Global markets were mostly higher on Friday, as shares on Wall Street ended the week on a positive note, with optimistic comments from both Xi Jinping and Donald Trump on efforts to bridge their trade differences. Upbeat US domestic economic data also helped to ease investor worries.
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Stock in Focus: G8 Education (GEM:ASX)
G8 Education (GEM) shares slumped lower after downgrading earnings guidance for the 2019 financial year at their AGM.
Despite benefiting from the new child care subsidy, GEM anticipate occupancy growth to only increase by ~1% from last year, slightly lower than previous estimates as supply of new child centres entering into the market continues to fall – however not decline as fast as anticipated, remaining at moderate levels more or less in line with demand. This is not allowing excess capacity to be as easily filled up.
GEM also announced the sale of 25 Western Australian childcare centres as part of their review to optimise their portfolio. GEM expects 2019 full year underlying earnings (EBIT) to be between $131m and $134m for the year, down from its previous upbeat guidance of $140m to $145m. As it is adversely impacted by lower revenue from lower than expected occupancy and higher staff costs, which was to account for the previously upbeat uplift in occupancy rates. Despite heading towards the right direction, the road to recovery appears to be slower than anticipated as GEM is still very sensitive to any uplift in supply.
We remain comfortable with our recommendation and a recovery although there might be some short-term pain and volatility on the way. The recent dip once again implies GEM is trading on a healthy mid- 6% dividend yield, which appears appealing in a low-interest rate environment & should help support the share price.
We currently have a BUY (High-Risk) rating on G8.
Australia & New Zealand Market Movers
The Australian market made gains on Friday (ASX 200 index +0.55%), snapping a losing streak, despite Westpac dragging the financial sector down.The ASX finished the week down -1.2%, although it’s still up for the month.Tech stocks were the biggest gainers, with Xero shares notching a fresh all-time high. Mayne Pharma was the biggest ASX 200 loser, falling -11% after the drugs manufacturer said profit for the first four months of the financial year had slipped by a third.
The New Zealand market was slightly lower on Friday (NZX 50 index -0.11%), led by a fall in Gentrack, after the utilities software developer downgraded its earnings and gave a flat outlook for 2020. Gentrack hit its lowest levels in more than two years, after it said operating earnings were below its previous guidance range of $25-26m and said the outlook for 2020 was also flat. This is the 3rd downgrade from Gentrack in a row.
Outside the benchmark index, Eroad narrowed its first-half loss on rising revenue, and ticked off a significant milestone in the period by selling 100,000 contracted units.
3 Things Markets Will be Watching this Week
- Trade deal prospects between the US & China remain at the forefront of investor attention.
- RBA governor Philip Lowe makes a speech on Tuesday.
- The RBNZ releases its financial stability report on Wednesday.
Have a Great Day,