Global markets were higher again overnight with US stocks up as expectations of an interest rate cut by the Federal Reserve were boosted by weak private sector jobs growth and on hopes that tariffs on Mexican goods could be avoided.
Closer to home, Australian economic growth (GDP data) in the first quarter of the year was weaker than forecast, with growth for the quarter printing at 0.4%, below expectations of 0.5%. While this does not inspire much confidence in the Australian economic outlook, it does support the case for further interest rate cuts.
Stock in Focus: Tourism Holdings (THL:NZX)
Tourism Holdings (THL) shares sank after announcing vehicle sales in the US have continued to deteriorate resulting in new and substantially lower earnings guidance for the 2019 financial year. THL expect 2019 full year net profit to be between $25m and $28m, down (-18% at the mid-point) from previously downgraded guidance of around $32m. Aussie peer Apollo Tourism also announced a large profit downgrade, further hitting investor sentiment.
Accordingly, THL will be reducing capital expenditure, reducing its fleet size and cutting operating costs in response to the weaker US market – where THL has aggressively expanded into. THL will shrink its US fleet by as much as -17% following “unacceptable performance”. Despite the significantly lower profit THL announced it will keep their 2019 full year dividend flat with the previous year, implying THL is currently trading at a healthy dividend yield of 7.2%.
We continue to see the THL business as a whole as set to benefit from stable tourism growth across New Zealand and Australia. and are positive on THL as a tourism play – albeit there are risks from the struggling US market.
We currently have a BUY recommendation on THL.
Australia & New Zealand Market Movers
The Australian share market was higher yesterday (ASX 200 index +0.41%) after Federal Reserve chairman Jerome Powell soothed investor nerves, saying the central bank was prepared to take action if trade tensions weighed on the US economy.
Macquarie Group advanced after saying it would pass on the full 25 basis point interest rate cut to customers. The major iron ore miners advanced as the price of the bulk commodity moved back toward $US100 a tonne, and the local tech stocks bounced back, recovering some of the previous session’s losses. Vocus Group tumbled -17% after Swedish private equity firm EQT pulled its $3.3 billion offer for the telecommunications company. The company made its indicative bid less than a fortnight ago.
The New Zealand market was a touch higher on Wednesday (NZX 50 index +0.04%) as NZX stocks stabilised after Tuesday’s sharp fall. In other news, the New Zealand dollar rose as the US dollar reached a seven-week low on the release of a speech a Reserve Bank official gave in Tokyo last week in which he indicated that interest rates will probably be on hold for the foreseeable future.
3 Things Markets Will be Watching this Week
- Trade War headlines are likely to dominate investor sentiment.
- The Reserve Bank of Australia makes an interest rate decision on Tuesday.
- Key US manufacturing & employment data is published this week.
Have a Great Day,