Global markets rebounded on Friday after three days of losses, lifted by optimism on trade and upbeat economic data from China, but gains were capped by downbeat US manufacturing and consumer reports.
Asian markets rallied after a February manufacturing index in China – the world’s second-biggest economy and Australia/New Zealand’s largest trading partner – was stronger than expected. A large part of last years' sell-off was due to a potential slow-down in global growth (particularly from China & the US), and we are watching developments closely as signs remain mixed.
Stock in Focus: Fletcher Building (FBU:NZX / FBU:ASX)
Fletcher Building dropped despite posting a smaller decline in first-half earnings than predicted, with a small upgrade to forward guidance. There are growing concerns around the extent of the property market slowdown across Australia & NZ, and construction companies entering administration/liquidation look to be a common occurrence of late. Some investors were also disappointed that Fletcher didn't signal a capital return from the sale of its Formica unit.
Fletcher posted a net profit after tax of $89m for the first half of the 2019 financial year compared to the -$273m loss reported last year due to the problematic cost blowouts from its construction divisions. The return to profitably has facilitated the reinstatement of an interim dividend of 10 cents per share – with a larger final dividend with the proceeds of the sale of its Formica business.
This was a promising but largely expected result from Fletchers. While there are challenging times ahead, FBU are a step closer to being a multi-year turnaround play in our view although there are still considerable risks – given the likely backdrop of a property market slowdown both in Australia and New Zealand.
We currently have a BUY (High-Risk) rating on Fletcher Building.
Australia & New Zealand Market Movers
The Australian share market finished higher for a third day on Friday (ASX 200 index +0.38%) hitting its highest level in five months. Sydney and Melbourne house values fell more than 1 per cent in February, figures show, amid signs the property slowdown is broadening to almost every market in the country. CoreLogic on Friday reported house values in Sydney dropped by 1.1% last month to be down 11.5% over the past 12 months
The New Zealand market was higher on Friday (NZX 50 index +0.29%) buoyed by firmer Asian markets, as investors sought out stocks with strong dividends due. NZ King Salmon rose 8% as investors were encouraged that the firm maintained its full-year earnings guidance announced on Thursday. Fleet tracking specialist Eroad rose +13% after announcing a major US contract for about 4,900 of its EHUBO 2 units, most of which will be installed in the 2020 financial year. The company said its North American business will grow 30 percent this year and is now cashflow positive on a monthly basis.
3 Things Markets Will be Watching this Week
- The Reserve Bank of Australia makes an interest rate decision on Tuesday.
- The final few local companies report earnings this week, wrapping up the current earnings season.
- Important monthly US employment data is released at the end of the week.
Have a Great Day,