Trans-Tasman Bubble | PGG Wrightson

5 May 2020

Global markets were mixed overnight, with the S&P 500 up +0.4% as gains across big tech and energy companies outweighed losses across the board, particularly in the airline sector following Warren Buffet's announcement over the weekend to exit his airline positions. US President Trump made it clear he was not going to lift Chinese tariffs, retracing his earlier comments. 

Closer to home, with the number new covid-19 remaining low (both in New Zealand and Australia) there are talks of a potential trans-tasman bubble, allowing the two economies to open up to each other sooner than anticipated. NZ Prime Minister said this was not likely to happen in the immediate short-term (a few weeks), suggesting it could be  a few months away, which is encouraging as international borders are predicted to remain shut to the rest of the world for another 12 months.  


PGG Wrightson (PGW:NZX)

Diversified agri-business PGW shares have been climbing higher and are now at 6-month high’s, as most of the business was able to operate normally under lockdown as essential services.

Despite removing previously upbeat guidance due to covid-19, we believe PGW should come out relatively unscathed with its Agency business which is less than ~20% of group earnings under temporary pressure as it would not be able to operate as normal. Fortunately ~2,800 farmers have signed up to use PGW's virtual sale yard Bidr to allow farmers to buy and sell livestock online relieving some pressure, the number of users up from 950 pre-covid-19.

PGW’s new focus on horticulture is showing promising results, with a strong first half underpinned by strong market fundamentals, including buoyant export returns for the industry building business confidence in the sector.

We remain BUY rated on PGW with a High Risk caveat.

Australia & New Zealand Market Movers

The Australian market (ASX 200 Index +1.4%) was up yesterday, as an announcement was made by the Australian government to meet earlier to discuss further easing of Australia's relatively relaxed lockdown measures.
Afterpay shares were the best performer on the day surging +23.8% after announcing it had been in conversations with Chinese Tech giant Tencent which has become a substantial shareholder. 

The banking sector edged higher despite Westpac delivering a weak result with investors already pricing that in from last week's sell off. WBC announced a -70% drop in first half cash profit and like ANZ told investors it was deferring a decision on when, if at all, an interim dividend would be paid.
Transurban held its investor briefing assuring shareholders it had no plans to raise equity and announced traffic was slowly returning to Australian major toll roads after falls in April of 50-60%.

The New Zealand market ended a touch higher on Monday (NZX 50 -0.3%) after the NZ government announced no new covid-19 cases for the day. Despite saying that this does not mean NZ will move out of Level 3 sooner, it did prompt optimism of easing restrictions and a possible trans-tasman bubble sooner rather than later.


3 Things Markets Will be Watching this Week

  1. ​Covid-19 and lock-down news-flow remains key in terms of market moves.
  2. In the US, earnings will continue to dominate headlines, with the likes of Disney and PayPal due to report results. Investors are also bracing themselves for an awful jobs report, which is likely to see the US unemployment rate surge to about 16.0%.
  3. Locally, the RBA meets this week, NZ employment data is due while earnings are expected from Westpac, Macquarie Group, Orica and Pushpay.


Have a Great Day,


With the number new covid-19 remaining low (both in New Zealand and Australia) there are talks of a potential trans-tasman bubble, allowing the two economies to open up to each other sooner than anticipated.

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