Week Ahead – RBNZ in Focus | Booking Holdings

11 April 2022

Global markets were mixed on Friday, with US Markets (S&P 500 Index -0.3%) ending the day lower as surging treasury yields caused mixed moves, and as investors await first quarter earnings coming around the corner.

The bigger moves have been in fixed interest markets, and the global bond market selloff continued with the US 10-year rate reaching a fresh three-year high of 2.73%.

The US S&P 500 index reported its first weekly loss in four-weeks, down -1.3% for the week, while the Nasdaq’s weekly fall was a chunky -3.9%, with the composition of companies on that index being much more sensitive to higher bond yields.
Tech and growth stocks dragged the market lower Friday, while energy, financials and healthcare reported modest gains to offset losses.

European markets (Stoxx 600 index +1.3%) closed higher, as most sectors traded in the green, led by oil and gas stocks following the U.S. Congress vote to revoke Russia’s trade status and ban oil and gas imports, along with banning all new investment in the country.

BOOKING HOLDINGS (BKNG:NASDAQ)

Booking Holdings shares have been volatile over the last two years, being hit hard by covid-19 pandemic which restricted travel. Optimism around re-opening has seen the stock try to stage a recovery, with the recent sell-off attributed to market jitters regarding hiking interest rates which hit tech stocks hard as well as the war in Ukraine. Booking Holdings managed to deliver a solid result for the 2021 fourth quarter beating market expectations, and most importantly management are upbeat in returning to pre-covid level of profitability soon while setting goals to grow further from there.

We maintain our BUY (High-Risk) rating on Booking Holdings, due to its high margin, and long history of profitably and optimism of a rebound and return to modest growth to being a larger business than it was pre-covid. The business model operates on attractive margins making it highly profitable being attractively priced when compared to Air BnB which is still a much smaller business in regards to revenue and yet to deliver an annual profit, but has larger market cap than Booking due to the market paying a premium for top line growth. Keep in mind Booking has established a strong moat, there is competition risk which could see its growth restricted and for that reason our Buy rating comes with a high-risk caveat, be it from Air BnB, Expedia or any mega-cap tech company for instance Google or Amazon who could easily enter the market, leveraging the traffic from their sites and consumer analytics.

Australia & New Zealand Market Movers

The Australian market was higher on Friday (ASX200 index, +0.5%) taking a positive lead from wall street. 

Most sectors trading higher, lead by materials, while interest rate sensitive tech and real estate stocks were generally down.

An independent expert’s report gave the green light to BHP’s (+1.7%) proposed sale of its energy assets to Woodside Petroleum (-1.5%). GrainCorp jumped +5.8% to all-time highs after saying it expects underlying profit for 2022 financial year to be 2.5 times higher than last year, its second profit upgrade in two months.

The New Zealand market edged lower on Friday (NZX 50 index, -0.1%), with mixed moves across most of the market.

My Food Bag led gains jumped +15% after saying it will report revenue of +194m, for the 2022 financial year – as investors are concerned inflation and omicron would hit the company.

On the other side of the spectrum, E-road slumped  -15% after its founder and chief executive unexpectedly resigned.

3 Things Markets will be Watching this Week

  1. Geopolitical risks remain extremely elevated with the Russia/Ukraine conflict.
  2. Economic data wise, an interest rate call from the ECB is due, trade data in China and CPI infoation prints in the U.S, China and the U.K.
  3. Locally, the RBNZ OCR rate decision is due Wednesday along with employment data in Australia
Global markets were mixed on Friday, with US Markets (S&P 500 Index -0.3%) ending the day lower as surging treasury yields caused mixed moves, and as investors await first quarter earnings coming around the corner.

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