Global markets rallied on Friday, with major US market indices the Dow and the Nasdaq posting their eighth consecutive weekly gains as investors grew hopeful that the United States and China would hammer out an agreement to go towards resolving their trade war. US and China trade talks will continue this week in Washington.
For the week ahead, investor focus will also likely remain on local company profit announcements, as earnings season gets busier across Australia & NZ this week.
Stock in Focus: PGG Wrightson (PGW:NZX)
Shares in diversified agri-business PGG Wrightson have rebounded close to 20% over the last 2 trading days, after the Commerce Commission approved the sale of the rural service firm's seeds division to DLF Seeds for $434 million in cash and assumed debt. We have remained positive on PGW and are very pleased by the share price move.
The Commerce Commission said the $434 million transaction, announced in August, was unlikely to substantially reduce competition in any of the markets it assessed. Wrightson expects to book a gain of about $285 million on the deal and signalled to investors it could return up to $292 million to shareholders on completion.
The bear investment case is that the transaction makes PGW a much smaller and concentrated business focused solely in New Zealand, making the business more sensitive to industry specific risks and a smaller market capitalisation means its shares will trade with reduced liquidity. While acknowledging this, we maintained a positive view, as we estimate PGW is trading at an attractive single digit price to earnings multiple when taking into account the remaining businesses and distribution for shareholders from the proceeds of the sale.
We currently have a BUY rating on PGG Wrightson.
Members can login to read our full reports on PGW & should look out for a full update to be released in our weekly report.
Australia & New Zealand Market Movers
The Australian share market was in slight positive territory on Friday (ASX 200 index +0.11%) as investors continue to eye corporate profit announcements. "So far, not too bad" is about where Australia's corporate reporting season stands, but this week is the big test. It is the busiest block of results with around 70 of the top 200 companies dropping mainly half-year numbers. Among the big movers last week was troubled live export company Wellard. Wellard shares jumped after the company reported its first ever profit on the back of a successful ship chartering strategy.
The New Zealand market fell on Friday (NZX 50 index -0.42%) as pessimism over trade negotiations between the US and China saw stocks sell-off across Asia. Exporters including A2 Milk and Fisher & Paykel Healthcare led the market lower. New Zealand's own relationship with China – its biggest trading partner – has come under some scrutiny. Sanford was unchanged, despite the fishing group saying it was facing some issues getting salmon through Chinese customs. The Ministry for Primary Industries issued a statement saying there were no issues with primary products clearing Chinese customs.
3 Things Markets Will be Watching this Week
- US Federal Reserve minutes are released Thursday morning AU/NZ time.
- Local earnings season continues across NZ and Australia this week.
- Minutes from the last Reserve Bank of Australia meeting are released on Tuesday.
Have a Great Day,