Weekly, A2 Milk & Netflix – Growth Darlings Dip |MQG|DGL|JPM

19 July 2018

Weekly Report

Here’s your weekly update of news, analysis and research from . The full reports can be read on the
stock pages.

New Stock Reports
A2 MILK (:NZ / A2M:AX) HOLD: Sensible Investment Hits Margins
Shares A2 Milk have dipped after releasing what we saw as a reasonably solid update for
the 2018 financial year. A2 announced unaudited revenue of $922m, which is up +68% from
last year and ahead of guidance announced in May with operating earnings of $277m.
However, this had failed to meet the markets high expectations due to increases in
expenditure to support future growth. A2 shares have now been experiencing what we see
as healthy consolidation over most of this year, after what was an incredible run. Market
expectations appear to be resetting themselves and we remain believers in the medium term
A2 story. We are positive on the A2 story given how it fits with our “dining boom” investment
theme, and A2 management are executing well (particularly relative to peers such as
Bellamy’s). We remain HOLD rated on valuation grounds.

Netflix disappointed investors with its update, although recovered from an initial -15% sell off
to end the day down -5%. While Netflix managed to add 5.2 million subscribers to its service
this missed guidance for 6.2 million. The market is divided as to whether the dip will prove
to be nothing more than a buying opportunity, or whether this is a signal the that the dream
run may be coming to an end. The question is whether Netflix can continue to deliver further
value to investors. We remain positive on Netflix’s ability to grow earnings and deliver on their
guidance, although shareholders may wish to take some profit at this point and we downgrade
our rating to a HOLD. In the context of 130 million subscribers, a 1 million subscriber miss
does not concern us, yet. We are more cautious around signs of increased competition, with
a number of big players such as Disney entering the market.

Macquarie continues to defy the negative sentiment facing the broader Australian financial
sector, with its shares trading close to all-time highs. Macquarie released another record full
year result delivering net profit after tax of A$2,557m for the 2018 financial year, which was

up +15% from last year. In other news, Macquarie are set to offer US$800m (A$1 billion) to
buy a majority stake in US group T5 Data Centres. We are positive on the data sector given
we believe the explosion of data will be a powerful multi-year investment theme, and it is
encouraging to see Macquarie is looking to enter into the space.

Shares in NZ’s largest listed winemaker DGL were up after announcing their 2018 operating
net profit after tax (NPAT) would be $44.9m, a +17% jump from their previous year and well
above their guidance of $40.7m. The result was underpinned by record global case sales for
the year, lower cost of sales per case, higher yielding 2016 and 2017 vintages, and lower
financing costs. DGL expects global case sales to grow 7% compounded over the next three
years, justifying their 18.3x price to earnings multiple, in our view. We remain BUY rated for
DGL given its solid operations and growth guidance, along with being a benefactor of a
weakening NZD.

JPM delivered a solid 2018 second quarter result which beat market expectations and saw
its share price perform better than peers such as Citi group who also released results on the
same day. Looking at some of the detail, second-quarter profit hit a record level of $8.32
billion, exceeding estimates as JP Morgan posted stronger-than-expected trading results. We
maintain our BUY rating on JPM due to their strong track record as a top performer in the US
banking sector. We see medium term tailwinds from rising interest rates and a stronger US

Stock ratings
Given the dynamic nature of share prices ’s rating can become out of sync with the projected total return as the share price moves. The rating
must only be viewed as valid with respect to projected total return at the time of rating or target price changes.
Individual stock ratings are determined by the projected total return on a stock.
Based on a current 12 to 36- month view of total share-holder return (percentage change in share price from current price to projected target price
plus projected dividend yield), we recommend the following:
BUY: Based on a current 12 to 36-month view of total share-holder return, we recommend that investors buy the stock
SELL: Based on a current 12 to 36-month view of total share-holder return, we recommend that investors sell the stock
HOLD: We take a neutral view on the stock 12 to 36-months out and, based on this time horizon, do not recommend either a Buy or Sell
This report may contain views, opinions, conclusions, estimates, recommendations and other information (Information). However, such Information
comprises general securities information only, and has not been prepared taking into account the particular investment objectives, financial situation
and needs of any particular person. Individuals should therefore assess whether it is appropriate in light of individual circumstances, or discuss, with
their financial planner or advisor, the merits of each recommendation for their own specific circumstances.
Australasian Trading Management () has made every effort to ensure the reliability of the views and recommendations expressed in the reports
published on its websites. However, no warranty is made as to the accuracy or reliability of any estimates, opinions, conclusions, recommendations

(which may change without notice) or other information contained in this document. research is based upon information known to us or which
was obtained from sources which we believed to be reliable and accurate at time of publication.
To the maximum extent permitted by law, (but, in respect of our members, subject to the applicable terms and conditions of our engagement with
them), and its employees, agents and authorised representatives exclude all liability for any loss or damage (including indirect, special or
consequential loss or damage) arising from the use of, or reliance on, any information contained in or omitted from this document, whether or not
caused by any negligent act or omission.
This communication is being furnished to you solely for your information and may not be copied or redistributed to any other person. It is provided on
the condition that you keep it confidential and do not copy or circulate it in whole or in part.

weekly 19 July

Do You Want Daily Market Insights?

If you’re interested in staying up-to-date with the latest news and analysis on stocks, be sure to sign up to BlackBull Research.

1 Month Free Trial

Access our expert stock market research Free of charge with no obligation

Free 1 Month Free Trial

Unlock this article & access our expert stock market research

ASX, NZX & USD Stock Buy, Hold, Sell recommendations. Model Portfolios. Daily news and more