Global markets were mixed on Friday (S&P 500 index -0.5%) as the tech-heavy Nasdaq index clawed back some losses, rebounding from its worst day in four months. Sentiment remains fragile, with fears of a rise in inflation keeping US bond yields near a one-year high.
It was a mixed February for share markets, with the New Zealand, Australia, and US markets returning -6.9%, +1.5%, and +2.8% respectively for the month. The NZ market lagged on the back of creeping interest rates globally, a higher New Zealand dollar hurting exporters, and ETF selling across some of the markets biggest power generator companies (Contact and Meridian).
Tourism Holdings (THL:NZX)
RV rental operator THL announced on Friday that it achieved revenue of $205.8m in the six months ended Dec 31, compared to $207.5m a year earlier due to a sell-off of its vehicle fleet. THL has sold a record number of vehicles in the first half of 2021 and its fleet has fallen by -27%. However, this rate of vehicle sales is not sustainable and will slow.
Outlook comments were unchanged (as per Dec update) for a full-year loss, with net debt lifting to NZ$90m. A return to profit will depend heavily on timing of international travel returning. The current result was reliant on domestic only rentals as a result of border closures, partially offset by booming vehicle sales.
THL have done an amazing job to navigate COVID without the need of additional capital from shareholders.
We maintain our BUY on THL, but with a high-risk caveat as they will not be as profitable again until international tourism returns, something which is notoriously hard to predict with accuracy. Medium term we expect strong returns as THL emerges in a market leader position.
Australia & New Zealand Market Movers
The Australian market sold off on Friday (NZX50 Index -2.4%) ending the month on a lower note, although the ASX still managed to remain in positive territory for February.
All sectors were lower, and the major sectors of materials and financials fell by more than two per cent.
The sell-off in the bond market, which pushed Australia’s 10-year yield to 1.75% on Friday and the Australian dollar past US80 cents, didn’t help.
High growth businesses are losers when interest rates (risk-free) climb with shares like Afterpay punished because their value rests on future earnings, which are discounted more deeply when interest rates go up.
The New Zealand market was higher on Friday (NZX 50 index +0.7%) as the NZX bounced back from a six-day slump. A raft of positive results from listed companies, in the past two weeks, have been overshadowed by rising interest rates which caused the share market to fall significantly.
It was another busy day in terms of earnings annoucnments. Shares in Port of Tauranga jumped 3.4% on its improved profits despite volatile cargo volumes and congestion issues at Port of Auckland.
Scales dropped -2.1% after it predicted weaker earnings. Chair Tim Goodacre said the start of 2021 “has not been without its own challenges" and the company lowered its guidance range.
Steel & Tube Holdings beat its own half-year guidance significantly and said its "cautiously optimistic view" of the future supports the resumption of dividends — but its shares fell -5.7%.
3 Things Markets will be Watching this Week
- Unfortunately, COVID related news-flow continues to dominate headlines, both in terms of lock-downs and vaccine news.
- The Reserve Bank of Australia makes its latest cash rate call on Tuesday.
- Later in the week there is a raft of economic data, including closely watched US unemployment figures (nonfarm payrolls).