US Markets Surge | Z Energy – Another Downgrade

13 March 2021

Global markets rallied overnight (S&P 500 index +1.0%) as the S&P 500 index touched a fresh all-time high powered by a renewed rally in technology shares as Treasury yields show signs of stabilising. At the same time, a bigger-than-expected fall in weekly jobless claims reinforced expectations of a labour market recovery in the US.

In Europe, the European Central Bank (ECB) said it would increase bond purchases to further suppress rising but still negative real yields in the face of an improving economic outlook. ECB Head, Lagarde warned that higher bond yields could lead to a “premature tightening of financing conditions”, which she labelled “undesirable”.


Z Energy (ZEL:NZX / ZEL:ASX)
Z Energy once again lowered the top end of its earnings guidance yesterday (shares down -3.6%), and now sees operating earnings $20m lower to a new range of NZ$235m-$245m reflective of additional lockdowns, continued strong retail competition, climbing crude prices, and a worse-than-expected impact from international tourism. ZEL also noted Feb retail volumes down 9% and 5% at ZEL and Caltex respectively year on year, while commercial volumes were 8% weaker.

Z Energy chief executive Mike Bennetts said the jet fuel market was yet to recover from covid, recent lockdowns had reduced road volume, and oil prices had climbed. Oil prices rising are not good for Z Energy, having to buy high squeezes profit margins.

Interestingly, the company is also launching Z Electric: and getting more involved in electricity. The timing is not great given high wholesale electricity prices. We do not think this play into selling electricity will “move the dial” in terms of profit, and Z is once again entering a very competitive market in retail electricity
We currently have a high-risk BUY on Z Energy, as while it faces a number of issues, these have been reflected in its depressed share price.


Australia & New Zealand Market Movers

The Australian market was a touch lower yesterday (ASX 200 index -0.2%) after flat commodity prices and bond yields limited movements in the materials and financial sectors.

The Australian government released its A$1.2b tourism rescue package, boosting Flight Centre (+9.2%), Helloworld (+4.8%), Qantas (+2.5%) and Sydney Airport (+2.2%). Half-price air fares will be introduced for hundreds of thousands of domestic flights in Australia, in a bid to boost the country's ailing tourism sector which has been ravaged by COVID-19 related border restrictions.

Toll-road operator Transurban rose +1.2% after a broker reiterated the company was its preferred choice in the infrastructure sector

In M&A news, Tabcorp is reportedly moving forward with a strategic review to consider a demerger of its wagering and media unit, with an announcement due as early as today while Macquarie Infrastructure and Real Assets (MIRA) is believed to have joined forces with APA Group in the competition to buy Tilt Renewables.
The New Zealand market was in positive territory on Thursday (NZX 50 index +0.2%). Travel stocks rallied after the Australian government announced a billion-dollar support package for airlines and signalled international travel would resume in October. Air New Zealand had one of the day’s biggest gains, up 3.3% to $1.70, as investors were encouraged by the possibility of future flights to and from Australia.

In a positive for SkyCity, which operates a casino asset in South Australia, the State government has confirmed it won’t join NSW, Victoria and WA in probing the influence of junket operators and their links to money laundering in casinos.

Contact Energy announced that its non-underwritten NZ$75 million retail offer has closed oversubscribed. The Retail Offer was well supported by shareholders, with Contact receiving applications totalling approximately NZ$230 million.


3 Things Markets will be Watching this Week

  1. Unfortunately, COVID related news-flow continues to dominate headlines, both in terms of lock-down and vaccine news – with the US now expecting vaccinations to be rolled out across the country by the end of May.
  2. The European Central Bank makes an interest rate call on Thursday.
  3. In terms of economic data, we will see the latest US inflation data, and the latest business confidence readings in Australia and NZ.


ECB Head, Lagarde warned that higher bond yields could lead to a “premature tightening of financing conditions”, which she labelled “undesirable”.

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