USDJPY
All eyes on the BOJ as the dollar-yen sits at ~150.35. Typically this level sees intervention by the BOJ (of course, they could always raise interest rates, but this would mean paying interest on their massive debt — it has ballooned since 2020…any increase in interests rates would be painful). The official word from the BOJ is that they will “try and prevent undue market volatility”. Whether that means intervention it’s difficult to tell — but if the dollar-yen continues to creep up it’s hard to see another solution other than (more) intervention.
Japan Govt gross debt to GDP
NZ/AU
Liking Mainfreight (MFT) at $57.70 a share — trading down ~25% YTD. Best in class co. and has been punished by less-well run peers trading down. Buy. Fwd P/E of 20x; ~25% ROE. We make no bones about our admiration for managing director Don Braid — he’s an excellent manager and knows the power of incentivization. Truck + freight rates continue to remain steady though we expect the next yr to be tough. Good value, has potential to rerate +35% when the market turns.
Speaking of freight > Freightways fell after it told its shareholders at their AGM that the economic environment “seems to be worse than we were expecting”. Understatement of the year? Input costs are a key contributor here to a tougher outlook, as well as substantial CapEx spend on its Big Chill trucks that they acquired from Colin Neal a few yrs ago.
State of booze > in a note to clients Aussie stockbroker Angus Aitken wrote: “My god there is some expensive booze in there … the only thing missing was people actually buying the expensive booze.”
“I have no idea how a business model based on selling $1k buck bottles of Super Tuscans to Senior Counsel was thought up,” he added. We had a chuckle. Owner of Dan Murphy’s Endeavour has a stock price that’s about as exciting as watching grass grow and has been quite poorly run, prompting pub billionaire Bruce Mathieson up his stake and pressure for change. Hard to disagree with Aitken here — Endeavor is in need of a turn-around…we’re staying away from the stk as we think it’s a multi-yr turnaround story at least…
Pilbara Minerals fell -0.5% after its revenue came in -42% lower than in the previous quarter, at $493.1m. The company blamed weaker lithium prices and lower production volumes for the result. The West Australian miner also shelved plans to pay a special dividend or buy back its shares. Prefer Lynas…
Westpac dropped -1.1%, after the big four bank said profit would be clipped by $173m due to significant items such as restructuring costs, customer remediation and litigation in its financial year ended September 30.
US
The US Market (S&P 500 Index, -1.2%) extending its recent decline, given that market valuations have set high expectations for companies, while results have been mixed, some strong results under normal conditions are also being punished.
Amazon (AMZN)
Amazon shares are up after delivering solid earnings, which smashed market expectations. Revenue climbed 13% in the third quarter, a sign that the business is seeing some acceleration after a difficult 2022 that was marred by soaring inflation and rising interest rates.
Amazon Web Services revenue came in at $23.1 billion (+12% yoy) inline with expectations, while Advertising revenue jumped +26% to $12.1bn – well ahead of expectations. Net income more than tripled from last year $9.9 billion, which included a $1.2 billion gain on the company’s investment in electric car company Rivian (at least someone made money out of that thing!)
The only sign of softness (similar to Meta) was guidance for fourth-quarter revenue, Amazon expecting sales to be between $160 billion to $167 billion – while market expected $166.6 billion revenue for the final quarter of the year. Retain buy. Story hasn’t changed. We prefer AMZN and GOOG — don’t like META given its +$3bn cash burn on the “metaverse”.
Briefly noted
Noting Hipgnosis Songs Fund have voted overwhelmingly (+80%) against the continuation of mgmt’s 5 yr investment mandate. They also voted against a deal to sell a $440mn portfolio of music royalties to Blackstone. Hipgnosis in some ways was a “visionary” company — buying song royalties makes sense — think of the amount of times a song goes viral on TikTok or is used in an HBO show — but they bought the rights at too high a multiple in a 0% interest world. Likely outcome is the sale of the whole thing at a better price than what Blackstone offered — could Lucian Grainge of UMG be willing to snap it up? To be clear – our preference for stocks to buy in this space are UMG and WMG (well run, already own a vast catalogue of song rights).
Luxury > Kering disappointed with weak Gucci sales. No surprise. Here in Auckland if you walk past the Gucci store you’ll find that it is amply staffed with one or two punters distractedly walking around. Kering owns a good portfolio though (Balenciaga, YSL, etc) and we think it doesn’t look like bad value at 14x earnings.
Hermès sales rose briskly in the third quarter, beating expectations and outshining rivals, with American sales growing +20% and EU sales growing +18%. Every so often we are at dinner and someone asks us “what is the value in handbags?” Well — here’s the value. Best in class.
US GDP
The US economy grew more than expected in the third quarter, up +4.9% annualised – beating forecasts of +4.3% and the largest increase since December 2021 largely due to frenzy of summer spending. Consumer spending rose +4%, the most since the fourth quarter of 2021 ( and well ahead of +0.8% in the previous quarter Q2 2023), led by consumption of housing and utilities, health care, financial services, and insurance, food services, and accommodations and nondurable goods (led by prescription drugs), recreational goods and vehicles. It could be viewed as one-off and partly attributed to factors like ‘Barbenheimer’ movie blockbusters and concert tours by Taylor Swift and Beyonce.
However, However, weekly jobless claims out Thursday indicated a possible slowdown ahead. Jobless claims for the week ending Oct. 21 came in at 210,000, greater than the Dow Jones consensus estimate of 207,000. So past performance appears strong, but outlook remains cloudy. Looking for that jobless claims to spike…