Stocks

We upgrade Air NZ from a Sell to a Hold. Since our last update, oil prices have dragged lower a major expense item for airlines – at the time the elevated fuel price being one of our major catalyst for the sell rating. While we aren’t too surprised over the increase in demand for air travel, however we are amazed with how well Air NZ and other airlines have been able to pass on costs inflation particularly fuel costs onto consumers as air fare remain extremely elevated, as supply struggles to recover back to pre-covid levels and keep up with recovery in demand as the world opens up.

Starbucks reported strong US results that were marred by a marked drop-off in China. We remain hold-rated on the stock amid China and valuation concerns.

Diversified Agriculture business Elders shares slumped on no news, after an inquiry by the ASX. Elders said it could not explain the decline but noted that it “held two investor briefings yesterday with a number of institutional investors”.   Elders noted factors already known by the market may be a contributor; 1) Declining livestock prices from historic highs; 2) Unseasonably wet conditions affecting eastern Australia ; 3) Softer real estate activity amid rising interest rates; 4 )Strong winter cropping outlook.

Macquarie shares jumped after reporting its third quarter update, which was slightly ahead of a strong corresponding period last year. The result driven by strong performances from its markets-facing businesses thanks to strong commodity prices, which offset softer performances from its annuity-style businesses. Additionally they have excess capital of $12.5b ready to take up opportunities to keep growing their banking, asset management or commodities businesses.

We continue to rate Alphabet a BUY. It trades at 17x fwd earnings, and advertising revenue has remained resiliant, if flat. It remains in control of a virtual search monopoly in the Western world & should continue to generate strong cash flow for years to come.

Tower shares have had a rough week down -7.8%, following heavy flooding across Auckland and other parts of the north island. As of Friday it is estimated that there are 20,000 claims relating to the floods have been made to date (across all insurance companies).

Estee Lauder reported underwhelming results for Q4. The headline is that China isn’t quite back and consumer discretionary products are starting to feel the pain. Skincare sales fell 20% – skincare has been a “hero” line the past decade, as the consumer focus has shifted from makeup to self-care. It’s a big harbinger of consumer pain – we think more so than other disappointing results (Apple, Snap, etc). The other headline to note here is that EL’s budget line – “The Ordinary”, which grew double-digits in every region. In comparison, ultra-luxe lines like La Mer experienced a decline in sales, which suggests that the wallet of top-middle-income-bracket folks is starting to be stretched. We reiterate our buy-rating, as the company remains best-in-class. Since our initial recommendation the stock has re-rated +25%.

Visa reported better-than-expected earnings on the back of steady organic growth and a return to cross-border payment volumes that are equivalent to pre-pandemic levels. Payment volumes grew + 1% year-on-year, or 7% on a constant currency basis. The company reported earnings per share of $2 18 vs the street’s estimates of $2.01. Revenue came in at $7.94 billion slightly ahead of analysts’ estimates.