Weaker Aussie GDP | Tegel Tumbles

7 December 2017

Global markets traded in a tight range overnight, with shares on Wall Street mixed during quiet trading as a slide in energy stocks offset gains in the technology sector as investors readjust their stock holdings.

Closer to home, the Australian dollar fell sharply following a slightly softer-than-expected GDP (economic growth) print for the third quarter of 0.6%, with the annual rate also coming in slightly below economist expectations at 2.8%. We are not overly concerned by the figures particularly as GDP data is backward looking. 

Stock in Focus: Tegel (TGH:NZ / TGH:AX)

After recovering from lows hit earlier this year, shares in Tegel tumbled yesterday following the release of first half 2018 profits which disappointed the market.

New Zealand's biggest poultry producer increased sales and recorded an improved gross margin in its first half, while higher expenses pushed profit down 2.3%. Sales rose 2% to $302 million as Tegel lifted overall processed poultry volumes by 0.8% to 48,676 tonnes. On the conference call, management still remain optimistic in that they expect a strong summer of sales to see full year operating earnings for the 2018 financial year to be ahead of last year (despite the slow first half).

Pricing issues in the NZ domestic market continue as competition remains intense (chicken prices are trading around 10-year lows), although Tegel are focussed improving their product mix/value add products to improve sales and keep overall market share. In terms of exports the numbers disappointed, although volumes were hit by the loss of a major Australian customer (which had been previously flagged). On this front Tegel are focussed diversifying their export base in terms of customers & product range going forward.

Despite the weaker than expected result, we remain constructive on the TGH investment case for medium term investors, particularly given it is an agricultural play which fits our “dining boom” investment theme. 

Members should look out for a full update on TGH to be released in our next weekly report. 

Australia & New Zealand Market Movers

The Australian share market declined on Wednesday (ASX 200 index -0.44%) with miners selling off after a plunge in the copper price depressed sentiment around the sector. In stock news, TPG Telecom shares ended the day up 1.3% after the telecom reiterated 2018 financial guidance given in September, although shareholders gave the telecommunications provider its first strike over executive pay.
 

The New Zealand market sold off yesterday (NZX 50 index -0.55%) with Synlait Milk and Fletcher Building leading the index down, and Tegel Group plunging on its earnings report, while Scales Corp hit a record on intraday trading. In other news, Z Energy traded lower for most of the day as the government said it has asked the Ministry of Business, Innovation and Employment to further investigate fuel prices and is looking to increase the Commerce Commission's market studies powers by the end of next year after getting more information on the fuel market.

 

3 Things Markets Will be Watching this Week

1.                 The Reserve Bank of Australia makes its last interest rate decision of the year on Tuesday.

2.                 Australian GDP data for the 3rd quarter is released on Wednesday.

3.                 Closely monitored monthly US employment data is published at the end of the week.

 

Have a Great Day,

Team

Closer to home, the Australian dollar fell sharply following a slightly softer-than-expected GDP (economic growth) print for the third quarter of 0.6%, with the annual rate also coming in slightly below economist expectations at 2.8%. We are not overly co

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