Week Ahead, Profit-Taking | Infratil Update

13 September 2021

Global markets were mostly lower on Friday with the US market (S&P 500 index,-0.8%) falling for a fifth straight session. US equities declined on the day as investors weighed slightly higher than forecast US producer prices data as well as comments from the Fed’s Loretta Mester that the US Fed should begin tapering asset purchases this year despite the weak August jobs report.

More broadly, we think the last week is just profit-taking – following a strong and unbroken 7-month rally since the start of the year, as investors weigh up concerns regrading “record high” valuations, softening economic growth, and central bank tapering for stimulus. So far, this is nothing to be concerned over and a short term retracement is not to be unexpected in our view.  

In stock news, Apple fell -3.3% after a judge ruled against them in a  dispute against Epic Games, stating the App Store must allow developers to divert their users to different payment platforms. Fellow app store owner Alphabet fell -1.9% while app makers rose. Talks between President Biden and Chinese leader Xi on Thursday night, which supposedly reduced tensions between the two countries, might have contributed to some relief to recently beaten down Chinese exposed shares. 

European Markets fell on Friday (Stoxx 600 index, -0.3%) reversing earlier gains, as traders weighed concerns over rising inflation and subsequent central bank action.

Infratil (IFT:NZX / IFT:ASX)

Shares of Infrastructure investor Infratil were up +1.8% on Friday after announcing plans to invest more than $300m to set up a renewable energy operation in Asia (excluding China).

Gurīn Energy will be based in Singapore and follows the model of IFT's other offshore renewable platforms (Longroad Energy in the US and Galileo Green Energy in Europe).  Adding “Decarbonisation is essential to combat climate change and renewables is one of the single largest investment opportunities in history with over US$4 trillion of investment in wind and solar assets forecast over the next decade.”

IFT shares have gone side-ways this year, and we maintain our BUY rating on IFT and believe there are strong tailwinds and growth potential for many of IFT’s businesses – with Vodafone, Canberra datacentre, Qscan and Pacific Radiology businesses all set to provide positive cashflow and earnings growth.

We remain optimistic on IFT’s growth potential – investing its funds from the Tilt sale (into project such as Gurin Energy), and potentially building a similar business with attractive multiples to add shareholder value. 

Australia & New Zealand Market Movers

The Australian market was up on Friday (ASX 200 index +0.5%), partially recovering from Thursday’s steep fall.

Materials and Energy stocks were up as commodity prices ended their weekly decline. Santos and Oil Search were both higher after announcing a merger to create a “regional champion of scale with a diversified portfolio of long-life and low-cost oil and gas assets.”

Sydney Airport Shares will be on watch today after announcing it has received a revised indicative, conditional and non-binding takeover proposal at $8.75 per share.

The New Zealand market was down on Friday (NZX 50 index -0.3%) as investors anticipate cash rate hikes by the RBNZ.

Property stocks were generally weaker as well as few other defensive names. Sanford led losses down -3.3%, – but is still up +13% since Ngāi Tahu Holdings bought a 19.9% stake. 

Kathmandu was the best performer up +2.8%, as investors buy into beaten down lockdown sensitive stocks, as majority of the country is open (except for Auckland). 

3 Things Markets will be Watching this Week

  1. ​Key events this week include inflation (CPI) prints in the U.S, Eurozone and U.K along with activity data in China including Retail sales and Industrial Production.
  2. ​Australia’s latest employment data and second quarter GDP in NZ are due. Brambles, Telstra, Zip and Pushpay will host Investor Days.
  3. Covid and lockdown updates both sides of the Tasman
Global markets were mostly lower on Friday with the US market (S&P 500 index,-0.8%) falling for a fifth straight session.

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