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: Outlook Remains Fruitful
TWE shares have slipped after delivering an impressive 2019 interim result. The negative
news that followed included a broker report stating that despite strong growth the share price
may be overvalued, with the other news being the loss of their managing director of Asia and
global travel retail to competitor Accolade Wines. Back to the result, TWE managed to lift net
sales revenue by +16% to $1507.7m, driven by solid growth from Asia and America. Earnings
(EBIT) were $338.3m, on the higher end of guidance and up +19% from last year – with
growth across all regions. TWE also reiterated +25% earnings (EBIT) growth for the 2019 full
year, with solid double-digit earnings growth expected to continue through into the 2020
financial year. We continue to believe TWE will benefit from demand as the Chinese
consumer pallet evolves, as part of our dining boom investment theme.
TOURISM HOLDINGS (THL:NZ) BUY: Medium-Term Value
THL shares jumped after its joint venture entity TH2 announced that it has merged its
CamperMate and RoadTrippers businesses with Australia’s GoSeeAustralia and Outdoria, to
create a single trans-Tasman entity. The transaction will bring all four businesses into one
entity to become Australasia’s largest dedicated marketplace for outdoor tourism, positioned
to offer a spectrum of products to satisfy all needs in the camping and outdoor tourism area.
Despite a recent Stats NZ update saying visitor arrivals shrank in the month of February from
a year earlier – we believe it may be just a speed bump and continue to maintain a medium-
term positive view on tourism industry growth. We maintain our BUY rating, as a tourism play
as well as paying an attractive dividend.
CROWN RESORTS (CWN:AX) BUY: Another Takeover Bid?
CWN jumped after higher last week after receiving a conditional takeover offer of $14.75 per
share from Las Vegas Giant Wynn Resorts limited. Soon after, Wynn said it had terminated
all discussions concerning the transaction and accordingly Crown shares gave back some of
the jump. However, Crown shares did not fall all the way down to the “pre-takeover” price of
$11.72, as the market believes Wynn may return with another offer, or another party may also make an offer for Crown. The share price reflects uncertainty around their VIP business and Melbourne Hotel/Apartment project. Regardless of a takeover we continue to remain BUY rated at Crowns current share price, and believe it offers an attractive risk reward proposition for medium-term investors.
WOODSIDE PETROLEUM (WPL:AX) BUY: Dividend Distributor
Shares in oil & gas producer WPL jumped after delivering a solid result for the 2019 full year,
and in turn it rewarded its shareholders with a US$1.44 per share dividend – a +47% jump
from the previous year. 2018 was another impressive year for WPL, as it lifted revenue by
+32% from last year due higher realised price for its oil and LNG, as well as an +8% increase
in production due to the completion of major projects. Accordingly, net profit after tax
increased by +28% from last year to $1,364m, due to higher revenue and lower cost of
production. WPL remains our preferred energy sector pick, with most of its exposure in LNG
which is expected to see increased demand that will create a supply shortfall in 2020. WPL
offers a healthy 5.7% dividend yield and growth is being driven by increased production and
as energy prices are holding at relatively favourable levels.
JP Morgan Chase (JPM:NYSE) HOLD:
JPM shares jumped on its 2019 first quarter result, beating expectations both on the top and
bottom line due to strong across each of their major business units. JPM reported first quarter
revenue of $29.1 billion, which was up +4.4% on the same corresponding period last year
and more importantly beat market expectations by $1.5 billion, due to higher net interest
revenue which benefited from higher interest rates and balance sheet growth. Net income for
the quarter was $9.179 billion, up +5% from the same corresponding quarter last year.
Earnings per share were $2.65, beating market expectations by 30 cents per share, and up
+12% from last year. Previously we had anticipated interest rates in the US would steadily
rise. However, the US Federal Reserve announced that they will likely keep interest rates flat
for 2019 due to slower economic growth. This will limit JPM’s net interest revenue growth
which has been a strong contributor to its growth in the recent past and strong tailwind for its
earnings – and was a major catalyst for our BUY recommendation.
While JPM is still our preferred US Banking exposure, we downgrade our rating to a HOLD
given the lack of upside potential in a flat interest rate environment and potentially slowing
economy.
