Week Ahead | Air NZ Update

2 April 2021

Global markets rebounded on Friday (S&P 500 index +1.7%) as Wall Street rallied into the close with technology, healthcare and financial stocks providing the biggest boost.

There weren’t any major new developments to explain the price action, but market sentiment remains buoyant on expectations that the global economy will experience a very strong recovery this year. The Fed raised its economic growth (GDP) estimate for 2021 to 6.5% from 4.2%. Banks also benefitted from the Fed's announcement that temporary restrictions on bank dividends and share repurchases will end for most firms after 30 June.

As they had the previous week, stocks started off on a strong note but sacrificed a portion of their gains over the following days. Conflicting signals about progress in fighting the coronavirus appeared to be a major driver of sentiment, resulting in a mixed week for the major indexes. We expect a similar tone for markets in the shortened week ahead.
 

Air New Zealand (AIR:NZX /AIZ:ASX)
Air NZ is expecting approximately a 30% increase in air freight capacity once the trans-Tasman bubble opens (potentially in April), with downward pricing pressure on freight rates likely to flow through immediately. Air freight rates remain about 50% ahead of pre-Covid levels, and would be worse without the $372m Govt support package.

Freight aside, clearly a lot of Air NZ’s near-term fate hinges around tourism and borders re-opening. We believe 2021 will still be a challenging year for AIR with a partial recovery in the second half dependent on easing travel restrictions with safer neighbouring countries (such as Singapore and Australia). We had upgrading AIR back to a HOLD on the back of positive news-flow around COVID vaccines and re-opening of borders in 2021. However, we still expect Air New Zealand to tap shareholders for a capital raise in the near future as AIR’s operating stats highlight ongoing cash burn struggles.

We prefer Auckland Airport or Sydney Airport as tourism recovery plays.

 

   
Australia & New Zealand Market Movers

The Australian market (ASX 200 index +0.5%) rose on Friday as the big iron ore miners did the heavy lifting; Fortescue surged +3.8% and Rio Tinto leapt +2.2%. CSL lost -0.9% to drag the health care sector down.

A man has tested positive for coronavirus in northern Brisbane and was in the community while infectious for a week. The state government has ordered a lockdown of the city’s hospitals, aged care facilities, prisons and disability services. In corporate news, Star Entertainment is being touted as a possible bidder for Crown’s Sydney assets.

The Australia/China relationship continues to deteriorate with Beijing confirming tariffs ranging from 116% to 218% on the Australian wine trade for the next five years and Australia’s ambassador to China warning Australian exporters to China in any sector had to live with the fact that their market could be hit at any time.

 
The New Zealand market rose on Friday (NZX 50 index +0.3%) to end the week nearly +1% higher.
Dairy processor Synlait Milk bounced 2.9%, but still finished the week down -15% after an earnings guidance downgrade earlier in the month.   

Chorus shares fell -2.5% to $7.30 after it submitted an Initial Asset Value model to the regulator that would limit revenue to between $715m and $755m a year until 2024.

Sky TV shares climbed +1.1% as it said plans to sell two of three buildings at its Mount Wellington base in Auckland, saying they’re not being used.

Hallenstein Glasson shares dropped -1.6% as the retailer said sales in the first seven weeks of the winter season are already 17.8% higher than last year.

Infratil’s incoming CEO has been in the press suggesting the recent takeover approach from OzSuper is likely “gone for now” and the focus is deciding what to do with the large cash pile the company will receive for the sale of its Tilt Renewables stake.

 

3 Things Markets will be Watching this Week

  1. The pandemic will remain in focus, as rising case numbers have caused concern among investors. Further restrictions have been imposed in recent days, with the German lockdown extended until April 18 and French restrictions extended to more regions of the country. In contrast, the UK (which has vaccinated 47% of the population) will begin easing restrictions on Monday.
  2. US employment data – Nonfarm payrolls is released on Friday and the market is looking for a ~650k gain in employment in March and a 0.2% fall in the unemployment rate, to 6%. 
  3. Domestically, the final release of the ANZ Business Survey comes out on Wednesday, while Synlait and NZ King Salmon are both scheduled to report 1st half earnings.

Team

Global markets rebounded on Friday (S&P 500 index +1.7%) as Wall Street rallied into the close with technology, healthcare and financial stocks providing the biggest boost.

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