Global markets were mostly higher on Friday (S&P 500 Index +0.3%) albeit on very light volumes, once again led by technology companies while Energy and Financials underperformed.
Apple jumped ahead of the record date of a 4-for-1 stock split while homebuilders soared as data showed sales of previously owned homes rose the most on record in July. We are operating in slightly bizarre times for markets when 100% of the Nasdaq 100 performance can be attributed to just one stock, being Apple.
Tesla is also rallying ahead of its stock split, and is now in the top 10 US stocks by size. The company’s equity value is now amazingly approaching the market cap of Toyota, VW, BMW, Daimler, GM and Ford combined. Clearly the market is valuing Tesla as a tech stock now and not simply a car marker, but the moves are quite mind boggling.
In terms of the week ahead, investors will be looking for guidance from the world’s Central Bankers as they meet (virtually) at the Jackson Hole symposium. The topic this year is “Navigating the Decade Ahead: Implications for Monetary Policy”. Fed Chairman Powell will be addressing the gathering on Tuesday and markets will be looking at his guidance for the future direction of markets.
Locally, it is another big week of earnings ahead. Companies of note reporting include: Fortescue, Chorus, Ansell, Stockland, Meridian, Spark NZ, Ramsay Health Care, Woolworths, Air NZ, Boral, NEXTDC and Port of Tauranga. On balance, earnings across the market have been in-line with analyst expectations, with the exception of the banks.
A2 Milk (:NZX / A2M:ASX)
A2 Milk shares have been on a strong run since the covid-19 pandemic as the business appeared resilient throughout. However, at a heightened valuation it was “priced for perfection” and has slipped despite delivering a solid result for the 2020 financial year. A2 saw revenue ($1.7bn) and net profit after tax ($388.2m) both rise +33% and +32% respectively from last year. A2 provided vague guidance hinting at “strong” revenue and earnings growth will continue over into 2021, but covid-19 did play some part in disrupting consumer patterns and creates some uncertainty. The market may have expected more from the milk marketing company given the recent rally heading into the result.
However, A2 are a well-run business that has executed well, delivering tremendous growth. While there are risks of competition & regulation, we still see the stock as best in class. A2 has plenty of growth ahead supported by their continued investment in marketing and organisational capability – as it looks to expand in China and the US.
We remain BUY rated and see medium-term upside potential given A2’s ability to execute solid double-digit growth while trading at a fairly priced price to earnings multiple of 30x on current year earnings.
Australia & New Zealand Market Movers
The Australian market slipped on Friday (ASX 200 Index -0.1%).
Reporting season continues, with Suncorp jumping +11%, reporting an increase in full-year net profit to $913 million, including profits from the sale of some businesses. However, cash earnings were down by about a third at $749 million, due to reduced profits from its insurance and banking and wealth divisions.
TPG Telecom released a better than expected first half result. Despite the better 1st half performance, management has guided to a more severe 2nd half impact from COVID-19 (loss of roaming revenues and prepaid/postpaid subs).
New Zealand shares rallied on Friday (NZX 50 Index +1.5%) as investors were encouraged by bullish earnings results. Skellerup Holdings led the market after it repeated last year's record result.
a2 Milk has entered into exclusive DD with Mataura Valley Milk, consistent with recent commentary it was seeking access to its own infant formula manufacturing capability and capacity to support its long term growth potential.
Fletcher Building's largest shareholder has been in the press suggesting FBU should bite the bullet and sell its entire NZ$2.8bn-a-year Australian business because it is a big drain on returns and is a ''management distraction''. The board is accused of being reactive rather than proactive and with the company’s share price back to 2003 levels.
Outside of the top-50 index, Metro Performance Glass shares jumped 14% after the company said its Australian business was profitable in the four months through July.
3 Things Markets Will be Watching this Week
- COVID-19 related news-flow remains key, with second wave and lockdown headlines, while US Congress debate what an extension of stimulus will look like.
- Investors will be looking for guidance from the world’s Central Bankers as they meet (virtually) at the Jackson Hole symposium
- Locally, it is another big week of earnings ahead. Companies of note reporting include: Fortescue, Chorus, Ansell, Stockland, Meridian, Spark NZ, Ramsay Health Care, Woolworths, Air NZ, Boral, NEXTDC and Port of Tauranga.
Team
