Global markets rallied overnight, as US stock indices hit new record highs with reports the US and China were nearing a trade truce sparking a rally in Apple and semiconductor stocks, with sentiment also buoyed by a raft of blockbuster deals. CNBC also reported that China was considering tougher penalties for intellectual property theft – a key US demand – as part of a compromise to keep the talks on track.
Stock in Focus: Metro Performance Glass (MPG:NZX / MPP:ASX)
Metro Performance Glass dropped yesterday after it reported a 15% decline in first-half profit and signalled annual earnings would be even weaker than previously forecast.
MPG face a number of headwinds including slowing activity, emerging price pressure and the imminent threat of competition in NZ, which produced a mixed result. At the same time conditions in Australia remain tough as the business continues to struggle.
MPG announced it will rationalise in NSW to focus on double glazing only with the decision highlighting MPG’s ongoing belief that it will extract value in Australia from growing penetration in this category
Confidence is likely to remain low with investors looking for positive execution in what will be a challenging period. However, we continue to believe there is still a chance of a turnaround, particularly given the bar has been set very low and there is a lot of negativity priced MPG at the moment, meaning it would take very little to see a significant upswing in share price – albeit we caution investors it does come a considerable amount of risk.
We currently have a BUY (High-Risk) rating on MPG.
Members should look out for a full update on MPG to be released in our weekly report.
Australia & New Zealand Market Movers
The Australian market started the week on a positive note (ASX 200 index +0.32%) as sharp gains from Afterpay Touch bolstered the benchmark ASX 200 market index back towards its record, and helped to offset losses from banking giant Westpac. Afterpay Touch rallied 7% after an independent audit ordered by AUSTRAC earlier this year found that the company's compliance was a "low risk" for money laundering. Afterpay's oversight and governance has "matured significantly", the report noted. The independent report was a bit better than the market had expected, and the entire financial services sector has been under the spotlight since a royal commission probe, which wrapped up early this year.
Caltex Australia shares were higher after the firm proposed an initial public offering of up to 49% of 250 core convenience retail freehold sites. In a separate profit update, Caltex said it expects second-half earnings before interest and tax at its retail business of between $190 million and $210 million, which would represent an increase of $20 million to $40 million from the first half of 2019. Concersly, Nufarm shares slumped as it issued a profit warning, as "Trading conditions have been difficult for [the 2020 financial year] to date."
The New Zealand market was a touch higher on Monday (NZX 50 index +0.07%), buoyed by upbeat sentiment across Asia as investors clung to hopes that a China-US trade deal could be reached before the end of the year. Fisher & Paykel Healthcare led gains, and is set to report first half earnings this week. On the flipside, Gentrack shares continued to plummet post last weeks’ profit warning.
3 Things Markets Will be Watching this Week
- Trade deal prospects between the US & China remain at the forefront of investor attention.
- RBA governor Philip Lowe makes a speech on Tuesday.
- The RBNZ releases its financial stability report on Wednesday.
Have a Great Day,