as sellers reverse their positions. Overall, it has been another solid US earnings season thus far, with 78.5% of S&P 500 companies that have posted results beating bottom-line profit expectations.

European Markets (Stoxx 600 index +1.1%) were up, with almost all sectors trading in positive territory, lead by basic resources. UBS shares surged +7.4% after posting its best annual profit since GFC beating market expectations

Closer to home, the RBA announced that they would end their $4 billion per week bond buying programme on the 10th February 2022. RBA have kept their cash rate unchanged at 0.1%, reiterating that they will remain supportive and wait for “full employment” and inflation is consistent with their target. Overall, they are sticking to a much more dovish tone than most other central banks as Australia faces less inflationary concerns with the CPI ‘only’ at +3.5% for 2021. Equities responded positively and rate markets pulled back expectations marginally, though the market is still looking through this rhetoric with some level of rate hikes expected this year. 

New Zealand King Salmon (NZK:NZX / NZK:ASX)

New Zealand King Salmon (NZK) shares slumped -11% yesterday, after announcing that it is experiencing higher than expected sea farm mortality due to particularly warm seawater temperatures. The high mortality rate means less decreased product available for sale and will impact upcoming earnings (EBITDA) for 2022 expected to come in at $6.5m to $7.5m, down by $4m to $5m from the previous guidance. 

This issue is the reason NZK applied for Blue Endeavour to have consent to farm in cooler, deeper and faster conditions, with the consent completed and a decision expected in the next few months.

Another unfortunate update, but one which may work in NZK’s favour in urging the importance of gaining resource consent to cooler water. We still view the NZK product and brand favourably, with their ability to pass on cost inflation to consumers due to their in high demand product. Unfortunately, the warming waters and fish mortality as a greater issue, with forecasts of warmer water to persist the business can no longer operate sustainably as it is, for this reason we downgrade NZK to a HOLD. There is some upside for NZK hinged towards having its Blue Endeavour consent acceptance, but we aren’t too comfortable taking on that risk, but investors with a higher risk tolerance could take a “punt” on this consent.



Australia & New Zealand Market Movers

The Australian market was up on Tuesday (ASX200 index +0.5%) recovering from an initial loss after the RBA’s announcement was a more supportive tone as opposed to other central banks.

Gains were broad based, all sectors were in the green except for materials which was hit by a slip in iron ore prices as Chinese  authorities vowed to crackdown on speculative trading in the market. Utilities and Tech stocks lead gains, following the recent recovery of tech stocks globally. In stock news, Boral shares rose +5.8% after announcing a $3 billion capital return to investors.  

The New Zealand market (NZX 50 index +1.4%) was up yesterday as markets start to calm and investors felt more confident buying oversold shares.

Synlait Milk (+6%), Scales (+5.8%), and Fisher and Paykel (+4.5%) lead the market higher after suffering heavy losses over the month, the latter two being exporters also benefit from a strong US dollar.


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 +0.7%) marking the third positive day in a row.

Do You Want Daily Market Insights?

If you’re interested in staying up-to-date with the latest news and analysis on stocks, be sure to sign up to BlackBull Research.

1 Month Free Trial

Access our expert stock market research Free of charge with no obligation

Free 1 Month Free Trial

Unlock this article & access our expert stock market research

ASX, NZX & USD Stock Buy, Hold, Sell recommendations. Model Portfolios. Daily news and more