Global markets were little changed on Friday as investors seemed to shrug off concerns around North Korea. It was a weekend of politics, with the German Election held on Sunday and results are still coming in.
Closer to home, over the weekend the event to watch was the general election in NZ. No government has been formed yet, as the National Party received the majority of votes (10% ahead of its nearest rival the Labour Party) but at 46% of votes cannot govern alone. NZ politics and negotiations will be watched by investors over the next few weeks as a coalition government is formed. This does leave some uncertainty (which markets do not generally respond well to), although we would not expect a large reaction from the weekend’s result either way. As we touched on last week, we do not expect the election result to have a long-lasting impact on markets overall.
Stock in Focus: G8 Education (GEM.AX)
Shares in early childhood education company G8 Education continued their positive run of late with its shares jumping +4.5% on Friday as it announced it will acquire a portfolio of 19 existing early education and childcare centres from a single vendor.
According to the release, the total purchase price for the 19 centres is $27 million and will be funded from existing cash and finance reserves. The centres currently generate earnings before interest and tax of $7.2 million, meaning the acquisition is priced at less than 4x EBIT (operating earnings).
G8 Shares had earlier come under pressure as several market commentators expect that the company is facing a difficult trading environment. We had highlighted that a strategy for G8 could be to perform value adding acquisitions for when the childcare industry becomes more stable, and they look to have made what appears to be a solid acquisition.
We are currently BUY rated on G8 Education.
We recently updated our reports on G8 Education following its last result, and members should look out for another full update to be released in our weekly report.
Australia & New Zealand Market Movers
The Australian share market ended the week higher on Friday (ASX 200 index +0.47%) breaking a three-day losing streak as some buyers returned to the market despite negative overseas leads. The Australian market seems to have lost direction of late, and as mentioned last week is trading close to 7-month lows. In stock news, mining giant Rio Tinto will return proceeds from the recent $US2.7 billion sale of its NSW coal operations to shareholders through a share buyback.
The New Zealand market was a touch higher on Friday (NZX 50 index +0.25%) in light trading ahead of the general election, with Fletcher Building and Trade Me Group rising while A2 Milk dipped. Media reports that Fletcher Building has hired KPMG to audit four construction projects in its building and interiors unit is once again seeing heightened speculation in the market around the potential for further negative news out of the company.
3 Things Markets Will be Watching this Week
1. The Reserve Bank of New Zealand makes an interest rate decision on Thursday.
2. The Geopolitical situation as tensions between the US and North Korea remain very high.
3. NZ politics and negotiations as a coalition government is formed, as well as the outcome from the German election.
Have a Great Day,
Team