Weekly Report
Here’s your weekly update of news, analysis and research. The full reports can be read on the stock pages.
New Stock Reports
TREASURY WINE ESTATES (TWE:AX) BUY: Buying the Dip Again…
TWE reported another solid result as the wine maker and distributer delivered operating
earnings (EBITS) of $530.2m, up +17% from last year and ahead of guidance for +15%
earnings growth – which sent its share price to new record highs. However, soon after its
shares started to decline as it was hit heavily with other growth stocks in the recent sell-off.
The Asia business was also a standout with strong volume and price growth amongst luxury
categories boosting sales and earnings growth by +39% and +37% respectively. We maintain
a positive view towards TWE and our BUY rating on the basis that they continue to benefit
from our dining boom and weakening Aussie dollar investment thematics.
METRO PERFORMANCE GLASS (MPG:NZ / MPP:AX) Buy (High-Risk): Turnaround
Potential
Shares in Metro Performance Glass (MPG have been consolidating over the last few months,
after announcing their 2019 earnings are expected to be on the lower end of previous
guidance – due to a weaker outlook from their Australian business. The Australian business
is struggling due to gaps in organisational capability, and large cost inefficacies from their
new Australian plant. MPG have appointed a new CEO Simon Mander, who will be joining in
January 2019 who has experience in the New Zealand and Australian building products and
manufacturing sectors which appears promising. MPG are shifting their goal from expansion
and diversification to optimisation and enhancement of internal capability. We believe there
is potential for a turnaround, and given new management and an attractive share price, leave
our recommendation unchanged as a high-risk BUY.
Briscoes Group (BGP:NZ) stable for most of the year hovering around $3.50 per share. The
BGP share price was little changed even after releasing a record net profit after tax of $29.34
for the 2018 interim result and increasing the interim dividend by +6.7% to 8 cents per share.
Management outlined that while it was a good result, they flagged consumer confidence,
increased industrial action, record-high fuel costs, increased wage pressure, and a lower NZ
dollar as challenges which they are confident they can overcome and continue to deliver
bottom line growth. However, given the econo
m
ic
ri sks faced from a slowing housing market,
as well as competition risks in the retail sector, we see emerging headwinds. In saying that,
Briscoes is our top retail sector pick, and those who are comfortable with a retail sector
position may still be comfortable investing in Briscoes which also provides investors with a
dividend yield of over 5%.
SELECT HARVESTS (SHV:AX) Buy (High-Risk): Attractively Priced on Promising
Future
Shares of almond producer SHV are back where they started at the start of the year, while
managing to a execute a decent recovery due to improved trading conditions, with increased
almond production, improved almond pricing and favourable currency movements acting in
SHV’s favour. While the drought in Australia has impacted many Australian agriculture stocks
including SHV, the dry conditions are favourable for growing almonds. The main issue of
concern is the doubling in annual water prices, as a result of the water shortage. In terms of
SHV’s 2018 full year result, it was solid as despite challenges in the local food division, the
almond division delivered a solid performance raising net profit after tax up +120% to $20.4m.
Also, expansion of their food division into China appears promising as the partnership with
PepsiCo is being viewed positively. While SHV did have a difficult 2017, with everything
possible going against them – in 2018 things have turned around significantly with business
fundamentals remaining strong, in our view.
JP Morgan (JPM:NYSE) BUY: Money in the Bank
JPM shares were hit hard last week on the back of the major pullback caused by US-China
trade tensions and rising US interest rates. However, JPM made a partial recovery after
releasing a solid third quarter result which beat market expectations on the top and bottom
lines. Looking at some of the detail, revenue grew 5.2% to $27.8 billion and earnings per
share increased 33% to $2.34. We would also note that JP Morgan and Banking stocks
generally benefit from higher rates (all else equal higher rates improve net interest margins
and the banks interest income on loans). Hence, if longer term rates continue to rise, the
Banks are likely to outperform as a sector, in our view.
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
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